Netscape Communications Corp has plumped for Excite Inc as its core search engine partner and teamed closely with the company to develop co-branded channels in a revenue and technology sharing deal over the next two years. There was a great deal of speculation over which company Netscape would opt for, but it centered around Excite and Infoseek inc. Excite is also the exclusive provider of search technology on America Online Inc. Excite will give Netscape $70m of the guaranteed revenues up front, which Netscape says represents between 70% and 75% of the total revenues it expects to get from the two year deal, making it worth about $100m to Netscape’s top line. In return, Excite gets traffic guarantees from Netscape. Netscape also gets warrants to buy a stake in Excite, which it intends to exercise, which will give it a single digit stake in percentage terms. Netscape would not specify in what quarter it would begin to recognize the revenues, but they will be amortized over a few quarters, and it would not reveal any further details about the warrants. Excite will provide search engine technology to create a co- branded engine called ‘Netscape Search powered by Excite,’ which along with the Excite’s own engine, will be the two ‘premier partners’ on Netscape’s search page. In the first year, Netscape and Excite’s engines will both receive 25% of the net search rotation (Net Search is the name of the search engine page), which refers to the percentage of pages delivered to users who have not selected a particular search engine themselves. The remainder will be shared among other search engine providers, yet to be announced. The current contracts with the likes of Yahoo, Lycos, HotBot, Infoseek and others have been extended for between 30 and 60 days and Netscape plans to announce deals with some or all of these within the next 60 days. In year two, Netscape will get 50% of the rotation, Excite 25% and the others 25%. At the end of the two year deal, Excite will hand over the search engine technology to Netscape to do with what it will, and Excite will get licenses to Netscape’s Kiva internet applications deployment software, personalization technology and other unspecified tools that have yet to be written. The two companies are also talking about Netscape using Excite’s MatchLogic online direct marketing management software, which it acquired in January. On the channel front, Excite will be responsible for selling the advertising on about half of Netcenter’s channels, which will be created by Excite and co-branded. These include arts & leisure, auctions, autos, classifieds, education, games, lifestyles, real estate and shopping. The advertising revenues from these channels will be shared between the two, but loaded in favor of Excite in the early stages in order to get back its upfront payment quicker. It will eventually be a 50-50 split, says Excite’s CEO George Bell, but he couldn’t say exactly when. Excite will use its Jango shopping technology and its subsidiary, Classifieds2000 will become the preferred provider of online classifieds across the entire Netscape web site. Netscape will continue to develop its own channels in areas such as computing, business, finance, news, sports, entertainment and local information, among others. Excite said it did not mind giving up the secrets to its search technology in two years’ time, because by then, it will be a much smaller component of what constitutes a web portal than it is now. Bell said it only comprises about 40% of traffic now, down from about 95% a year and a half ago. He added that the ad rate card for the co-branded channels have not been set as yet. Netcenter generated $108m in revenues in 1997; $13m in software and $95m in advertising and sponsorship. Netcenter general manager Mike Homer said the consensus estimate for this year is about $150m. Bell said there has been a scarcity of quality inventory – content – on which to sell advertising, but the new channels will expand that greatly. Homer said the deal will have a substantial positive impact on both companies; Bell said we need each other over the next two years.
