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Engines stall on The Street

Despite significant new initiatives, the major search engine companies are still a tough sell on Wall Street.

Search engine companies this week announced a myriad of initiatives to make them stand out amid cutthroat competition, but they remain a tough sell on Wall Street.

Yahoo (YHOO) led the pack in stock gains this week when it teamed up with Netscape Communications (NSCP) to manage the Destinations page--to be renamed Netscape Guide by Yahoo--on Netscape's Web site.

Yahoo's shares traded as high as 30-5/8 today before closing at 28-3/4, down a quarter-point. Analysts blamed the drop on profit-taking.

In a strategic shift, Excite (XCIT) said on Tuesday night that it will organize its search engine around "channels" like TV, hoping to lure more readers and advertisers. The company called it a "new strategic direction" for the company, but the stock barely moved since then, closing unchanged today at 14-5/8. The announcement comes as Excite plans a secondary stock offering.

Another player in the search engine market, Lycos (LCOS), said yesterday that it would extend its sales effort in a partnership with Softbank. It will add coverage in Los Angeles, Chicago, Atlanta, and Denver.

But Lycos's stock failed to catch fire either. It closed at 14-5/8 today, down 7/8 from yesterday.

Infoseek (SEEK), however, managed to capture a gain today, closing at 7-1/8, up 1/8 over yesterday.

The search engine companies partly were hurt by a drop in the technology sector. Many high-tech stocks have been overpriced, analysts said. Some investors took profits while others got skittish about future growth.

But the search engine companies also face growing competition. While online advertising dollars are on the rise, more players are entering the market. Many analysts think that those dollars will go to the few industry leaders. In addition, the expansion efforts are costly, raising further concern in the financial community.

The Yahoo-Netscape deal made some search engine rivals jealous, but not many were capable of winning the assignment, said one Wall Street analyst who asked not to be named. That's because Yahoo had spent months building a breadth of content to make it stand out from its rivals. It has been launching city directory sites such as Yahoo Dallas and next month is expected to roll out Unfurled, a music site with MTV.

"Today, we're just a tiny coffee klatch of subatomic particles, moving into the tadpole stage," the Unfurled Web sites reads. "But we're moving fast."

But other search engine companies also are trying remake themselves by providing content and other features much like an online service. Mark Mooradian, an analyst with Jupiter Communications, said the companies are angling to become prominent "gateways to the Internet."

Excite's shift is one of the most dramatic. The company hopes the channel concept will lure new customers as well as build loyalty among existing ones.

As America Online (AOL) executive Bob Pittman put it: "Customers clearly identify with channels." AOL and Excite recently joined forces to launch AOL NetFind, a search guide for the Web.