AltaVista searches for roots again

AltaVista is getting out of the portal space and returning to its search engine roots after having failed in its attempts to become number one or even number two in the market.

The move comes in the wake of UK managing director Andy Mitchell's resignation over the supplier's aborted entry into the so-called free internet access space and the decision to axe 25 per cent of its US workforce - the equivalent of 225 people. This was the second round of redundancies in five months.

AltaVista had also planned to go public in April this year, but the initiative was postponed after investors became disenchanted with internet stocks in the wake of the collapse of high-profile internet startups such as boo.com.

But so far, the UK and the rest of Europe have managed to escape the job cuts. While European general manager Vesey Crechton insisted that AltaVista is expanding and recruiting staff in Europe, however, some analysts believe there is no smoke without fire.

"I don't think it will admit that there are problems in Europe, but usually when a head office has problems it impacts on Europe, too," said James Hart, director of European business at ecommerce observer, Gomez.

According to Crechton, however, the AltaVista UK portal site provides users with different services to its US counterpart, with the latter supplying more options and channels, while the UK focuses on offering search facilities.

All of AltaVista's websites will now be redesigned and will no longer carry channels, he added, and as a result, the layoffs of US staff were all in "non-search" areas. "AOL and Yahoo have done it really well and it made no sense for us to be a me-too," he said.

Crechton was not inclined to discuss in detail why the US job cuts had to be made, and merely reiterated Rod Schrock, Altavista's president and chief executive's statement at the time, that the aim was to achieve profitability more quickly.

AltaVista US now hopes to become profitable by 31 January 2001 and the goal for AltaVista Europe is to make profits within the next two quarters, he said.

On the up?
Crechton also argues that the situation has not damaged AltaVista's credibility or its business, adding that the European operation was growing at one per cent per day. This meant that while customers viewed two million pages each day in February, the figure had risen to 9.5 million by September. Revenues are also growing at 80 per cent quarter-on-quarter.

Crechton also claimed that, according to research firm Media Metrics, AltaVista handles more search queries each day - 45 million or 31,000 per minute - than any of its rivals. Inktomi, he said, is in second place with 38 million queries and Google in third place with 30 million per day.

However, IDC analyst Thomas Kiersted believes that AltaVista, along with other second-tier portal sites, had had no choice but to change direction. "Everyone has ceded that AOL and Yahoo are the two winners. Everyone has abandoned hope that two-tier portals are going to evolve into that space. So [AltaVista] and others, like Go.com, have had to reposition themselves. Whether or not they succeed is up in the air," he said.

Kiersted added that Wall Street is now jittery about companies that earn the bulk of their money from internet advertising, which is viewed as a "shaky market". "Part of what is going to determine AltaVista's viability is its ability to generate a business model that moves away from that," said Kiersted.

But Crechton said that he sees no sign of any problems with internet advertising, rather advertisers are beating a path to his door. Advertising and sponsorship account for the bulk of the company's revenue stream, while the rest is earned from licensing its software to other websites.

But Kiersted said the reasons behind AltaVista's failure to hit the number one portal slot are complex. "It was one of the early pioneers and they all started off with an equal advantage. It's down to basic marketing decisions, product mix, the entry of other companies into the space," he explained.

"But at a certain point the capitalisation of Yahoo and AOL reached a critical mass, enabling them to move ahead, offer a broader range of services, move with speed and make some mistakes. The more successful you are, the more successful you can be," he added.

Missed opportunities
Gomez' Hart, on the other hand, believes that AltaVista seems to have missed the main chance largely because its early owners failed to commercialise the search engine and did not know enough about how to monitor traffic.

AltaVista was created by a group of researchers working at Digital Equipment in 1995 to search archives of internal electronic mail. Digital almost spun it off as a public company soon afterwards, but decided to move the unit into its products group instead. Digital was acquired by Compaq in June 1998, and Compaq sold AltaVista on to CMGI last spring.

Hart said: "When CMGI bought it, it recognised [AltaVista] had a brand and tried to turn it into a portal. Unless you have something really specialised, it is very, very difficult to compete."

But he added that the company now appears to have recognised that its search technology is core to its business, which is a good sign. It has stiff competition to beat in this arena, however, with a constant stream of newcomers such as Google.com entering the market.

As a result, AltaVista launched its Raging.com search site in May in an attempt to compete head on with Google.

IDC's Kiersted said: "It was hoping it would get the same word of mouth buzz that Google did from search junkies, but I don't think it has. The Raging technology is a really good product and tends to work as well as Google, but how to get it out in front of those junkies is a real marketing challenge."

Part of AltaVista's attempt to refocus on the search engine space includes developing a third-generation engine, which is intended to improve the search experience.

It is also continuing to invest in vertical market engines such as the Shopping.com information service, and is setting up a new Information-Marketing Services organisation. This, it hopes, will boost revenue per page by providing in-context marketing services to content providers.

Crechton and a US spokesperson refused to expand on these developments, however. But this week, AltaVista launched its Denmark Search site, which indexes more than 95 per cent of all available Danish websites and said it plans to launch similar offerings in 35 other countries.

While at the moment, analysts are tending to reserve judgement as to whether these strategies will put back AltaVista back on track, they are not predicting that its demise is imminent just yet.