Excite@Home Plays Catch-Up

The company's plans to buy iMall reveal a strategy to take on AOL by focusing on small businesses.
Author:
Publish date:

SAN FRANCISCO -- By acquiring iMall (IMAL) and striking a long-term partnership with First Data (FDC) - Get Report, Excite@Home (ATHM) - Get Report is pushing to catch up with America Online (AOL) and Yahoo! (YHOO) as they veer toward electronic commerce.

Yahoo!'s purchase of

Viaweb

and AOL's purchase of

Netscape

started the trend of online companies helping brick-and-mortar businesses make the transition to the world of e-commerce. Excite@Home, knowing it must keep pace, is making an aggressive move with a focus on small businesses. But in doing so, Excite@Home faces new competitors and must overcome a reputation for sluggish service on its consumer Net access.

"I think this deal is similar to the moves that AOL and Yahoo! have made over the last year," says Henry Blodget, an analyst with

Merrill Lynch

. (Merrill did underwriting for both Excite and @Home before their merger.) "The major networks think this is a capability that they've got to have," says Blodget.

Through its May acquisition of Excite, @Home gained entry into the online consumer shopping market. On its Web site, Excite features a shopping section and a search engine connected to a database of products. And through its

@Work

service, @Home sold high-speed Internet access to a variety of small and large businesses.

With its latest move, the merged media powerhouse is stepping up its e-commerce efforts. On the consumer side, buying iMall will add products into Excite's shopping service. The business side represents the bolder move and the greater opportunity. More than a consumer portal, Excite@Home is trying to fashion itself as a helping hand for brick-and-mortar merchants moving online.

Under Excite@Home's wing, iMall will offer businesses a way to sell products online. @Work already offers businesses high-speed Internet access, but iMall will help it sell hosting, e-commerce software, merchant account payment systems and marketing programs. iMall currently sells this suite of services for a monthly subscription fee between $120 and $200. For the March quarter, iMall reported a loss of $3.6 million on revenue of $779,000.

"We believe we can become the category killer for small merchants on the Web," says Richard Rosenblatt, iMall's CEO.

Looking ahead, Excite@Home is betting that these services will help it launch a network of localized shopping guides next year. The idea is that localized shopping areas will be the main online commerce venues alongside the national big brand e-tailers like

Amazon

(AMZN) - Get Report

,

Priceline

(PCLN)

and

eToys

(ETYS)

.

"This is the enabling step to create a significant local aggregation strategy," says Andy Halliday, Excite@Home's vice president of consumer e-commerce.

Selling these e-commerce services is where First Data comes in. First Data, which processes transactions for some 2 million merchant customers, will push @Work and offer back-end transaction processing of iMall's e-commerce storefront service. "All 2 million merchants won't want to go online but a very large number of them will," says Ric Duques, First Data's CEO.

In the merger, Excite@Home will issue 8.3 million shares of its stock valued at $425 million and will also assume iMall's outstanding options and warrants. While the purchase is likely to have no impact on Excite@Home's revenue this year, company President George Bell expects it to add "mid-$20" million to @Work's revenue in fiscal year 2000.

Still, the merger means Excite@Home will have to stare down new competitors. Internet service firms such as

USWeb/CKS

(USWB)

and

iXl

(IIXL)

are already focused on helping businesses get on the Internet.

And press accounts have detailed recurring problems that Excite@Home has encountered in delivering high-speed Internet access. It's a big question as to whether they'll be able to manage other parts of the e-commerce equation.

"To my knowledge they haven't had a service problem on the business side of the service," says Blodget, who says he doesn't plan to change his earnings estimate on the stock at least until he sees the next earnings report. Blodget rates Excite@Home an accumulate-buy.

And iMall's reputation isn't without its own blotches. Under a settlement with the

Federal Trade Commission

in April, two of the company's former presidents paid $3.25 million and iMall paid $750,000 in investor restitution for making false claims about consumers' ability to make money by selling Web pages on iMall's Web site. iMall's Rosenblatt says the two men have had no connection with the iMall since that time.