SAN FRANCISCO -- Behind the tug of war over the future of
lies a dirty little secret: the poor performance of Excite since the closing of the merger in May.
Speculation has simmered about what fate will befall the Excite portal since
, which holds a majority of voting power in Excite@Home, confirmed last week that it's considering possible business deals related to the company. When @Home and Excite merged in May, both companies gambled that they could replace
in the near future by marrying high-speed Net access with broadband content. Excite@Home representatives didn't immediately return calls seeking comment.
Now, four months after CEO Tom Jermoluk proclaimed the merger of Excite and @Home the "dawn of a new Internet era," it's clear that for Excite, the merger has worked better in theory than in practice. Disappointing growth at the portal offers that much more ammunition to those who advocate breaking up the marriage. And other top Excite@Home investors worry that the marriage of a portal to a high-bandwidth ISP is distracting the company from single-mindedly pursuing a mission to be the premier low-speed portal.
"I'm not seeing the additional value," says Deron Kawamoto, an analyst with
American Century Investments
, which holds shares of Excite@Home. Emeric McDonald, an analyst with
Amerindo Investment Advisors
, which is one of Excite@Home's top 10 investors, agrees. "Their ability to take advantage of the synergies between the content business and the access business is promising but that promise seems to be taking some time to deliver," McDonald says.
In recent months, Excite has been losing ground to top dogs America Online and
. Between March and August, AOL's reach increased 14% to 53.4 million unique visitors and Yahoo!'s has grown 28% to 40.2 million unique visitors. In that same period, Excite has seen its reach shrink by 14% to 16.1 million, according to
Excite has plenty of company in the second tier. Smaller portals such as
are also failing to keep pace. "All the portals have kind of floundered compared to AOL and Yahoo!" says John Michael Segrich, an analyst with
CIBC World Markets
. "The majority of the big advertising deals are being split by these two guys." (CIBC has no underwriting relationship with Excite@Home.)
Unlike those others, Excite used to be able to keep better pace with Yahoo!. But since merging with cable modem service @Home, the portal's identity and focus have been blurred by its broadband ambitions. "Maybe there's been a loss of focus on the management team with everyone involved," says Fritz Linkner, an analyst with
Husic Capital Management
, which has sold off a large part of its position in Excite@Home because of concerns about the portal business.
Adding to its woes, Excite is suffering from competing relationships. AOL's purchase of
effectively ended the $70 million, two-year distribution deal Excite had with Netscape's NetCenter. In June, AOL replaced Excite's Netfind search with the
Excite President George Bell has said the company aims to be a direct-marketing powerhouse with the highest ad rates instead of a giant eyeball aggregator. And, of course, to overtake AOL with video and audio offerings that requires fat Internet connections. The first salvo: The company's content developers have been working on a broadband portal to serve as the home page of the @Home service, due later this year.
Still, many are skeptical that Excite is actually benefiting from the @Home relationship. "The most logical option is to get bigger and combine with someone else to increase the eyeballs," says Linkner. "I think it hurts for
Excite to be part of @Home. They were better as a stand-alone company."