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Excite-Magellan merger signals trend

The Excite-Magellan merger is a likely harbinger of a shakeout for search engines.

The merger between the companies that own Internet directories Excite and Magellan is a likely harbinger of an anticipated shakeout in the cluttered search engine market.

Many financial analysts believe that the market for advertising-supported search engine sites is too crowded and the services too difficult to differentiate to support more than a handful of companies.

"The window of opportunity in the public market may have closed after Infoseek," which went public two weeks ago, said analyst Keith Benjamin of investment house Robertson, Stephens & Company. "Everybody's acknowledging that it's going to be a tough race, and consolidation in this industry seems inevitable."

Nevertheless, Benjamin has assigned a "buy" rating to Excite stock, which closed today at 8-3/8, up 1/8 of a point. Competitor Yahoo was also up, by 2-3/4 points at 21, while Lycos was up half of a point to close at 11-1/8.

Industry observers said that the merger is a smart idea for Excite. "They've got a lot of momentum in terms of presence not only with general links to their site but with companies adopting their technology to search their own public Web sites," said Ross Rubin, editor of the newsletter Internet Business Report. The main advantage that Magellan will bring to the consolidation is a Web site directory with 40,000 reviews and one of the top three site-rating systems, according to Rubin.

The merger of the two companies, which were headed in opposite directions, will create the second-largest Internet search engine, adding the rating system and directory of The McKinley Group's Magellan On-Line Guide to Excite's search service. The combined service is expected to assume the Excite brand.

The deal is valued at roughly $18 million, a figure based on the average trading price of Excite for the last 30 days. Excite raised more than $39 million in an initial public offering in April.

Despite a big boost in audience share when Netscape Communications added Magellan to its often-visited Net Search page in April, the Sausalito, California-based McKinley has recently run into trouble.

First, a venture to go public didn't gain sufficient interest from investment bankers, according to today's Los Angeles Times. Then a proposed merger with multimedia publisher Novo Media Group of San Francisco fell through. Then the McKinley directors, sisters Isabel and Christine Maxwell, ousted the company's president three days ago.

Related stories:
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Yahoo inks fast deal with AltaVista
HotWired gets into the search act
Oracle, CMP to launch search engine
AltaVista searches for consumers
Excite lives up to name on Wall St.
Excite follows Yahoo with IPO
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