Quick. Why would At Home, the provider of online access which effectively has exclusive rights to deliver broadband Internet access to almost 60 million cable-television subscribers, spend $7.5 billion to acquire Excite, an online portal that’s at best fourth in the race for Internet eyeballs?
Hey, baby, content is still king.
That, at least, is the apparent reason for what at this point seems like a rather curious purchase by At Home. And while it’s certainly a comforting reason for anyone who makes his living as a content provider–that is, me–I think I’ll need some more evidence before it becomes a convincing reason.
Here’s why. At Home is currently a very small company in terms of the actual business it’s doing (though not in terms of its market cap, which is currently close to $12 billion). There are only 330,000 At Home subscribers, and the firm did just $47 million in revenue last year. Needless to say, it has yet to actually make any money. For all of that, though, it’s hard to find a company associated with the Net whose future looks brighter. At Home’s service will provide access to the Net at speeds up to 100 times faster than current modems, and will do so over already-existing cable lines for a cost of $40 a month. As far as I’m concerned, serious market penetration by At Home will transform not just our experience of surfing the Net but the economics of the Internet as well. Speed, in that sense, is the Net’s killer app.
And speed would be that killer app regardless of who was creating At Home’s gateway to the Net. Although careful explanations of why At Home wanted to spend all this money have been a little difficult to come by, people have pointed to Excite’s personalization features–which any portal worth its salt has. They’ve mentioned that these features will allow At Home to do a better job of tracking customers, marketing to customers, and serving its advertisers. They’ve also mentioned, of course, Excite’s established user base. The number being bandied about is 20 million, but all that number represents is people who at one time or another have registered with Excite. And speaking only for myself, I couldn’t tell you how many Web sites there are that I’ve registered at and never visited again.
In any case, even if we say that Excite has 20 million customers, is it really plausible that they would turn down the chance to use At Home’s service if At Home were allied with some other portal site, or if At Home created its own portal (which I guarantee you would cost less than $7.5 billion)? Unless I’m missing something, At Home customers are still going to be able to head to Yahoo or Go.com if they want, so wouldn’t the Excite fanatics have been able to subscribe to At Home and still use their site?
On the flip side, of course, the deal makes dazzling sense for Excite. At Home is buying the portal for something like a 67 percent premium (depending on what happens to At Home stock in the meantime). And although some people have suggested that At Home is doing the deal because its own stock price may be inflated, its shares are certainly no more inflated than Excite’s. And any Excite shareholder who sold yesterday got as much as $110 a share. In cash. In that sense, Excite’s executives have done a really stunning job of maximizing shareholder value.
As for At Home, well, I’d say that betting against CEO Tom Jermoluk is a mistake. And some consolidation in this industry was inevitable. But we all know by now that most mergers don’t work, and I’m assuming that’s as true in the world of the Net as in the real world. In the end, At Home may have underestimated just how potent its technology is all by itself, and how little it needs add-ons to attract customers. TheStreet.com quoted one portfolio manager yesterday saying, “A great pipe is not worth very much unless you give people a reason to use it.” Um, hello? Getting the whole Internet 100 times faster than you normally do isn’t a great reason to use At Home, but having Excite as your gateway is? Let’s simply say: not.