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AltaVista to Exit Media Network Business, Cut Jobs

Monday, September 18 08:13 AM ET By Reshma Kapadia NEW YORK (Reuters) - Internet search service and media network AltaVista Co. says it plans to get out of the Internet media network business and focus on its search business, in a restructuring that will cut 225 jobs, or 25 percent of its staff.
In the restructuring, AltaVista, which is majority-owned by Internet investment firm CMGI Inc. (CMGI.O), is going to phase out its branded content channels and personalized pages within its network.
The Palo Alto-based company said Friday that it expects AltaVista North America to now reach profitability in the fiscal second quarter ending Jan. 31, 2001 and said it will take a $7.5 million one-time charge in the current quarter for the restructuring.
The news comes after several Internet media networks have decided to revamp their strategies in order to obtain profitability sooner, including Walt Disney Company's (DIS.N) Go.com, which presented its slimmer, more focused platform on Friday. Recent softness in advertising from dot-com companies has also added to the pressure.
"What really factored into it is defining a game we can win -- that we are leaders in today, that's high growth and that we feel great about our opportunity to win in long-term," said Chief Executive Rod Schrock in a phone interview about the decision to ease out of the media portal business.
As part of the reorganization, AltaVista will cut a total of 225 jobs, primarily in the media portal business. It will also consolidate its four California offices into one in Palo Alto, Calif., Schrock said.
"Our clear belief is that (the) search (business) is in renaissance because it's not a commodity, which was conventional wisdom a year ago. That's because of the growing complexity and variety of information needs on the Web these days and in the business environment so we hope to be a clearly, singularly focused company and lead the industry," Schrock said.
The company postponed a U.S. initial public offering earlier this year, but the may revive it. "If you are a profitable company, a clear leader and have a global scale and brand, you are a company well-positioned to go public," Schrock said. "That is exactly where we are aiming. So, obviously, we've said we will be profitable in our very next quarter. We will judge when the market determines when the right time is to go public within that context."
The company will stay in the free Internet access business, offering access in the United States and in Europe, but the focus of the business globally will be search, Schrock said.
AltaVista suffered a blow last month after its U.K. managing director resigned following the company's well-publicized failure to deliver the flat-fee Internet access in Britain that it had promised.
"You will see AltaVista Europe in the next couple months roll out in new countries new search functions that are user-driven. It's a total singular focus on search," Schrock said, adding that unmetered access in Europe has been scrapped.
AltaVista will make new investments as part of this restructuring, totaling more than $100 million on an annualized basis, to build its position in the search and information industry, where it competes with Yahoo! Inc.'s (YHOO.O) Google and Inktomi Corp. (INKT.O) among others.
Its investments include building a third-generation search engine that incorporates the knowledge of users. It also will form an information marketing organization that will provide information services, including data mining, to content providers.
AltaVista will also quadruple the size of its software search sales-and-support team and will expand globally to 35 countries by the end of the fiscal year. It is currently in seven countries.
It will also invest more in its architecture to create a new layer of software that sits on top of databases and is aimed at information technology professionals. The software infrastructure is aimed at those building intranet applications.
"We are confident our revenue will continue to outpace the gross of our peers because of these investments," Schrock said in the phone interview, adding that the company will begin to see the impact of the restructuring "pretty quickly."
Analysts generally warmed to the news that AltaVista is aiming for more profitability.
Analyst Lydia Loizides of Jupiter Communications said she believes AltaVista is making a prudent move. "They're placing a bet where you can get the most profits, not necessarily the most revenues," she said. "AltaVista has always been a tech company and they have great technology."
Even so, she acknowledged that the search engine business can be a difficult market these days. "Part of that problem is that it is becoming a lot more difficult to monetize search."
She adds that the AltaVista decision adds more business focus to CMGI.
Phil Benyola, an associate at Raymond James & Associates, said it is important AltaVista present itself as heading toward profitability before the company goes public. "The market hasn't been accepting IPOs of companies that are not profitable," he said.
"This is really what the market has been demanding of Internet companies," Benyola said, adding that AltaVista is widely used around the world, partly because of a feature that allows users to translate from language to language.
"This isn't a zero-sum game. There is room for more than one portal on the Internet," he said about the notion that only market leader Yahoo! could survive.