AltaVista To Go Public, Partner With Microsoft

Compaq acquired the AltaVista search service when it purchased Digital Equipment last year, and AltaVista's future has been in limbo since then. That came to an end last week, with the announcement that AltaVista has been spun off into the AltaVista Company, a wholly-owned subsidiary of Compaq.

A primary reason behind the move is to tap into the value that AltaVista can command as a search-and-navigation portal. The multibillion dollar deals recently announced for Netscape and Excite only underscore the value Compaq hopes to gain by establishing AltaVista as an Internet media company independent of Compaq's hardware operations.

"By creating a separate, publicly traded company, we will unlock AltaVista's tremendous value for Compaq's shareholders," said Eckhard Pfeiffer, Compaq's President and CEO, during last week's press conference.

There are no intentions for AltaVista to abandon search. In fact, many of the search improvements the service has introduced recently were made in anticipation of the spin-off, it was said. But AltaVista also plans to integrate online shopping functionality heavily into the service, leveraging Compaq's recent purchase of Shopping.com.

"We intend to transform AltaVista into the leading destination site for search and e-commerce on the Internet," Pfeiffer said.

More portal features will be coming, thanks to a new partnership with Microsoft. AltaVista will transition its free email service from being powered by iName to using Microsoft's Hotmail. AltaVista will also tap into Microsoft's instant messaging service, when that product is ready. The two companies also have pledged to work together on unspecified community offerings in the future.

In return for the AltaVista partnership, Microsoft has agreed to dump Inktomi as the service powering its MSN Search service. It was probably the most stunning announcement emerging from the press conference, in that Microsoft was abandoning a company it touted as having the best search technology in order to promote its business interests.

"We believe that Inktomi has developed the most advanced search technology available and it makes sense for Microsoft to provide these capabilities to consumers. Incorporating the Inktomi technology as a core service of Microsoft's online properties helps us give users the ability to easily and quickly find just what they're looking for on the Internet - part of our overall goal to make MSN the place to get the most out of each Internet experience," said MSN Vice President Laura Jennings, when the original Inktomi announcement was made in October 1997.

So if Inktomi was the best, why dump them only a few months after going live with the Inktomi-powered MSN Search service? Microsoft was at pains to explain that Inktomi had done nothing wrong, nor to even suggest that Inktomi's search product had diminished in any way. Instead, AltaVista simply offered Microsoft a better business opportunity.

"The change to AltaVista is a better business deal for MSN. The change is no reflection on our satisfaction with Inktomi. We had an opportunity to form a deeper strategic relationship with AltaVista and Compaq. That is the primary motivation for the change," said Marty Taucher, MSN's director of network communications.

In Microsoft's defense, it could hardly have found a better service to swap for Inktomi than AltaVista. They both offer large indexes of the web, with AltaVista even claiming to be even slightly bigger than Inktomi. They also both offer a wide range of advanced searching capabilities. So it's not like Microsoft is ripping out a V-8 engine from under the hood of MSN Search and replacing it with a lawnmower motor. These are indeed comparable services, and most users probably won't notice the changeover.

"You need to look at how we incorporated the Inktomi searches into our MSN Web Search product. We use these search engines as a back end for our best of web extensive search feature," Taucher said. "The user today doesn't really know that this is an Inktomi search."

Indeed, most users probably don't. And that's the most disturbing aspect of the announcement. There has been plenty of talk over the past two years about search as a commodity. The idea is that all services are more or less equal, so those looking for a search product can go for whatever presents the best deal. Microsoft's dropping of Inktomi is the most dramatic illustration yet that this concept is true, at least from a site owner's perspective. It makes it more likely that a trend will emerge where what benefits the site will win out over what benefits the user.

Again, to defend Microsoft, AltaVista is a good swap for Inktomi. You can fault Microsoft for putting a business opportunity first, but it's harder to argue that its users are losing because of this. But that may not be the case in the future with Microsoft, or with other search deals.

As for Microsoft, it gains in the deal by advancing its Hotmail and other MSN portal applications, with a heavy stress on the word applications. Don't think of the deal as Microsoft repackaging MSN content for AltaVista, for that's incorrect. Instead, Microsoft is licensing web applications -- web software -- to AltaVista.

The distinction is crucial, because Microsoft knows software much better than it knows media. We've gotten used to Microsoft dominating software categories such as word processors and spreadsheets. But Microsoft does not enjoy the ubiquity on the web that is has on personal computers. Pick any topical site that Microsoft produces, and you'll find it faces strong competition -- and there are plenty of areas where Microsoft doesn't have properties at all.

But the rollout of Hotmail to AltaVista is perhaps a harbinger of Microsoft applying its strength, software, into winning on the Internet. After all, Hotmail is simply web-based software. Instant messaging is the same. Microsoft looks to be building a suite of online software applications that it can license out to thousands of users at a time, through web portals. Expect more deal like AltaVista's to come.

"We are talking to a wide range of OEMs, ISPs and web sites about working with us to license these platforms. We are doing this today with our travel platform. American Express and a couple of airlines are using essentially the same back end that we have with Expedia. You'll see us do more deals like this in the future," said Microsoft's Taucher.

Now for some specifics on the change at MSN. There is no timetable on when the MSN Search will begin using AltaVista's results, but Inktomi will probably continue to power the service for the next five or six months, said Bill Bliss, general manager of MSN Search.

MSN Search will only be taking web results from AltaVista, not AltaVista directory results that come from LookSmart, the RealNames links or the Ask AltaVista information provided by Ask Jeeves. MSN does plan to enhance the AltaVista web results in the same manner it had intended to reshape Inktomi results.

"We've got some fairly firm plans that we are not prepared to talk about for MSN search, Bliss said. "This arrangement doesn't affect that."

The deal with AltaVista only affects the MSN Search service, not with the entire MSN site. That means those entering through the MSN front page will continue to be offered a choice of several search services to chose from, with the top line up remaining AltaVista, Infoseek, Lycos, Snap and MSN Search itself.

The deal does not prevent Inktomi from being a search partner elsewhere within the MSN network. Inktomi could turn up as providing specialty search features, such as the custom crawling it does for GeoCities. An incentive for this exists in that there remains contracts between Inktomi and Microsoft. Neither company will release more details about this, but both expressed an interest in continuing to work together.

Inktomi might also provide some of its caching and web shopping technologies to Microsoft, which are its other core products besides search. Having multiple products is why Inktomi stresses that while losing the MSN search deal was a blow, it wasn't a knock-out punch.

"Is it a loss that was a hard one for us and that we were upset about? Yes. Was it a material part of our operation? No. We are pretty well diversified," said Inktomi marketing director Kevin Brown.

Back at AltaVista, there are no immediate timetables as to when Hotmail will take over from iName, or when personalized and community portal options will begin appearing. A personalized My AltaVista service already exists, having been offered to those using Compaq Presarios since January 9, as an option linked to their keyboards. But the general public has to wait longer, in part because AltaVista wants the service to be perfected before a general release.

Do expect to see AltaVista launching a US $60 million dollar brand building campaign shortly. It will be interesting to see how much this may increase traffic. Since its launch, AltaVista has enjoyed significant grassroots traffic. Only in the past year has it spent significantly on advertising itself, in particular at the Netscape Net Search page. That boosted traffic even more, and now it has a war chest from Compaq to use in stepping up its efforts.

AltaVista president and CEO Rod Schrock, formerly senior vice president of Compaq's Consumer Product Group, said the company has plenty of funds to carry it through this year, and an IPO is expected before the year's end. He added that AltaVista was managed as breakeven until the third quarter of last year, and that he expects to run at a loss for the next two years as the company develops.

"We will be significantly investing in growth and brand development," Schrock said. "I expect a negative position for the next two years, then we'll emerge as one of the highest revenue companies on the Internet in a profitable position."

One notable moment during the press conference came when Schrock demonstrated the still relatively new AltaVista Photo Finder service.

"Where can I find a picture of a giraffe," Schrock asked as an example. He then showed how using Photo Finder, "You can quickly get to that web site, download that image and include it in the book report."

It sounds great, and it is for web searchers. But I continue to hear from artists who are upset with the Photo Finder service, feeling AltaVista is using their images without permission and profiting from them. Schrock's presentation highlights the type of concerns they have. He made no mention of checking to see if the image was protected by copyright restrictions. Instead, Photo Finder was presented as if it were a source of free photos to use as desired.

AltaVista has changed Photo Finder so that it presents Corbis images first, which can be used freely for non-commercial, personal purposes. In fact, in Schrock's example, it was images from the Corbis catalog that were displayed -- although he clearly assumed that these were drawn from across the web.

Despite the change, non-Corbis images continue to be listed. They either appear after relevant Corbis images have been displayed, or they appear if there are no Corbis images that match the search query.

Artist Les Kelly is one of those that complained to AltaVista in writing about the indexing of images from his site, and he still plans to pursue damages. He has sent a similar complaint to Lycos and most recently, to the ArribaVista image search service. ArribaVista has since removed images taken directly from Kelly's site. AltaVista has also removed Kelly's images, Kelly has said. But Kelly refuses to implement a robots.txt restriction until reaching a settlement with AltaVista, so those images could reappear.

AltaVista didn't get back to me with a response on whether it was concerned about complaints by Kelly and others. Apparently, it is not. When I had talked about the issue with Greg Memo, AltaVista's new vice president in charge of business and technology strategy, he said only that he wasn't personally aware of Kelly's complaint. Kelly has reported to me previously that AltaVista tells him it considers the issue to be dead.

Compaq Press Conference
http://www.compaq.com/newsroom/presspaq/012699/

View the event for yourself online.

AltaVista aims to be among top 3 on Web in revenues
Reuters, Jan. 26, 1999
http://biz.yahoo.com/rf/990126/31.html

Just a few more details on AltaVista's IPO plans and its upcoming brand development campaign.

Compaq Goes Shopping.com
PC World Today, Jan. 12, 1999
http://www.pcworld.com/pcwtoday/article/0,1510,9309,00.html

Details on the Shopping.com purchase, a stock swap valued at $220 million.

Microsoft wants piece of portal pie
News.com, Jan. 26, 1999
http://news.com/News/Item/0,4,31154,00.html

Details on MSN's first steps towards licensing branded versions of portal applications to those who provide access through hardware or dial-up.

Inktomi sees no impact in Microsoft exit
Reuters, Jan. 26, 1999
http://biz.yahoo.com/rf/990126/bmv.html

The MSN deal represented only 5 percent of Inktomi's projected 1999 revenues, according to one analyst. Article details why the company isn't worried, from a fiscal standpoint.

Multimedia Search Complaints
http://searchenginewatch.com/resources/imagecomplaints.html

A round-up of articles and resources relating to complaints about image indexing.

AltaVista Debuts Search Features
The Search Engine Report, Nov. 4, 1998
http://searchenginewatch.com/sereport/9811-altavista.html

In case you missed it, here's a rundown on the new search features that were recently added to AltaVista.