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Excite going big with Netscape deal

Excite solidifies its No. 2 position behind Yahoo by muscling its way into a two-year, $70 million contract with Netscape Communications.

    Excite solidified its position as the No. 2 search engine service today by muscling its way into a two-year, $70 million contract with Netscape Communications.

    Excite--striving, like Netscape, to become an Internet gateway--beat out others such as Infoseek and Lycos for the Netcenter deal. (See related story)

    The deal carries potential rewards--but also risks--for a company whose origins were mapped out at a Redwood City, California, taqueria in 1993. First launched as Architext Software, the company officially changed its name to Excite in 1995 and went public in April 1996.

    Run by former Times Mirror magazine executive George Bell--a hard-charging 41-year-old--Excite is on a roll.

    The company's stock has skyrocketed nearly 130 percent during 1998 alone. In the past year, the stock leaped 800 percent to today's close of 72.81, up from the year's 52-week-low of 8.13.

    Excite was upgraded to "buy" from "hold" today by CS First Boston before this afternoon's announcement with Netscape.

    The search site turns about 40 million pages a day and attracts 20 million users a month, according to the company. Its deal with Netscape is expected to significantly boost those numbers. Netcenter gets about 24.4 million visitors per month, thanks largely to its position as the provider of the dominant browser. Navigator has about 70 million users and 50 percent of them use Netscape as their home page, according to the company.

    But analysts cautioned that, over time, the Netcenter site is likely to lose some of its traffic, as users switch to Microsoft's Internet Explorer browser.

    Today's deal and Excite's high traffic numbers gives the company an opening to sell more valuable advertising, said Henry Blodget, an analyst with CBIC Oppenheimer. Excite's sales force now will sell advertising for Netscape's site and, as a result, take in more revenue.

    Blodget noted, however, that the deal is very one-sided. "It is not clearly a positive deal for Excite. It is a lot of money and a lot of work. Excite is building Netscape into a media business."

    In two years, Netscape could just walk away after all of the effort that Excite just put into building the venture, he added.

    So why did Excite get the deal over Infoseek? "They paid more money," said Blodget. "Excite has arguably good technology, but I wouldn't be surprised if it hadn't been a financial decision." He also noted that Excite and Netscape have corporate headquarters in close proximity to one another.

    Excite has secured a loan from an unnamed strategic partner to help pay for the Netscape deal. At the end of its most recent quarter, Excite had about $26 million in cash, cash equivalents, and short-term investments.

    The Netcenter deal with Excite goes into effect June 1.

    Netscape is based in Mountain View, California, and Excite is a stone's throw away in Redwood City. Like Yahoo, Excite tries to project a lighthearted image. Its Web site notes that "[there is] plenty of Odwalla around the office to substitute for the standard meal of burritos" and that "Excite's employees now number around 200 and the Odwalla intake has soared to an astounding 2,000 bottles per month."

    Excite's headquarters also houses a giant red slide for employees to let off steam.

    But the quirky image belies a serious approach to a highly competitive business. The 11-person executive team--which includes the "little Excite person," the company mascot--has been highly aggressive on its acquisition path.

    Excite's recent acquisitions include NetBot, MatchLogic, and Classifieds2000. Excite bought the latter, a Net advertising company, last month in a $48 million stock deal.

    In January, Excite purchased MatchLogic, an advertising services company, in a deal valued at $89 million. The search company then bought Net shopping technology maker NetBot with $35 million in stock last October.

    Robertson Stephens analyst Keith Benjamin predicted that Excite's "aggressive strategy of expanding its network through cobranded content and acquisitions will result in a solid and profitable franchise."

    He warned, however, that some of the costs associated with various deals appear to have scared off some investors.

    Despite the recent astronomical gains of Excite shares, they are off 20.5 from their year high of 93.31, which was hit the day the company's most recent quarterly results were announced.