What Happened To AltaVista? Here’s Why The Search Engine Failed

Executive Summary:

AltaVista was a search engine as well as a web portal that allowed users to browse the world wide web as well as UseNet.

AltaVista failed because of its alternating ownership, due to a failed shift towards becoming a portal, as well as its core search business was eventually overtaken by Google.

What Is AltaVista?

AltaVista was a search engine as well as a web portal that allowed users to browse the world wide web as well as UseNet.

It initially started out as a crawler-based search engine that utilized its own web index to crawl more than 20 million pages. Many search engines at the time were only able to index around one to two million web pages.

AltaVista offered a variety of search functions, namely in Standard, Compact, and Detailed form. The more advanced search forms enabled users to filter their queries, for example by limiting the number of returned queries.

The company also licensed its search technology to other (internet) companies including Yahoo, CNET, Carrefour, and more. The site even had a Surprise section that would lead users to random pages.

For a few years, AltaVista was also operating as a web portal. That meant it would not only allow its users to search the web but to find jobs, book hotels, and flights, purchase insurance products, or consume a variety of content.

Moreover, AltaVista was made available in a variety of different countries and languages, such as Brazil, Germany, France, Italy, and dozens more.

AltaVista was ultimately shut down in June 2013. How it came to be, who was behind it, and what ultimately led to its demise will be covered in the next few chapters.

What Happened To AltaVista?

AltaVista, formerly headquartered in Palo Alto, California, was launched in December 1995 by Paul Flaherty, Louis Monier, Michael Burrows, and Jeffrey Black.

All four of them were working at and for Digital Equipment Corporation (DEC), which was a manufacturer and distributor of computer hardware.

At the time, Burrows, Monier, and the others were all based on the west coast and employed at DEC’s research lab.

Their employer, in the meantime, was consistently playing catch up to the competition and had struggled greatly in the previous few years.

The intention of the research lab was therefore to explore new and emerging business segments that DEC could potentially expand into.

One of those segments that the research team identified was search. Search engines initially began as applications used by academics who needed to conduct research.

The consumer-facing search engines, on the other hand, would often be simply unusable. Either, they weren’t able to index a sufficient number of pages (thus not offering many results when searching) or would crumble under any form of load.

Monier and his team were convinced that they could build something substantially better than what was out there. And it became Monier himself who was leading that project. By the 4th of July weekend, a first working prototype was ready and deployed for test usage.

Weeks later, he decided to turn off the machine for a few days to clean up the database. Swiftly, tropes of people bombarded him with emails and asked him to get it back up as it became an essential part of their work.

Seeing how much people loved the product, he decided that it was ready to be released to the public. The marketing department at DEC initially named it Gotcha, with the logo resembling what looked like bird poop.

A mere 24 hours before its release, the team pushed for a name change and settled on AltaVista, which is derived from the Spanish words alta and vista (meaning ‘high view’ or ‘upper view’). On December 15th, 1995, the team finally revealed the AltaVista search engine to the public.

Due to the product’s superiority, its usage exploded right from the start. Over 300,000 people accessed the search engine on the first day of its release. User numbers propelled into the millions over the course of the next few months.

Soon after launch, DEC also signed licensing deals with other web powerhouses, such as Yahoo, to power their platform’s search. Furthermore, DEC created various software suites that other companies could purchase and run AltaVista, amongst others, as desktop applications on their computers.

By August 1996, AltaVista became so popular that DEC announced its intentions to spin off the unit and have it go public. Two months later, DEC filed a lawsuit against multimedia software company AltaVista Technology Incorporated (ATI), which was using the AltaVista name without owning the trademark. In fact, ATI had registered the altavista.com domain a few years prior, which forced DEC to host its search engine under altavista.digital.com.

Towards the end of 1996, in preparation for its IPO, AltaVista began to display banner ads. At the time, banner advertising was considered to be a highly lucrative revenue source since many established brands began committing significant portions of their marketing budgets towards this new form of advertising.

After all, AltaVista was still losing money at a rapid pace. For the fiscal year 1996 (which ended on June 29th), the search engine only generated $3.6 million in revenue while posting a loss of $29.9 million.

Over the coming months, as it prepared for an IPO, AltaVista continued to expand its functionality as well as add additional monetization channels (such as an intranet bundle for $995 released in March 1997).

It also celebrated a win on the legal front. The U.S. District Court in Massachusetts ordered ATI to not use AltaVista’s trademark in a way that creates the false impression that ATI’s Web site is Digital’s AltaVista search service.

It, furthermore, needed to add the following disclaimer to its website: “AltaVista Technology Inc. is not affiliated with Digital Equipment Corporation, AltaVista Internet Software Inc., or the AltaVista search service. The AltaVista Internet search service may be found at http://altavista.digital.com.”

Despite its legal win, DEC eventually decided to call off the AltaVista IPO in June 1997. The decision to fold its plans of going public was influenced in large parts because of a cooled-down IPO market which would’ve led to a much smaller valuation – and thus less capital being raised.

Instead, AltaVista decided it was best to double down and focus on growth. Not long after, it added 25 different languages to AltaVista and created mirror sites for the Asian, European, as well as Latin American markets.

However, AltaVista also had to suffer some losses along the way. Soon after its IPO plans were put aside, Ilene Lang, its CEO, decided to resign from her position. The firm’s new leadership decided to shift strategy by moving AltaVista from solely being a search engine towards becoming a web portal like AOL, Netscape, or Yahoo.

In April 1998, for example, it signed a partnership with the business travel site TheTrip.com, which would become the exclusive provider of travel services on the site and pay AltaVista $15 million to be displayed on it for the next five years.

Weeks earlier, AltaVista had added a free email service to entice users to sign up for its portal. A plethora of deals would be announced in the months to come. With AltaVista’s move into the portal game, it also lost some of its most valuable clients. Yahoo, for example, decided to work together with another search provider to power its portal search.

AltaVista would continue to engage in the portal wars under the auspices of a new owner, though. In June, DEC was acquired by Compaq Computers in what, at the time, became the largest merger in the history of the computer industry (worth $9 billion). While Compaq sold off a few of DEC’s divisions to other hardware manufacturers like Intel, it was dead set on continuing to fund AltaVista.

One of those investments became a $3.3 million payment to ATI in July. After close to three years of being in business, AltaVista finally managed to secure the altavista.com domain. In the coming months, AltaVista added a variety of additional products, such as a browser toolbar (August) or news feeds and stock quotes (October), amongst others.

After months of trying to find a suitable replacement for Lang, the CEO search was finally concluded in January 1999. Compaq senior vice president Rod Schrock became AltaVista’s newest chief executive.

In the meantime, AltaVista also continued to make serious investments into AltaVista and its internet division. Weeks prior, it purchased the e-commerce company Shopping.com for a whopping $220 million with the intention of integrating it into the AltaVista portal.

Schrock, furthermore, managed to score some significant partnerships right after his appointment. For example, he closed a deal with Microsoft which saw AltaVista become the primary search engine for its MSN network. In return, AltaVista would license Microsoft’s free e-mail service Hotmail.

In April 1999, AltaVista paved the way for what would become one of the most lucrative methods of monetization in internet history. It unveiled paid search results, which would give advertisers the opportunity to have their sites listed at the top of search results.

Google, which launched in 1998, would eventually adopt a similar auction-based model. Moreover, AltaVista’s paid search would be powered by DoubleClick, which Google purchased for an eye-popping $3.1 billion in 2007.

Compaq, just like DEC before, made it known that it wanted to spin off AltaVista and have it go public somewhere in 1999. Despite its ambitious intentions, things moved extremely slowly. As a result, co-founder and CTO Monier departed in April 1999 after becoming increasingly frustrated with Compaq’s management.

For example, despite having made some hefty acquisitions, including Shopping.com and city guide Zip2.com (which it purchased for a reported $300 million), approval of new features would take weeks or months. AltaVista didn’t even link to Zip2 and barely displayed Shopping.com on its portal.

By the summer of 1999, AltaVista slipped out of the top 10 most visited websites in the world (while still recording a respectable 25 million visitors a month). Compaq itself had been looking to replace long-time CEO Eckhard Pfeiffer which it ousted back in April, further adding to its indecisiveness.

It, therefore, was little surprising that Compaq eventually decided to sell off its digital assets. In June 1999, Internet venture fund CMGI purchased AltaVista (and its associated entities such as Shopping.com) for $2.3 billion for what was mostly a stock deal, granting it an 83 percent stake.

Soon after, CMGI announced that it would spend $120 million over the next year to promote AltaVista. Compaq, for reference, had spent less than $1 million promoting the search engine since it had been acquired by the computer manufacturer.

One of those initiatives was a free dial-up internet access program that AltaVista launched in August. The free service was financed by a small display ad that was being run in the corner of the user’s window.

Under CMGI, AltaVista doubled down on its portal strategy by vastly increasing the number of products and services it promoted. It, furthermore, invested heavily in TV ads and even acquired its first company, Raging Bull, a financial website that would provide AltaVista with additional content.

Yet again, rumors regarding a potential stock market flotation began to emerge. In order to beef up its potential valuation, AltaVista remained in expansion mode, for example by launching a dedicated French site in February 2000.

A month later, it announced an unlimited internet service aimed at the U.K. market for just £10 a year, set to launch in the summer. Within a few days, over 250,000 customers had signed up, which even caused AltaVista’s site to crash.

In May, AltaVista also launched a new search engine called Raging Search, which was able to index more pages and provide users with faster and more relevant results. However, this yet again wasn’t enough to draw investor excitement, which ultimately led CMGI to fold its IPO plans for AltaVista in early June. This became the third time in AltaVista’s five-year history that its plans to become a public company were abandoned.

Unfortunately, the bad news didn’t stop there. At the end of July, AltaVista and Microsoft scrapped their licensing deal that would’ve placed the former as the default search engine for MSN. A month later, AltaVista announced that it wouldn’t be able to offer the unlimited internet service in the U.K. as it was simply too expensive to operate.

On September 15th, 2000, AltaVista disclosed that it would lay off 25 percent of its 900-strong workforce in an effort to become profitable and realign the business for another try at going public. One of the people that left AltaVista was CEO Rod Schrock. Ken Barber, its interim CEO, decided to retire two months after taking the job from Schrock.

Additionally, AltaVista terminated its free internet access service in the United States after 1stUp which provided the service on behalf of AltaVista and was, in fact, owned by CMGI, went out of business.

AltaVista eventually decided to move away from the portal game and realigned its focus towards its core search engine business. The portal and search engine had suffered from declining traffic for months. In fact, Google overtook AltaVista in traffic by January 2001.

That same month, AltaVista laid off another 200 people and officially scrapped its plans for going public once again. In February, AltaVista also abandoned its community features after the Better Business Bureau found the platform being too loose in preventing children from visiting adult-only sections.

The bursting of the dot-com bubble, furthermore, led to a significant decline in advertising revenue and thus added to AltaVista’s financial troubles. This caused AltaVista to quietly abandon its Raging Search product.

After finally appointing a new CEO in September 2001 in James Barrett, AltaVista had to yet again lay off additional employees. It reduced its workforce from 500 to around 340 people. A month later, it also shut down its Shopping.com site as it continued to double down on search.

Another product, namely its free email service, was shuttered in March 2002. Half a year later, the Chinese government blocked access to AltaVista as well as other search engines like Google, which had put an unreachable distance between itself and AltaVista at that point.

Even various major website redesigns as well as the addition of new search features could not reignite growth. As a result, CMGI eventually decided to sell AltaVista in February 2003. Overture Services paid a mere $140 million in cash and stock for the struggling search engine.

Overture itself was acquired by Yahoo in July 2003 for $1.63 billion. However, Yahoo didn’t really know what to do with the search engine except to leave it dormant. The next time AltaVista entered the public consciousness was when one of its former employees, who joined Microsoft, was arrested by the FBI in July 2004 after he illegally accessed computers and source code belonging to AltaVista.

In the meantime, former CTO and co-founder Monier announced that he would join Google in June 2005 after having spent the past five years at eBay. In December 2010, rumors emerged that Yahoo was shutting down AltaVista.

While not initially true, these rumors eventually materialized on July 8th, 2013. Yahoo officially shut down AltaVista alongside a number of other services such as Yahoo WebPlayer, Axis, or RSS alerts.

Yahoo sent the search engine off by simply saying to Please visit Yahoo! Search for all of your searching needs.

Portions of AltaVista’s features and patents were integrated into Yahoo’s search product. These days, AltaVista simply redirects to Yahoo Search.

For the first few years of its existence, AltaVista cornered and dominated the search market. After a series of missteps, it was eventually overtaken by the likes of Google and others. What ultimately led to its demise will, therefore, be covered in the next section.

Why Did AltaVista Fail?

AltaVista failed because of its alternating ownership, due to a failed shift towards becoming a portal, as well as its core search business was eventually overtaken by Google.

Before Compaq acquired AltaVista (and its parent company DEC) in June 1998, it was more or less considered to be the undisputed leader in search.

Compaq, however, decided to move the company away from search towards becoming a portal that would suddenly compete against the likes of AOL, MSN, Netscape, Yahoo, and others.

While portals were one of the dominant means with which people consumed content on the internet, they were also extremely competitive to be in and thus costly to build.

This is probably best exemplified by the $220 million purchase of Shopping.com and the $300 million acquisition of Zip2.com. Moreover, AltaVista had to offer a variety of additional services such as free e-mail or internet access to move users away from the established players.

Additionally, AltaVista was competing against much more nimble organizations, which were churning out new features and revenue streams at a rapid pace. Compaq, on the other hand, tremendously slowed down the development process at AltaVista due to features needing to be approved by various managerial layers.

Compaq’s inability to innovate became evident after it took AltaVista over six months to integrate Shopping.com and Zip2. It, therefore, wasn’t particularly surprising when it decided to sell AltaVista to CMGI.

A change of ownership, though, requires time-intensive integrations into the new organization, which often takes time and focus away from the core business. Furthermore, various key executives such as CTO Monier decided to depart AltaVista along the way, which further amplified its brain drain.

After CMGI realized that its portal battle was lost, it also couldn’t just move back into the search business. Google, which was a far superior product and a VC darling (despite the bursting of the dot-com bubble), simply was too far ahead to be caught again.

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.