Net Firms Are Racing Into Marriage, With No Love Lost
SAN FRANCISCO — When it comes to sorting allies from enemies, the Internet truly is a tangled web, as last week’s deal between Netscape Communications Corp. and Excite Inc. illustrates.
After all, the two companies agreed to share technology, customers and millions of dollars in advertising revenue over the next few years, even though they are also rivals in their bids to become consumers’ first stop on the Internet.
Such conflicted arrangements are becoming so common on the Internet that online executives have taken to calling their unique business approach “coopetition.”
“It’s a weird world,” said Joe Kraus, co-founder of Redwood City-based Excite, whose navigation site on the Web is second only to Yahoo Inc.’s in popularity.
“The industry is being built so quickly,” he said, “that sometimes competitors partner and partners compete.”
Excite has embraced this more heartily than most. The company has cross-promotional deals with America Online Inc., Intuit Inc., Netscape and others, even though all of those companies compete with Excite for Web surfers’ attention.
Excite’s relationship with AOL became so awkward last year that AOL Chief Executive Steve Case resigned from Excite’s board of directors because of conflicts of interest. But AOL still owns about 11% of Excite’s stock.
Yahoo also has deals with Netscape and Microsoft Corp., even though both companies would love to displace Yahoo as the most popular destination on the Web. The navigation sites of Infoseek Corp., Lycos Inc.and other companies are in similarly conflicted arrangements.
Analysts say these companies are in such a rush to build their empires that they are willing to take enormous risks by forming partnerships aimed at adding critical elements to their sites, even if their partners also happen to be rivals.
“It is a hyper-competitive market and they have to look for any opportunity,” said Paul Noglows, an analyst at Hambrecht & Quist in San Francisco. “The smart companies are the ones that embrace it.”
In some ways, the practice has a long tradition in Silicon Valley, which was built by engineers who shared ideas and technology with competitors all in the name of helping the industry grow.
But the approach has been taken to new extremes on the Net, particularly among companies that aspire to become “portal” sites through which consumers will pass for all of their online needs and where advertisers will pay to place their billboards.
Many of the most powerful companies in cyberspace, including Microsoft and Netscape, are building full-service sites that offer navigation, e-mail, news, shopping and more.
Deals tend to happen between companies that need help putting all of these services together. Netscape needed Excite’s search engine technology, for instance, while Excite needed referrals from Netscape, which still controls a great deal of online traffic because its Internet browser remains the most popular.
Still, outsiders may strain to see the logic in a deal that calls for Excite to pay Netscape at least $70 million for the privilege of getting its search engine and other services placed in premier--although not necessarily exclusive--locations on Netscape’s site.
At the end of the two-year deal, Netscape gets to keep using Excite’s technology even if the companies part ways.
Excite executives say that navigation accounts for just 40% of their traffic and will represent half of that within a few years, so giving that technology to Netscape isn’t as foolhardy as it sounds.
In the meantime, the deal with Netscape gives Excite access to millions of new customers, brand exposure and, perhaps best of all, a chance to divert traffic away from archrival Yahoo.
“If everything works out,” Excite’s Kraus said, “we will make each other stronger while making other competitors weaker.”
All of which serves as a reminder that there are limits to “coopetition.” Deals between rivals are one thing, but sworn enemies such as Excite and Yahoo don’t seem to be planning any partnerships, at least not yet.
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Times staff writer Greg Miller can be reached via e-mail at greg.miller@latimes.com
