October 13, 1998 2:55 PM PDT

Compaq banks on AltaVista

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When Compaq completed its buyout of Digital Equipment last June, industry watchers wondered aloud what a PC maker would do with the AltaVista portal it had inherited in the deal, fueling speculation that the Net directory would be sold.

But these days, it appears Compaq is far from dumping AltaVista. In fact, the site has emerged as a cornerstone to Compaq's Internet efforts, another sign of convergence in the tech industry. Companies now are shaping their strategies to provide a complete package for end users to connect to the Net, including user interface.

Compaq, for example, today announced improved searching capabilities and a new Family Filter to screen questionable content on the Net. The new AltaVista also is offering, together with Virage, a library of 10 million digital photos called AV Photo Finder, and the company is teaming with Ask Jeeves to offer a natural-language question-and-answer search function.

Those additions build on Compaq's previous efforts to prop up the site. In August, for example, Compaq reportedly spent $3.3 million to buy the AltaVista domain name, after some legal wrangling over trademark issues surrounding the AltaVista name.

In June, the computer maker announced a number of Internet-related partnerships outside its AltaVista efforts, such as an arrangement with GTE to offer a cobranded service for dial-up Internet access. Compaq also invested $212.5 million for a 10 percent stake in Road Runner, a high-speed Internet access via cable provider, and announced plans to ship cable-ready PCs.

"They could have gotten a lot of money by spinning [AltaVista] off," said Bill Milton, an analyst with Brown Brothers Harriman. "There's no way they're going to sell it now."

Kevin Hause, an analyst with International Data Corporation, said he attended a conference in which Compaq executives indicated that AltaVista would be getting a face-lift in the near future and would play a significant role in the company's consumer Internet efforts.

That is what's happening now.

Kurt Losert, vice president of Compaq's Internet services and acting general manager for the AltaVista site, said the company has a two-step goal for the search engine.

"Overall, our strategy is to take a leadership position in search and navigation. That's step one," said Losert. "Step two is to leverage our strong core foundation into other content and services areas."

Although such efforts make it sound as though Compaq is toying with a portal plan, Losert said the computer maker will consider ways to differentiate itself from others in the portal space.

AltaVista's track record, however, has not been impressive.

In May, Yahoo ended its two-year agreement with AltaVista to provide the back-end search technology for Yahoo's popular Net directory. Yahoo instead signed a deal with Inktomi for behind-the-scenes search technology.

AltaVista has fallen by the wayside as home and business users have been wooed by the likes of portal leaders Yahoo, Excite, and Lycos, which have attracted the majority of Web users with community-oriented features in addition to search.

"It never was a profit-making venture under Digital, so I haven't paid much attention," ABN AMRO's David Wu said in summing up AltaVista's history. "No money, no interest."

Meanwhile, Compaq's competitors have their own Internet plans.

Last month, for example, Dell Computer teamed up with AltaVista rival Excite, AT&T WorldNet, and SBC Communications to make Internet access easier on Dell's Dimension line of PCs.

Other PC makers also offer ISP access as part of their standard software packages.

"Gateway really pushed the ball forward. Now everyone is bundling an Internet service with their PCs," said Jimmy Johnson, a computer analyst at AG Edwards. "It gives them advertising and it gives them a good revenue stream. The OEMs [original equipment manufacturers] aren't giving this service away--they're getting a cut of everything."

Although most analysts are not sure exactly what a hardware company such as Compaq plans to do with AltaVista in the long term, they say the company is committed to the Web.

Losert, for his part, is confident that Compaq's Internet operations will contribute to the company's bottom line.

AltaVista, which operates as its own division within Compaq's consumer group, is aiming to contribute 20 percent to 30 percent of that group's profitability in the next several years, Losert said.

He added that Compaq had realized the value of AltaVista prior to its announcement of plans to acquire Digital, and had been in talks about forming a partnership with the site.

"AltaVista is one of many of our key Internet efforts...and is helping to drive our strategy from an end-user perspective," Losert said.

 

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