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Inktomi banks on Net shopping binge

The firm known for its search and caching technology works to put its comparison-shopping service all over the Web.

With roots deep in geekdom, Inktomi has reached a $6 billion market capitalization on the backs of its caching and search technologies. Now it hopes to become a major e-commerce player with ambitious plans to proliferate its shopping technology throughout the Web.

Today, Inktomi added a new weapon to its e-commerce arsenal with the acquisition of Impulse Buy Network, whose software allows merchants to target promotional programs, such as limited time or special offers, to specific online consumers. The all-stock deal is valued at about $113 million.

The Impulse Buy software will be integrated with the foundation of Inktomi's e-commerce effort: the Shopping Engine, a comparison-shopping database that aggregates information on 2 million products from more than 350 merchants. Inktomi has licensed the Shopping Engine to more than 20 portals and community sites, including CNNfn, Go Network and GeoCities.

The Shopping Engine represents a major new thrust in Inktomi's business plan, an effort to expand beyond licensing Web services such as network caching. Now, the firm wants to capture a piece of the booming online shopping trend--but the underlying philosophy is the same.

"Inktomi has been very successful at taking a core technology and spreading it across different markets," said analyst Jim Balderston of Zona Research.

Inktomi believes its "agnostic" strategy, which enables it to customize private-label versions of its shopping technology to fit a particular site's content, will make it a sort of Switzerland on the Web willing to do business with everyone. Whether the company can execute such a strategy, however, has yet to be seen.

Wall Street is taking a cautiously optimistic approach to Inktomi's business plan. Goldman Sachs placed Inktomi stock on its "recommended" list this week, but in a research report, the investment bank wrote that "Like most rapidly growing technology companies, Inktomi faces execution risks." In a report issued today, BancBoston Robertson Stephens analyst John Powers called Inktomi "a key Internet franchise" but is maintaining a long-term "attractive" rating on the stock.

Although Inktomi beat the First Call consensus estimate by 3 cents in its most recent quarter, like most rapidly growing technology companies, the company is still losing money. That's part of the reason for Wall Street's caution, but another reason is Inktomi's own guidance. According to CEO Dave Peterschmidt, the company is still in a building phase, adding tools to its Shopping Engine to gear up for the holiday buying season.

"We're not trying to drive a lot of revenue in the next three or four months," Peterschmidt told CNET News.com. "At Christmas season we'll understand how much revenue we'll derive out of shopping."

A key element in executing Inktomi's plan is bringing merchants, who provide product and pricing information, into the fold. Merchants pay Inktomi anywhere from 5 percent to 20 percent of each transaction, which Inktomi then shares with the portal where the transaction took place.

Inktomi must also convince portal sites that its willingness to put their brands up front while providing powerful technology on the back end makes sense for them. Unlike other comparison shopping technologies that are allied with specific portals, such as Amazon.com's Junglee (now the online retailer's Shop the Web section), the Shopping Engine is an "under the hood" technology.

For now, Inktomi is in a race to add both portal customers and merchants to differentiate its Shopping Engine from other comparison shopping tools on the Web. Having lost a contract with MSN, which recently traded Inktomi's search technology for AltaVista, the company is well aware of how important it is to keep both portals and merchants happy.

Establishing the necessary reach is the first step, according to Balderston. "Technology only takes you so far; then you have to execute and do the partnerships," he said. "That's hard work."