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[email protected]

[email protected] was formed in January 1999 when high-speed Internet access provider @Home acquired the Excite Network for $6.7 billion. At the time Excite had 20 million registered users for its Internet portal and search engine services. @Home had 330,000 subscribers signed up for its high-speed Internet access service. @Home also had cable distribution agreements in place reaching 60 million homes. However, since many of those systems had not yet been upgraded to offer high-speed Internet access, @Home was available to only about 13 million homes at the beginning of 1999.

The acquisition was fueled by several factors. Other portal consolidations were taking place, including the acquisition of Netscape Communications by America Online and Walt Disney Co.'s investment in Infoseek Corp. @Home was willing to pay a premium for access to Excite's customer base, valuing the company well above its market capitalization. The new combined company was to be called At Home, formerly the name of @Home Network's parent company and now [email protected]'s parent. It would have about 1,200 employees and projected revenue of $2 billion by 2002. CEO Thomas Jermoluk predicted operating margins in the range of 30 to 35 percent. George Bell, formerly CEO of Excite, became president of [email protected]

The acquisition enabled @Home to transmit across multiple platforms, including both dial-up and broadband. It also gave cable operators an incentive to upgrade their cable systems to handle two-way Internet traffic. Through Excite, @Home would be made available as a dial-up service in areas where cable modem service was not yet available.

At the time of the acquisition, AT&T was in the process of merging with Tele-Communications Inc. (TCI). Following that merger, AT&T became the largest shareholder with a 26-percent majority stake in [email protected] and 58-percent voting control of the company. AT&T also was the preferred provider for Excite's dial-up service through AT&T WorldNet. WorldNet, which was AT&T's Internet service provider (ISP), had about 2.3 million customers in early 1999, 1.3 million of which were residential. Other major shareholders in [email protected] included cable operators Cox Communications Inc. and Comcast Corp.

EXCITE, 1994-1998

Excite was one of the first Internet search engines. It began in 1994 as a project of some Stanford University graduate students who founded Architext Software and developed software to navigate large databases. As Internet use began to grow, Excite was used as a search engine for Usenet. After changing its name to Excite Inc., the company went public on April 4, 1996 with its initial public offering (IPO). The Tribune Co. bought an eight-percent interest in Excite for $7 million. George Bell, former senior vice president of Times Mirror Magazines, was hired as CEO.

Following the introduction of My Yahoo!, Excite introduced a makeover of its Web site in July 1996 that included a menu of defined-content categories on its opening page. The new Excite also included reviews and ratings of some 60,000 Web sites and claimed the largest database of all search engines with 50 million Web pages. The company also acquired The McKinley Group, creator of the Magellan On-Line Guide. At the time, Excite ranked fifth among Internet search engines.

Before the end of 1996 Excite had added a broad array of information and services to encourage Web users to make the site their default home page. Among these offerings were City.Net, an information service covering major U.S. and international cities, along with a variety of reviews, news, directories, and other references. In December 1996 Excite and America Online (AOL) announced that Excite would become AOL's exclusive Internet search engine, although AOL users could still navigate the Web with other search engines. At the time AOL had about 7 million subscribers and was in the process of introducing its fixed price plan at $19.95 per month. As part of the deal, AOL also sold its WebCrawler to Excite and doubled its ownership interest in Excite to 20 percent.

An article in Fortune noted that, of all the leading Internet search engines, Excite appeared to be in the most precarious financial position at the end of 1996. The company's stock had lost about two-thirds of its value since its IPO. Additionally, the firm had spent $30 million on acquisitions, partnerships, and advertising in 1996.

As Internet usage surged in 1997, Internet search engines earned higher advertising revenue. For the third quarter Yahoo! reported a $1.6 million profit on revenue of $17 million. However, Excite and Lycos continued to operate at a loss.

During 1998 Excite and other Internet search engines continued to redefine themselves as Internet portals, adding new services and content. In its review of 11 Web portals, PC Magazine rated Excite as "the best portal on the Web." The magazine noted that Excite offered excellent personalization tools, a search feature that anticipated what you were looking for, and a sense of community. For example, Excite Communitiesa service that combined e-mail, chat, calendar, and other online networking functionswas introduced in August 1998. For 1999, Excite's goal was to be among the top five Internet portals.

@HOME, 1995-1998

@Home was formed in 1995 as a national high-speed Internet service. Its principal backers were cable TV system operator TCI and investment banking firm Kleiner, Perkins, Caulfield & Byers. William Randolph Hearst III was the company's first CEO. The company planned to offer high-speed Internet access over cable TV systems by forming partnerships with cable multi-system operators (MSOs) such as Continental, Cox, and Comcast. At the time manufacturers such as Hewlett-Packard and Motorola were just beginning to consider making cable modems and were looking for ways to make them inexpensively. For @Home's vision of high-speed Internet access to succeed, its service needed wider availability, and the price of cable modems needed to come down.

In October 1995 @Home entered into an agreement with Netscape to license Netscape's software. Together, @Home and Netscape planned to develop a customized version of Netscape's Navigator software that would allow for local content, advertising, and e-commerce over a cable connection to the Internet. To stimulate the manufacture of low-cost cable modems, TCI sent out an RFP (request for proposal) to vendors such as Motorola, Zenith, Intel, Northern Telecom, and Hewlett-Packard for hundreds of thousands of units.

@Home expected to roll out to a limited number of homes in early 1996 but had to scale back its plans due to a lack of infrastructure. In June 1996 cable companies Comcast Corp. and Cox Communications Inc. agreed to invest in @Home and take equity stakes of 14 percent each. TCI's stake was reduced to 45 percent, and investment-banking firm Kleiner, Perkins, Caulfield & Byers's interest was also 14 percent. In August @Home named Tom Jermoluk as its chairman, president, and CEO. Jermoluk was formerly president and chief operating officer (COO) of Silicon Graphics Inc. (SGI). Founding CEO William Randolph Hearst III remained as vice chairman of @Home.

Late in 1996 @Home signed content agreements with the HotWired Network, The New York Times, and USA Today for multimedia services the company would introduce in early 1997. In February 1997 @Home signed charter advertisers for its high-speed service including General Motors Corp. and Conde Net. Some 100 companies that had agreed to provide content for @Home were allowed to run unpaid ads on the network.

In 1997 @Home began to establish its @Work division to provide high-speed Internet access to businesses and their employees. Through an agreement with competitive access provider Teleport Communications Group, @Home gained access to potential business customers in more than 55 major cities and other markets. The company continued to sign cable partners to carry its high-speed Internet service in 1997, including Marcus Cable in Fort Worth, Texas. It also entered the Canadian market through an agreement with Rogers Cablesystems and Shaw Communications, Canada's two largest MSOs, who took a joint five-percent interest in @Home. Later in the year @Home gained access to 5.5 million potential customers in the Northeast through an agreement with Cablevision Systems Corp.

@Home filed for an initial public offering in May 1997 and went public in July. Its stock more than doubled on the first day of trading, from its initial $10.50 price to a high of $25.50 before settling at $19. The IPO gave @Home proceeds of $94.5 million and a market capitalization of more than $2 billion. For 1997 @Home had revenue of $7.4 million, compared to $700,000 in 1996.

In 1998 @Home's market capitalization reached more than $23 billion as investors drove up the price of Internet stocks. @Home added more cable partners, including Jones Inter-cable Inc., Cogeco Cable Inc., and Garden State Cable TV. By mid-1998 @Home was close to reaching 60 million homes in North America through agreements with its cable partners. During 1998 AT&T acquired TCI and became the principal shareholder in @Home. That December, @Home acquired Narrative Communications Corp., an interactive advertisement software provider, for $90 million in stock.

[email protected], 1999-2001

[email protected] planned to move forward on three fronts. First, the company planned to grow its narrow-band Internet service, which had more than 28 million regular users. Second, it wanted to expand the @Home subscriber base, in part by targeting registered Excite users who lived in areas where @Home's cable partners already had upgraded their systems. Third, the company planned to develop new programming opportunities for the exclusive use of its @Home broadband customers.

As of mid-1999 [email protected] had exclusive rights to provide high-speed data over cable to 67 million homes through 22 cable operator partners. The main problem facing the company was that its inventory of potential homes far exceeded the company's ability to install its service. In many cases consumer demand, fueled by the company's marketing efforts, exceeded the cable operators' ability to service that demand. [email protected] principally was competing with telephone operators and America Online to build a critical mass of subscribers. In one promotion, [email protected] offered three months of free service to convert AOL subscribers.

In June 1999 Excite introduced two new services, Excite Voicemail and Excite Voice Chat. With Excite Voicemail, which was free for up to 60 messages and 10 faxes per month, callers could leave voice messages or send a fax by calling a central toll-free phone number provided by Excite. Each user received a unique 10-digit extension number to be used with the toll-free number. To use Excite Voice Chat, which enabled voice conversations with other Excite chatters, users needed a personal computer, an Internet connection, a microphone, and speakers or a headset. Both services were ad-supported.

In July 1999 Excite acquired iMall for $425 million in stock. An e-commerce pioneer founded in 1994, iMall operated shopping portals and also offered e-commerce packages for businesses. The acquisition enhanced [email protected]'s shopping network by adding merchants and also built up its business-to-business e-commerce solutions. Additionally, the acquisition gave [email protected] a new relationship with First Data Corp., an e-commerce transaction processor that owned 11 percent of iMall. [email protected] and First Data teamed to offer merchants the ability to complete credit card transactions. iMall claimed that it could help merchants set up an Internet storefront in one day.

In October 1999 the company launched Work.com, a service for business professionals and their companies. It was the first step of the company's initiative to develop a business portal through its B2B division, @Work. Work.com also was available on Excite's recently introduced Business Channel, which carried company and product information on 36 industries. Work.com also included business applications, a directory of business resources, and links to other business-related areas on Excite. In December 1999 [email protected] acquired electronic greeting site Blue Mountain Arts for $780 million and also launched a new consumer site, Excite Photo Center, where users could upload, download, store, edit, and print high-resolution photos.

At the beginning of 2000 Excite ranked third among Internet search engines in terms of unique visitors, behind Yahoo! and Lycos. In February Excite partnered with Dow Jones & Co. to produce Work.com, a Web site for small and medium-sized businesses. The new Work.com would include content from Dow Jones and [email protected]'s existing Work.com site.

In July 2000 Excite launched a new free online storefront service, called Freetailer. The service allowed small businesses to establish a presence on the Web at no cost. The company reported that more than 1,000 new businesses had signed up within the first 24 hours of the service being offered. Each e-tailer was given 25 megabytes of computer storage space and one gigabyte per month of bandwidth to accommodate site traffic. Excite Messenger, a new instant messaging application that replaced Excite Pal, was introduced in September 2000. Excite Messenger could be used in a text mode, as well as for voice chat if users' PCs were equipped with a microphone and speakers.

For 2000, [email protected] lost $7.44 billion, compared to a $1.5 billion loss for 1999. Post-first quarter filings in 2001 by majority shareholder AT&T and by [email protected] revealed the company's precarious financial position. AT&T said its investment in [email protected] would reduce its first quarter income by $280 million to $320 million. [email protected] reported that it needed to raise $75-$85 million by June 30 in order to maintain its operations and liquidity. Under a non-binding letter of agreement, AT&T agreed to provide the necessary cash in exchange for [email protected] Home's fiber network. [email protected] would then lease back the network on a monthly basis for 20 years. The company solved its cash problem by selling $100 million of notes.

[email protected]'s financial problems primarily were attributed to shrinking online advertising revenues. The downturn in Internet advertising resulted in [email protected] closing its operations in France, Germany, and Spain in mid-2001. The company planned to focus its European strategy on the United Kingdom and Italy, where there were better prospects for growth.

As part of AT&T's acquisition of MediaOne, AT&T phased out MediaOne's high-speed Internet access service, Road Runner, and replaced it with [email protected] Although [email protected] had increased its high-speed cable modem subscriber base from 330,000 in early 1999 to more than 3.7 million in August 2001, costly investments contributed to the firm's financial problems.

Quarterly losses of $832.6 million in the first quarter and $346.3 million in the second quarter left [email protected]'s future in doubt. A filing addendum to its annual report included an auditors' statement that expressed "substantial doubt about the company's ability to continue as a going concern." Comcast and Cox both terminated their exclusive high-speed Internet access agreement with the company and opened their systems to other high-speed providers. With its stock trading at a 52-week low of less than $1 a share, [email protected] also faced the possibility of being de-listed from the NASDAQ. By the end of 2001 the company had declared bankruptcy.

FURTHER READING:

"@Home IPO Zooms." Broadcasting & Cable. July 14, 1997.

"AT&T Sings Broadband Blues.rdquo; Communications Today. April 23, 2001.

Brady, Mick. "Excite's Free Online Stores an Overnight Hit." E-Commerce Times. July 14, 2000. Available from www.ecommerctimes.com.

Centeno, Cerelle. "ExciteAtHome Bails Out of Key European Markets." eMarketer. June 23, 2001. Available from www.emarketer.com.

Conlin, Robert. "iMall Snapped Up by [email protected] for $425 Million." E-Commerce Times. July 13, 1999. Available from www.ecommerctimes.com.

Fernandes, Lorna. "Internet Search Engines Are On a Roll." The Business Journal. November 17, 1997.

Ferranti, Marc and Mary Lisbeth D'Amico. "@Home Buys Excite for $6.7B." Computerworld. January 25, 1999.

"Internet Service Provider [email protected] May Not Survive." Knight-Ridder/Tribune Business News. August 21, 2001.

Krantz, Michael. "Start Your Engines: Excite and Yahoo, the Two Leading Web-Search Sites, Race to Remake Themselves into 'Portals."' Time. April 20, 1998.

Leger, Jill. "Excite." PC Magazine. September 1, 1998.

Mermigas, Diane. "High-Speed Slowdown: [email protected] Growth Outpacing Cable's Capacity." Electronic Media. Au-gust 2, 1999.

Needle, David. "Fast Growth, Fast Friends." PC Magazine. September 22, 1998.

Spooner, John. "Excitable Boy." Adweek Eastern Edition. July 7, 1997.

Stapleton, Paul. "[email protected]" Boardwatch Magazine. May 2000.

Tedesco, Richard. "Excite's New Engine Points at Yahoo's Pole Position." Broadcasting & Cable. July 29, 1996.

"Top Search Sites." PC Magazine. May 9, 2000.

Wang, Andy. "[email protected] Goes to Work.com ." E-Commerce Times. September 30, 1999. Available from www.ecommerctimes.com.

SEE ALSO: AT&T Corp.; Netscape Communications Corp.; Portals, Web