Stupid Business Decisions: Excite Rejects Google's Asking Price

In 1994, six Stanford University students created a primitive search engine called Architext.

The following year, Stanford alum Vinod Khosla, who had joined venture capital firm Kleiner Perkins Caufield & Byers, secured $1.5 million in financing, followed by another $1.5 million from Geoff Yang of Institutional Venture Partners.

In December 1995, Architext was re-launched as Excite – the search engine to end all search engines.

At the beginning of 1996, Excite strengthened its brand by bringing on a CEO with absolutely no dot-com experience whatsoever – former documentary filmmaker George Bell. Bell's first move was to acquire two other search engines, Magellan (the purchase price wasn't disclosed) and WebCrawler for $19.8 million. Months later, on April 4, Excite went public with an initial offering of 2 million shares at $8.50/per. The company garnered distribution deals with Netscape, Microsoft (MSFT), and Apple (AAPL).

In October 1997, Bell pulled the trigger on another purchase, scooping up comparison-shopping-service company Netbot for $35 million.

Soon after the Netbot deal, Bell bought iMall for $425 million in stock and online-greeting-card company Blue Mountain Arts for $780 million. In 1998, Bell dropped an undisclosed amount to sponsor Indy driver Eddie Cheever Jr.

In 1999, Larry Page and Sergey Brin, the founders of Google (GOOG), decided that their creation was interfering with their studies and offered it to a slew of companies (including the defunct Alta Vista, which passed, and Yahoo (YHOO), which also passed, but had a strong enough product that they were able to stay afloat with their own technology). An offer was then made to Excite's George Bell, who deemed the asking price of $1 million too high. Vinod Khosla of Kleiner Perkins went back for another attempt – this time for $750,000 – and was thrown out of Bell's office.

Google is now the undisputed leader in search, with 65.4% of all Internet searches and a market capitalization of $167.5 billion. The closest competitor in the search space is Microsoft's Bing, with 11.3%.

And Excite?

Um…who?

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>>7201874

The pending liquidation of broadband Internet company Excite@Home puts its well-trafficked Excite.com Web portal up for grabs, but even at a fire sale price the site could have trouble attracting a buyer.

As a "second tier" player in a market increasingly dominated by AOL Time Warner's America Online, Microsoft's MSN and Yahoo, Excite.com was in trouble long before its parent filed for bankruptcy protection last week.

Now it faces potentially insurmountable obstacles: In its bankruptcy filing two weeks ago, Excite@Home said it had "initiated a wind down of Excite.com and other portions of the Excite Media Network," a sign that the company is not holding out high hopes for a significant sale price.

Analysts said competitors–which might normally be considered among the most likely potential buyers–may now decide that it is easier to simply allow Excite to die a slow death than step in with an offer.

"This is now a waltz of elephants…Excite ain't an elephant," wrote Merrill Lynch analyst Henry Blodget in an e-mail exchange. "Over time, I expect that their traffic and registered users will gradually migrate to one of the big three."

Microsoft, which operates the MSN Web properties, has been mentioned as one of the potential buyers of Excite. A representative of the software giant declined to comment.

Like other portals, Excite was once valued for its ability to bring in "eyeballs," and by that benchmark it has continued to perform well, ranking as the seventh most visited site on the Web for the month of August with 28.7 million unique visitors, according to online research company Jupiter Media Metrix.

While those numbers were worthy of a billion-dollar market capitalization a few years ago, investors now want to know when and how such traffic will produce profits. In this case, the Excite portal accounted for most of Excite@Home's $65 million in losses last quarter.

Media companies at the time lost significant advertising dollars after running ad-free coverage of the attacks. Media companies also were unable to forecast how 2002 would turn out, given the difficulty in spotting when advertising will revitalize.

Given the dismal outlook for even the biggest of traditional media companies, the outlook for second-tier Web portals like Excite remains pessimistic. In January this year, Excite@Home wrote-off $4.6 billion in intangible assets from the decline in value of its two most expensive acquisitions: Excite.com and online greeting card site Blue Mountain Arts.

In the fiscal quarter that ended June 30 this year, Excite@Home's media and advertising revenue dropped 62 percent from the previous year to $28.6 million. Advertising only accounted for 21 percent of the company's overall revenue. Looking at the first half of 2001, advertising declined 51 percent from the previous year to $73.6 million.

"With revenue declining at such a huge amount, it would be hard to get someone interested in it," said Drake Johnstone, an analyst at investment bank Davenport & Company. "Revenue hasn't stabilized, it keeps on declining."

One issue compounding the situation is the amount of over $1 billion in debt for the entire company. Most of the debt is in the form of bonds that are not due for at least five years, but there remains lingering uncertainty about who will incur the debt in the event of an acquisition.

There's no question Excite continues to be a hard sell. Finding the right deal will depend on the needs of the buyer, and some analysts say Excite still has something people may want: a database of consumer information. That in itself could be worth something.

"They don't have any defensible proprietary content that anybody really needs," said Patrick Keane, an analyst at online research company Jupiter Media Metrix. "They have a huge database of names, and a direct marketer might want to purchase that."

>>7201874

Excite continued to operate until the Excite Network was acquired by Ask Jeeves (now Ask.com) in March 2004. Ask Jeeves promised to rejuvenate iWon and Excite, but was not able to. Ask Jeeves management became distracted, according to the East Bay Business Times, first by a search feature arms race with Google and Yahoo!, and then by its merger with Barry Diller's IAC/InterActiveCorp, announced in March 2005. "Hopefully, as we start to invest more and get the staff in place and some of the changes to the portal properties that we want, we hope to see (revenue) grow back in the latter half of the year," said Ask Jeeves CEO Steve Berkowitz during a conference call with analysts on April 27, 2005.[29]

On May 20, 2005, Ask Jeeves made two announcements regarding the rejuvenation of the Excite brand. It first announced that it had acquired Excite Italia B.V. (the operator of Excite Europe), from Tiscali, S.p.A.; and, secondly, the company reported that it had reached a comprehensive settlement with InfoSpace regarding Excite in the United States, whereby Ask Jeeves and InfoSpace would share marketing costs and revenue from the Excite web search function. Regarding the acquisition, Ask Jeeves CEO, Steve Berkowitz, said, "We look forward to working with InfoSpace to enhance the search experience on Excite, now that our interests are aligned." On October 17, 2007, GOADV, a media company specializing in the generation of Internet "traffic", announced the completion of its acquisition of the European Excite group of companies.[30]

Excite has never managed to recover back to its heyday popularity. It remains notable in Japan, however. Excite Japan, headquartered in Tokyo, was founded on August 4, 1997[31] in a partnership with Itochu.[32] After Excite@Home's collapse, Itochu became majority shareholder of Excite Japan (90 percent).[33]