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Compaq commotion may stir up AltaVista

The corporate shakeup at Compaq Computer may give AltaVista, a Compaq spin-off and portal-wannabe, a swift kick in the pants.

The corporate shakeup at Compaq Computer may give AltaVista, a Compaq spin-off and portal-wannabe, a swift kick in the pants.

Compaq's acquisition of Digital Equipment last year also netted the No. 1 maker of personal computers an unsought diamond in the rough tucked away inside DEC. However, Compaq mostly let AltaVista languish until it spun off the search engine earlier this year and announced intentions to take it public.

Still, most analysts agree that neither Compaq nor AltaVista has made strong moves in articulating a clear Web strategy for the spin-off. But in the wake of Eckhard Pfeiffer's surprise ouster as Compaq's chief executive officer, analysts are looking for something to happen, including a possible sale.

"If Compaq looks at itself and assesses itself to be a PC manufacturer and not in the business of online services, they would hasten [AltaVista's] IPO," said Abhishek Gami, an equity analyst at William Blair. Gami noted that a management shakeup or corporate reorganization historically leads the new team to streamline the company, slashing far-flung ventures and operations.

"If Compaq were to follow that history, I would expect them to try to take AltaVista and do something with it rapidly," he added.

Earlier, as a part of DEC, AltaVista was used to demonstrate the Web capabilities of DEC's servers.

Since its spin-off from Compaq in late January, the company has tried to be both a Web portal and an e-commerce site. Compaq has also tried beefing up AltaVista by folding in two of its most recent acquisitions of e-commerce site, and local guide Zip.

Last week, AltaVisa said it would introduce a new revenue stream by allowing advertisers to bid for premier placement on its search query results, bringing some critics to wonder whether the move compromises AltaVista's search "objectivity."

All in all, analysts believe AltaVista has yet to live up to its potential.

"AltaVista is probably one of the premier search engines out there," said Barry Parr, director of Internet and e-commerce strategies at International Data Corporation. "But as a commodity, they haven't really been able to build a loyal visitor population and are a troubled property."

The site was ranked as the 13th most visited Web site in February by Media Metrix, with 9.7 million unique visitors. AltaVista falls well behind America Online's combined Web reach, which was ranked at No. 1 during the same period with 38 million unique visitors. Yahoo and Microsoft Internet properties, ranked second and third, pulled in 31.1 million and 30.1 million visitors respectively in February.

"AltaVista is in a market that could only support two or three competitors in this space down the road, and the company doesn't have much prospect to be one of those players," said Parr. "But their customer base, their traffic, and their technology could be worth something to the other players."

Some of the biggest hurdles on the table for Compaq's interim management team are to fix the core business, to integrate the DEC acquisition, and to hammer down the company's channel strategy.

"AltaVista would be the last thing on my mind," added Parr, saying that the company is most likely worth more at this time than it will be at any point in the future. "This is an opportunity for Compaq to sell its traffic and technology for an equity stake to one of the other major players."

AltaVista also would appeal to any traditional media company looking to claw its way to a stronger online presence.

"All the ducks have pretty much been shot in this space," said Patrick Keane, an analyst at research firm Jupiter Communications. "There are plenty of mainstream diversified media companies that would love to have the kind of distribution that AltaVista offers."

Louis Mazzucchelli, a hardware analyst at investment banking firm Gerard Klauer Mattison, said that Compaq has yet to decide whether they want to maximize their return by taking AltaVista public or by using the Web site to differentiate the PC maker from its rivals.

"Those are two very different options," said Mazzucchelli. "But they can't be in the middle, and where they are right now is in the middle. That is the problem.

"Recent events may accelerate that decision, or on the other hand they may wait for someone to come in to nail that strategy," Mazzucchelli added.

A spokeswoman at AltaVista said that the timing for the company's IPO is still scheduled to occur some time during this calendar year, as previously announced.

"At this time it is business as usual," the spokeswoman said. "[The shakeup] won't affect anything, but as you can imagine the decision was made less than 24 hours ago."

Earlier, in a statement addressing Pfeiffer's resignation, acting chief exucutive Ben Rosen iterated Compaq's relation to the Internet.

"As a company engaged in transforming its industry for the Internet era, we must have the organizational flexibility necessary to move at Internet speed, well ahead of the market at any moment," Rosen said.