May 4, 1998 5:30 PM PDT

Excite to power Netscape search

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Netscape Communications today announced that it chose Excite as the much-anticipated partner for its Netscape-branded search engine.

Shares in both companies rose on the news in after-hours trading. Netscape climbed to 31.75, up from a closing price of 29.56. Excite was up 3.56, to 76.38.

The two-year partnership with Excite, which Netscape estimates will bring it as much as $100 million, comes as Netscape continues to parlay its leadership in Web browser market share into a revenue-generating point of entry, or "portal," Web site. Last month, the company announced a 60-day campaign to build out its Netcenter property as a full-scale portal to compete with established sites such as Yahoo and Excite.

The Netscape-branded search engine, powered by Excite, will launch by the end of next month. The companies also will collaborate on cobranded channels, and will focus on recirculating search traffic back to Netcenter information and services.

Excite will pay Netscape an up-front sum of $70 million in exchange for a guaranteed quantity of traffic that Netscape expects will earn Excite its money back. Netscape also will gain what it described as a "single-digit" equity stake in Excite. (See related story)

Excite will sell advertising on the cobranded channels and on both Excite and Netscape branded search. On top of the $70 million payment, Excite will return to Netscape a portion of those revenues.

Netscape expects the $70 million to represent between 70 percent and 75 percent of the total value of the deal to Netscape over the next two years.

Netscape currently maintains agreements with nine search and directory partners on its search page. Because that page is prominently linked from Netscape's Navigator browser, and because Netscape's Netcenter remains the default home page for about half of Navigator's users, Netscape search is extremely valuable Net real estate. Netscape's four premier search partners--Yahoo, Excite, Lycos, and Infoseek--pay millions of dollars every year to maintain their spot as a rotating default search engine at Netscape search.

Those deals, set to expire last week, were extended for 30 to 60 days, in part because of uncertainty over the Netscape-branded search partnership.

Under the deal announced today, the Netscape-branded engine will receive in the first year at least 25 percent of the exposure on the rotating search system. Excite will receive another 25 percent, with the remaining 50 percent divided among Netscape's other search partners.

In the second year, Netscape's share will double to at least 50 percent exposure, while Excite will remain at 25 percent, and the remaining search providers drop to 25 percent divided among them.

The selection of Excite came as a surprise to some analysts and observers, who had viewed Infoseek as the most likely candidate. According to the companies, Netscape had generated about a quarter of Infoseek's traffic, compared to closer to 10 percent of Excite's.

With Excite- and Netscape-branded search commanding higher percentages of the default rotation, and with traffic driven from Netscape to the search engines falling on a proportional basis independently of the new deal, placement on Netscape's search page may prove to be worth less and less to the others, especially Yahoo and Lycos.

Analysts have noted that though Netscape's Web site now commands a leading traffic position, that lead is almost wholly dependent on its dominance in browser market share. But if Microsoft continues to make inroads against Netscape's lead--estimated to be about 60 percent to Microsoft's 40 percent--that could spell hard times for Netcenter as well as for Netscape partners such as Excite.

"We...believe Netscape is destined to lose browser share to Microsoft, suggesting the traffic value of [Netcenter] will continue diminishing," wrote Keith Benjamin in a recent BankAmerica Robertson Stephens report.

Netcenter last year generated $108 million in revenues, $13 million from software sales and $95 million in advertising sales and sponsorships.

Reuters contributed to this report.

 

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