Search engine real estate continued to soar last week when Excite agreed to pay Netscape Communications Corp. $70 million to provide a co-branded search service on the Netscape Netcenter site.
The two-year deal, which starts in June, also gives Excite a chance to provide content for Netcenter from Classfieds2000 and to collect ad revenue from the joint search engine page until it covers the $70 million. After that, the two companies will split ad revenue, which some analysts predict could generate up to $30 million for Netscape.
As expensive as the deal is, Chris Charron, analyst at Forrester Research, said it was a critical move on Excite's part. "It's a valuable move for Excite to block the competition and to catapult itself toward Yahoo! and [America Online] in terms of traffic," he said. "It also separates it from the middle tier," he added, referring to Lycos and Infoseek.
Some industry analysts say the deal gives Netscape the upper hand to sell Netcenter space to other content partners and to inherit Excite's search technology after two years.
But Mr. Charron believes Excite could come out ahead. In two years, he said, it's possible that "Excite will be so integral to the Netcenter brand that it simply becomes the default page for Netcenter."
CO-BRANDED ISP ACCESS
Also last week, AT&T Corp. rolled out similar co-branded Internet services with Excite and Lycos, Excite Online Powered by AT&T WorldNet Service and Lycos Online Powered by AT&T WorldNet Service. The Internet access is part of three-year deals between the search engine companies and AT&T, which will also include voice-enabled chat services, automated directories and sale of AT&T's long distance service.
`TENS OF MILLIONS OF DOLLARS'
AT&T will pay both search engines a share of revenue from services sold and a bounty fee for every user signed up for the co-branded Internet access service. While the value of the deals was not disclosed, Alan Braverman, Internet and new media analyst at Credit Suisse First Boston, estimated the ultimate value of the Lycos partnership alone in the "tens of millions" of dollars.
The frantic deal-making boils down to the fact that "portal sites are struggling to build page views and revenues," Mr. Charron said.
As a result, "they're trying to partner with access providers and they're buying up smaller technology partners or content partners." He also said he expects second-tier search engines, such as Lycos, Infoseek and Excite, to form alliances with traditional media companies. In his report "The Great Portal Shakeout," Mr. Charron estimated that portal sites attract 15% of Internet page views and 59% of ad dollars.
By 2002, he expects these sites to get 20% of traffic and only 30% of ad dollars as marketers find alternative outlets for their advertising. He also predicted AOL, Microsoft's Start site and Yahoo! will be the top portal sites by then.
Copyright May 1998, Crain Communications Inc.