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StockTalk:
TMF Interview With Excite
Co-founder Joe Kraus

With Yi-Hsin Chang (TMF Puck)
and Brian Graney (TMF Panic)

June 25, 1998

Our guest today comes to us from sunny Redwood City, California. He is Joe Kraus, senior vice president and co-founder of Excite Inc. (Nasdaq: XCIT). Mr. Kraus was one of six Stanford graduates who came up with an idea of creating a software tool to manage the vast amount of information on the Internet. More than 2 1/2 years later, the five hackers and the lone poli sci major -- that being Mr. Kraus -- launched Excite at www.excite.com. Today, Excite is becoming far more than an Internet search engine. It is remaking itself as a "portal," an entry site for Web users that offers online guides, news, shopping, chat, games, and, of course, search services.

TMF: Mr. Kraus, thank you for joining us today.

Kraus: Thank you.

TMF: The biggest news in the Internet portal business in the past week was Disney (NYSE: DIS) taking a 43% stake in Infoseek (Nasdaq: SEEK). Does this undercut your agreement earlier this month with Disney to give Excite users access to Disney.com, ESPN SportsZone, ABC.com, and ABCNEWS.com.?

Kraus: No, but we're in the process of sorting all that out right now.

TMF: In light of the Disney-Infoseek deal and NBC's recent investment in CNET (Nasdaq: CNWK), do you see your company and other portal companies merging operations or allying with other major media or entertainment conglomerates in the near future?

Kraus: Well, we've been talking to lots of people in that space for probably over a year now. I think that Excite has been fortunate enough to build itself up to a level -- from a number of consumers using it on a monthly basis, which RelevantKnowledge measures at about 20 million "unique" consumers using our network every month. We've built ourselves up well enough from a brand perspective so that, as we look at the industry, we feel like we're in a strong position to make sure we make our choices wisely. Whereas I think competitors like Infoseek and Snap! were in positions of needing to do a deal more aggressively than we did.

So as I look at the industry, I think that we've been, again, aggressive about talking to a number of different players here. I think that, again, we've been in the fortunate position of having built our brand successfully and we are continuing to do so, as well as investing in it, [and] acquiring and retaining as large a user-base as possible. So, we feel we're in a good position to be picking and choosing our opportunities wisely.

TMF: Do you feel that "brand" is the most important aspect of Internet portal companies, or do you think it's the technology that will win out the customers?

"The key to our business is attracting as many consumers as possible and then retaining them as best as possible. Attraction comes very much so from brand -- getting consumers to feel comfortable with going to your service. Retention has a lot to do with the products and services that you offer."
Kraus: I definitely believe that it's an issue around brand and services that you offer. I mean, the key to our business is attracting as many consumers as possible and then retaining them as best [we can]. Attraction comes very much so from brand -- getting consumers to feel comfortable with going to your service. Retention has a lot to do with the products and services that you offer. Products and services that tend to retain people are ones that are personalized, that allow consumers to make an investment of themselves and have the experience be unique for them. Of further importance are community-oriented products where people are able to chat or email with one another, where the experience transcends the service and becomes more about the people on the service itself.

TMF: Your recent partnership deal with Netscape (Nasdaq: NSCP) involved paying $70 million up-front to Netscape. How does this agreement benefit Excite?

Kraus: Well, the agreement benefits us in a number of different ways. The first is from a branding perspective. By paying Netscape the money that we did, the $70 million, consider that a lease on a substantial portion of Netscape's web site. About 50% in year one, and about 65% of the website in year two. On all those percentages, our brand appears and appears relatively prominently. So there's an opportunity to expose consumers to the Excite brand and, given that brand is the key to attracting customers, we feel that that's a good strategic benefit.

The second is consumer acquisition. Netscape is a place where the consumers tend to be unloyal. They haven't differentiated themselves. They're relatively new. They haven't picked their favorite service. So getting exposure to those consumers early -- before they've made their choices about what services they are going to lockdown on -- is an important strategic placement.

The third is the ability to sell that inventory. In the deal, we have the right to sell the portions of the Netscape website that we program -- again, 50% of it in year one and about 65% in year two. The ability to sell that means that our salesforce can represent to advertisers the ability to access 42.8% of the Web, such that with one buy an advertiser can reach that much of the percentage of the Web audience. To give you a sense, in the first 12 days of selling after we did the deal, we announced that we had sold $21 million worth of advertising in those 12 days.

TMF: Aside from the strength of your brand, which is obviously very, very strong, what do you think sets Excite apart from other search engines -- especially the market share leader Yahoo! (Nasdaq: YHOO)?

Kraus: I think the primary one is a real focus on personalization. About six, seven weeks ago, we made the entire Excite service -- especially it's front page -- personalizable. We had a product previously for the last two years called "My Excite" that was one click away from the front page. But we found that that was generally one click too many, that people really liked personalization, that people who personalized returned five times more frequently than people who didn't, that of people who personalized, about 85% of them made the page their home page or accessed it via bookmark or typed in the URL directly. So it was a real loyalty-building product.

"In the first 12 days of selling after we did the [Netscape] deal, we announced that we had sold $21 million worth of advertising in those 12 days."
But again, what we realized was that, although the people who knew about it really loved it, not enough people knew about it. So we made the entire service personalizable -- especially the front page -- and have seen our registrations on those pages double as a result. Again, what that means for consumers is it's a real differentiated focus on personalization. The consumer sees it the instant they type in www.excite.com, and that's different -- very different -- from the experience they get when they type in www.yahoo.com.

TMF: How do you envision the Internet portal business two to three years from now? Do you think there'll be massive reshuffling? Do you think there'll be mergers of various portals?

Kraus: Well, I think the key is how do you continue to acquire customers and retain them at a rapid pace, which again focuses on two components. One is how do you continue to build the brand and get exposure for the brand? The second is how do you make sure the programming you put on those services is appropriate to the current state of technology -- today, that is people accessing from 28.8 modems. Two, three years from now, people may be accessing through cable modems or a converged PC/TV-type appliance. So, I think that the way the space will change, and the way the alliances will shake out, is however these companies can get continued exposure and make sure that their programming keeps up with the current state of consumer technology. Those are going to be the key drivers.

TMF: Do you see more alliances with content companies in the future, or will the search engines actually try to develop content on their own?

Kraus: Well, from Excite's perspective, we're not a content company. We don't make any content, and, in fact, we're very much like a network television company, something like NBC, where we're good at distribution. We bring lots of eyeballs and lots of consumers to whatever we do. We're good at programming, meaning we know what consumers want, and we sell ads well. We don't make content. In fact, we partner for content with third-party content providers and then carry their content on our network much in the same way that NBC does with its shows. It contracts out with studios to put other studios' shows on the air.

TMF: In May, Excite, Infoseek, and Lycos (Nasdaq: LCOS) all signed partnership agreements with AT&T (NYSE: T). What is your view of these non-exclusive agreements? Do they sort of cancel each other out as far as competition is concerned?

Kraus: The motivation for doing these types of deals like Excite Online is to increase the link and the retentiveness of the link between a consumer and a service like Excite. So, Excite today is the easiest way for you to find things online, the easiest way for you to make sense of your Web experience. We also needed to make sure that we had an easy way for you to get online if you weren't online, and that's why Excite Online was done. In terms of the non-exclusive nature of the deal canceling the deals out, we think that Excite Online is an interesting opportunity. We don't think that it's the biggest opportunity that we have in front of us, but we think it's a good one. We're excited about it. We'll have to see how the branding of each of Excite and Lycos and Infoseek pull against one another in the marketplace.

TMF: Seeing an NBC deal really caused a lot of people to re-evaluate the Internet and its effect as a media source going forward. What are your personal opinions on how far along we are toward seeing the Internet as a distribution channel for television programming or other media programming?

"We made the entire service personalizable -- especially the front page -- and have seen our registrations on those pages double as a result."
Kraus: I definitely think there's going to be a convergence between -- and I definitely am not alone in this -- between the Internet and television at some point. I'm not exactly sure what it's going to look like, but it's going to be there. That's why you're seeing the media companies have a strong interest in Internet companies, especially ones that have built large franchises of consumers.

At the same time, I don't think anybody is really considering another very real alternative, which is Internet companies buying media companies. No one has thought about why AOL (NYSE: AOL) couldn't potentially buy another media company like NBC. It's unclear why those questions aren't being asked, but I think that the flow could go both ways.

TMF: Is Excite considering buying a media company?

Kraus: I can't comment on that one.

TMF: Lycos, one of your competitors, has a patent on the spider search technology. Will that create problems for your company down the road?

Kraus: I'm not sure what I can comment on specifically for legal reasons, but currently we've had our lawyers looking at it and, from a broad or narrow interpretation, we don't believe that we are in any sort of infringement.

TMF: Thank you so much for joining us today, Mr. Kraus

Kraus: Thank you.

Related Links:

  • Excite website
  • Excite Daily Double (8/12/97)
  • Excite message board

     

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