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Excite catches "urge to merge"

In the latest merger within the Internet directory business, search engine Excite is buying Classifieds2000, a Net advertising company.

The "urge to merge" in the Internet directory business is gaining momentum.

It stems from cutthroat competition, the runaway success of the No. 1 player Yahoo, and the wildly appreciating shares of the biggest Net players, which they use to buy smaller Web sites--much like computer networking giants have been doing for years.

In the latest example, search engine Excite is buying Classifieds2000, a Net advertising company, Excite's executive vice president Brett Bullington said yesterday. The buyout, for $48 million in Excite stock, comes on top of Friday's announcement that CitySearch and Zip2 will merge in a bigger deal valued at more than $300 million. And as reported by CNET's NEWS.COM, GTE is negotiating to buy the Web site of Big Book, the Net "yellow pages" directory. Sources said that deal could be announced this week. Executives at Big Book and GTE declined comment.

Excite and Classifieds2000 already have an alliance. In June, privately held Classifieds2000 announced a deal to supply online classifieds to Excite. The cobranded listings include jobs, autos, computers, general merchandise, personals, and rentals. Rumors of the buyout surfaced last week, but Excite and Classifieds2000 steadfastly declined comment.

According to Bullington, Classifieds2000 will be run as a separate unit. In January, Excite said it would buy MatchLogic, an advertising services company, in a deal valued at $89 million. Bullington said Excite was taking advantage of the company's appreciating share price to make acquisitions that will add more features.

The climb in Internet stocks has been dramatic, surprising many longtime market watchers since most of the companies (Excite included) are generating small profits--if any. Last week, Yahoo's stock broke the $100-per share milestone--joining America Online in that elite club.

The upside for these companies is that they can use their stock to make acquisitions to add more features. This is leading to some high valuations on companies that provide Web services such as free email. Many analysts are likening the "stock as currency" buyouts among Net companies to the rash of acquisitions by companies such as Cisco in the computer networking business.

Competition remains intense, however, not only among the search engine providers but among software giants such as Microsoft and Netscape. As reported, Netscape is close to announcing a free email provider for its "Netcenter" Web site. In addition, media giants such as Knight-Ridder are expanding their online offerings.