Microsoft today said it will begin to license its free email client, MSN Hotmail, to AltaVista, and that in return AltaVista will power Web searches for MSN.com, the software giant's Web portal. The new email client on AltaVista will be called "AV Mail powered by Hotmail," according to Greg Memo, VP of business and technology strategy for AltaVista.
The Microsoft announcement sent Inktomi's stock into a tailspin this morning, with shares falling as much as 22 percent. It has recovered somewhat since then.
Inktomi president and chief executive David Peterschmidt attributed the drop in the firm's stock to a misunderstanding by investors about MSN's relatively small presence in its list of partnerships.
"This was just a negotiating chip with a bigger strategy," he said of Inktomi's getting slighted in the deal. "It had nothing to do with Inktomi technology or quality of service.
"This doesn't ruffle our feathers," Peterschmidt added.
The decision to license Hotmail is the first step in Microsoft's overall strategy to begin licensing its MSN portal to computer manufacturers and Internet service providers, according to Marty Taucher, director of network communications for MSN.
"We are interested in licensing the entire MSN portal," he said.
"When you've got a company like Compaq, which has a firm commitment to AltaVista and has been a good Microsoft customer for years, you look for a way to work with them," Taucher added.
The initiative also underscores Microsoft's use of a familiar strategy: licensing or distributing its products through the PC channel. When Microsoft first entered into a relationship with Inktomi in October 1997, it touted the firm's superior Web crawling technology and emphasized its goal to give users what they wanted--namely, "the freshest, most current index available to consumers," executives said. But in the end, Microsoft dropped Inktomi in favor of the search service that belongs to one of its hardware partners.
However some analysts, such as International Data Corporation's Barry Parr, are not sold on the strategy of using PCs to increase Web site exposure.
"The connection between the PC and what people are looking at [on the Web] seems tenuous to me," he said.
"There's no player in the hardware and access platforms--in exception to America Online--that commands that share, or can drive significant traffic to anybody," he added. "It's not like being a default page on a browser."
As a first step in its new initiative, Microsoft will begin licensing its Hotmail client to AltaVista by integrating it into a "communications platform" on AltaVista's site. In the future, the platform also will include an instant messaging client, as well as other "user directory kinds of things," Taucher said.
Taucher expects the instant messenger client to beta launch at the end of the quarter or the beginning of next quarter. The instant messenger client--called "MSN Messenger Service"--was unveiled in July 1998 and was expected to beta launch in August. Microsoft has yet to launch the service, however, and has not made any clear statements about why the software--which targets popular real-time communication products such as ICQ and AOL Instant Messenger--has been put on the back-burner.
"We went down a technology path that didn't work as well as we thought, so we retrenched," Taucher said.