CMGI invests in AltaVista

Consumers will be the first to see changes at as CMGI Inc. takes over a majority stake in AltaVista Co.’s popular Internet site and search engine from Compaq Computer Corp., according to company officials.

The first step will be to integrate some of CMGI’s various consumer-oriented Internet e-commerce holdings into the AltaVista home site, said CMGI chief David Wetherell. CMGI holdings that are aimed at business-to-business Internet buying and selling will be integrated into AltaVista after the consumer links are launched.

CMGI’s varied e-commerce holdings in specific markets like home furnishings, car parts and financial services will soon be seen at AltaVista, an Internet portal and search site.

AltaVista under CMGI’s leadership will become a “mega portal,” Wetherell said. AltaVista will offer more links, emphasize e-commerce and shopping by offering a range of products, and also incorporate technology that can target users the first time they use the site for shopping, sending them to preferred products and goods. It will also be the first site to provide direction the first time a user visits the site, Wetherell said.

AltaVista will be the exclusive search engine on Compaq consumer Presario PCs in a three-year deal that can be extended. Users of future Presarios will find that pre-loaded browsers will come with buttons that lead directly to AltaVista and they also will find links to the site from the Internet home page when they first log on with their new machines.

Compaq becomes CMGI’s largest outside shareholder as part of the plan. CMGI, based in Andover, Mass., will collaborate with Compaq’s research labs and business units on new Internet technologies that also are expected to boost AltaVista.

Under terms of the deal, CMGI will have an 83 per cent equity stake in AltaVista. Compaq will keep a 17 per cent stake in the AltaVista business and have a board seat. Compaq will receive 19 million CMGI common shares and CMGI preferred shares equal to 1.8 million common shares for a combined fully diluted equity stake of 16.4 per cent in CMGI. The complex financial arrangement also includes a provision under which CMGI will provide a US$220 million three-year note to Compaq, boosting value of CMGI’s stake in AltaVista to $2.3 billion.

A Compaq spokesman earlier in the day downplayed the financial aspects of the arrangement, focusing instead on collaboration and partnership. Ben Rosen, Compaq chairman and acting chief executive officer, said during the afternoon press conference that there was one thing he wanted to make clear: “We did not sell AltaVista.”

Compaq acquired AltaVista last year when it bought Digital Equipment Corp. It spun off the AltaVista site as a separate subsidiary in January of this year, announcing plans to take the company public. But rumours that Compaq would sell AltaVista began to spring up soon after the Digital merger. Analysts said last week that Compaq’s negotiations with CMGI were the result of the Houston-based computer maker’s financial woes.

While some analysts and industry observers have wondered when Compaq was going to renew its focus on its core hardware business, Rosen said that the announcement should signal that the Houston-based PC maker is serious about developing its Internet strategy. While AltaVista could be a cornerstone of that strategy, it has at times been lost in the Compaq-Digital merger shuffle. The pairing with CMGI could change that.

“We’ve seen that it hasn’t been as heavily promoted as it could have been,” analyst Jill Frankle of the Framingham, Mass.-based International Data Corp. (IDC) said of AltaVista, adding that it is “probably one of the best search engines out on the Web.”

Although owning AltaVista was a good strategy, the company tended to languish because it was not a core business for Compaq. At the same time, Yahoo Inc., Excite Inc. and other Internet-based companies turned portals into a monster market, expanding to offer a range of services including free e-mail and chat. Despite that AltaVista has seemed like less of a presence, it is among the top 10 U.S. Internet sites and in the top five internationally, Frankle noted.

That makes it a good fit with CMGI, she said. The company’s majority stake in a plethora of Internet-based subsidiaries, with a strong e-commerce portfolio, also includes Lycos Inc., a potential competitor of AltaVista.

While both Lycos and AltaVista boast search engines and links to other Internet sites, Frankle said that there might not be all that much overlap among users of the two. AltaVista claims it attracts the top 30 per cent of Web traffic in terms of demographics and cyberspace sophistication while Lycos appeals to more of a mass-market audience, she said.

Although he tended to sidestep questions about the effect that AltaVista’s entrance into the CMGI stable might have on Lycos, Wetherell also said that he doesn’t believe the two will directly compete.

Relations between the two have been strained. Wetherell had approved a proposed merger between Lycos and USA Networks, but then backed down when Lycos stock price tumbled. To further convey his unhappiness over the proposed deal, he quit the Lycos board and was said to be searching for other possible buyers for Lycos.