July 31, 2001 2:20 PM PDT

AltaVista: In search of a turning point

AltaVista's search goes on.

At a time when upstart companies such as Google and GoTo.com have won the search spotlight, the Web search pioneer continues to grope its way through the dark night of the Internet economy.

After rounds of layoffs, the departure of its chief executive, the cancellation of its public offering, and investor repulsion of all things dot-com, AltaVista is looking for a way out of its difficulties--most recently by returning to its search roots and adding a new focus on corporate customers. But the company has had to abandon some ambitious projects along the way.

Most notably, AltaVista earlier this year quietly discontinued Raging Search, a no-frills search engine modeled after Google, as part of a refocusing effort. Raging Search was folded into the text version of its existing AltaVista.com search engine to increase its overall size and indexing capability.

"In some ways, it became redundant to have both," said David Emanuel, an AltaVista spokesman.

The shuttering of Raging Search raises more questions about AltaVista's identity. The company has shifted strategies numerous times in the past couple of years to maneuver with the rapidly changing industry. As a consequence, AltaVista remained one step behind and now faces uncertainty as a company focused on search technology for corporations.

Rivals such as Google have stepped up to challenge AltaVista's position as the search technology leader, innovating new ways to find relevant search results that cut through the growing clutter of the Web. Facing declining revenues, AltaVista has also begun to experiment with aggressive advertising strategies pioneered by rival GoTo.com, drawing charges from consumer groups that its search results are now up for sale to the highest bidder.

"If they continued to stay very focused on search, they would've tapped into a great swelling of interest in it," said Danny Sullivan, editor of SearchEngineWatch.com. "What has happened is that all of these search engines went down the portal route and almost neglected the opportunity that search was a very good business."

According to the last financial report by parent company CMGI, the "search and portals" division of the company, of which the majority comprises AltaVista's operations, generated $37 million in revenue with an operating loss of $72.7 million. CMGI estimates that revenue for the quarter ending July 31 will fall to between $28 million and $30 million.

That's down from $55.1 million in revenue at the end of January and $63 million in April of 2000 when the business was still riding the dot-com wave.

Meanwhile, traffic to the site has also declined, according to Jupiter Media Metrix data. In January, AltaVista had 10.6 million visitors, but that number fell to 7.8 million in June. Google, on the other hand, had 8.9 million visitors in January and 13.4 million in June.

AltaVista's new corporate focus has brought some results. Last month, the company signed a deal to provide search technology for some of data-storage company EMC's products. The company in May also signed deals with The New York Times and Ticketmaster to provide search technology for their sites.

But industry analysts are skeptical that this newfound approach will turn the company around significantly.

"AltaVista's challenge in recurring history is its changing of strategy," said David Card, an analyst at Jupiter. "They just never settled on a business model and never executed on the ones they settled on."

All search, all the time
The February shuttering of Raging Search, which was designed with the sparse layout and fast search results of Google in mind, marked yet another end of a series of new beginnings. AltaVista launched the service in May 2000 as a step away from an expensive and unsuccessful campaign to recast itself as a Web portal to challenge Yahoo.

Now the company is once again scaling back its ambitions, promoting a consumer search site at AltaVista.com and licensing out its search technology to other companies.

Big corporations such as Siemens, which has a deal with AltaVista, can use the technology to allow internal searching of company information, documents or e-mail. The consumer business relies primarily on advertising, including selling sponsored areas on its search results to outside companies.

For example, if someone types "New York Yankees" as a search item, the first result is listed as a "featured site," which AltaVista sells directly to a third party. The next two "partner listings" are generated from an agreement with GoTo.com, which itself sells placement to third parties. The remaining links are generated by AltaVista's search technology.

Web researcher Jupiter in a report Monday singled out paid search placement as one of the few bright spots in the ravaged online advertising market.

For example, GoTo.com's revenues grew by nearly 30 percent between the fourth quarter of 2000 and the first quarter of 2001 at a time when other ad-supported Internet companies saw double-digit declines.

But the company's success has also heightened concerns that its search results are biased. GoTo bases its rankings not on independent measures of relevance but on advertisers who pay for top billing. While GoTo makes its commercial relationships clear on its own Web site, the paid listings are not always clearly disclosed by its growing list of distribution partners, which include companies such as AltaVista, AOL Time Warner's America Online and News.com publisher CNET Networks.

Paid search placement has drawn criticism from consumer groups over alleged deception.

Commercial Alert, a Portland, Oregon-based group founded by consumer activist Ralph Nader, told the Federal Trade Commission in a recent complaint that search engine results sometimes "look like information from an objective database selected by an objective algorithm. But really they are paid ads in disguise."

Named in the complaint were AltaVista, AOL Time Warner, Direct Hit Technologies, iWon, LookSmart, Microsoft and Terra Lycos.

AltaVista's Emanuel countered that the company has received no direct complaints from its customers over its paid search results, adding that the paid results are clearly labeled. A link from the sponsored search results lists the source of partner sites such as GoTo.com, he said.

"We maintain a high standard of integrity and relevance with our search results," he said. "The Web community is usually very vociferous when it comes to voicing complaints, and that has not been an issue for us. We think that's very telling."

A history of false hopes
Regardless of how the charges play out, the criticism underscores the long journey AltaVista has traveled from its roots as a search technology innovator that was once held up as the gold standard by purists.

The company was originally created by engineers at Digital Equipment, which was acquired by Compaq Computer. AltaVista was created in 1995 as part of a showcase of Digital's computer hardware. Once available on the nascent World Wide Web, AltaVista quickly became a favorite among early Internet adopters as a fast, comprehensive way to find Web site information.

In 1998, Compaq acquired Digital and then decided to spin off AltaVista as a way to tap the Internet stock market that was heated up. While revamping AltaVista, Compaq decided to sell the company to Internet investment company CMGI.

CMGI viewed AltaVista as an audience driver for its many Net holdings and investments. CMGI poured more than $100 million into the company and relaunched it as a Web portal that would boldly distinguish itself from others in an already crowded and cutthroat market.

Then, in 2000, fate dealt AltaVista another blow. Just a week before going public, the Internet bubble sprang its first leak as tech stocks plummeted down for the count. AltaVista eventually scrapped plans to go public and then went through rounds of layoffs and an overall restructuring of the business.

During this period of confusion, one company emerged to overtake AltaVista in its own race.

In 1998, two Stanford University computer science graduate students Larry Page and Sergey Brinn launched Google, a Web search engine that uses "link analysis" to provide query results. The technology ranks Web pages depending on how often they are cited and how many other sites are linked to it. The ranking system then allows it to present more relevant results, the company claims.

Google has surged in popularity and accolades. Consumers and techies alike have sung Google's praises for its speed and sparse design. Other Web portals such as Yahoo and Netscape have incorporated Google into their own search engines.

For his part, Emanuel says Google learned its minimalist tricks from AltaVista, which he says has long promoted its search tool in a spare yellow box. In pulling back from its broader portal plans earlier this year, he contends, the company was merely returning to its core competence.

"This is a strategy we can play at and win," he said.

 

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