Shares of enterprise software maker Banyan Systems were hammered today after the company announced that the white pages directory contract between its subsidiary Switchboard.com and America Online will not be renewed at the end of its current term in November, so that Switchboard can build its own customer base and develop its brand name.
AOL chose instead to sign a three-year, multimillion-dollar contract with InfoSpace, a rival directory service.
Shares of Banyan fell 40 percent on the news. The stock was trading at 2.63, down 1.75 points. It has traded as high as 13.38 and as low as 1.75 during the past 52 weeks.
InfoSpace's white pages will be available on AOL's Web site , as well as on AOL's proprietery services, including local guide network Digital City.
Under the new contract between AOL and InfoSpace, AOL will receive guaranteed minimum annual payments and warrants to purchase shares of InfoSpace.
"Our agreement with America Online offers us a tremendous opportunity to extend InfoSpace.com's award-winning directory services," said InfoSpace CEO Naveen Jain. "This new relationship is a home run for both companies."
Although AOL would not disclose the specific terms of the deal, company spokeswoman Ann Brackbill said "it is many times greater than the deal with Switchboard."
The online giant said it decided to sign the deal with InfoSpace rather than Switchboard because it felt InfoSpace would provide greater benefits.
"We re-evaluate our partners all the time," Blackbill said. "There are a number of variables involved, and we always go with what we think is clearly best for both our members and our shareholders."
The break between Switchboard and AOL comes at a time when InfoSpace is gaining momentum. Just last month it signed a deal with Netscape Communications to power its directories on its newly revamped Netcenter portal site.
Switchboard also provides Yellow Pages directory and Web publishing services to AOL. The companies will continue to review their relationship in these areas.
Switchboard, Banyan's majority-owned subsidiary, has more than 120 million listings for individuals and businesses. The company estimates that AOL's white pages customers account for approximately 35 percent of its overall traffic and 20 percent of its total advertising revenues. AOL will remain a minority investor in Switchboard, with a 10 percent equity interest.
"The battle for traffic, reach, and repeat users continues to intensify among the major Internet portals, and the importance of directory services drove AOL and Switchboard to revisit their relationship," said William Ferry, Banyan's chairman and CEO. "Over the course of our discussions with AOL, it became clear that a restructured white pages relationship would reduce Switchboard's traffic reach and overall branding and promotion at a substantially greater cost.
"Therefore, Switchboard will focus its resources on expanding its own white pages base of branded traffic and loyal users," Ferry added.
Switchboard said it now plans to pursue new strategic relationships. The directory service already has an alliance with Alta Vista, and a white pages partnership with Bell Atlantic's BigYellow site. Switchboard also acquired Lucent's MapsOnUs mapping service in May.