The Little Search Engine That Could

Locals credit Rosita’s Taqueria in Redwood City, CA, with some of the tastiest inexpensive burritos, tacos and quesadillas in the Bay Area. To the digerati and high-tech investors, however, Rosita’s is perhaps better known as the unlikely birthplace of Excite Inc., the second-largest Internet search and delivery company in the world. On the evening of February 28, 1993, six friends from nearby Stanford University gathered at Rosita’s to discuss their prospects for going into business together after graduation. By the time the tortilla chips were downed, the group had agreed on a plan: to develop a software tool to manage the rapidly growing volume of information on the Internet. From such inauspicious beginnings has grown a company on pace to close more than $100 million in sales this year.

Optimistic about Excite’s prospects, and salivating at its Web site’s 20 million visitors a month, Wall Street has valued the company at a cool $1 billion.

All this has far exceeded the wildest ambitions hatched amid the flurry of nacho cheese that February evening. As the six readily admit, their initial goal was not to build a media powerhouse. They just wanted to work for themselves and write code.

“Starting a company was just an excuse not to work for the big dinosaur companies like Oracle, Microsoft and IBM because those jobs were boring and we didn’t want to work for other people who didn’t know what they were talking about,” explains 29-year-old co-founder Mark Van Haren. “We wanted to have ownership and know that what we did would affect the bottom line. Plus it was just more fun to get together with friends to do something and see if we could make it fly.”

Only after tossing around a variety of start-up ideas – including writing applications for the less-than-wildly-successful Apple Newton – did the group settle on Internet software.

“This was before the Web,” says co-founder Graham Spencer, “but the Internet was pretty common in academia. Project Gutenberg had just gotten off the ground, typing in a sort of digital library of old books. So we saw all this text and information online, and we saw that the tools available for retrieving the information were pretty primitive. It wasn’t really targeted for the consumer. We certainly didn’t see it exploding into the World Wide Web, but we thought we could build a pretty cool text engine with unique features that we might be able to resell to Adobe, Lotus or Microsoft to bundle with their products.”

Business success in the lightning-paced information age frequently means rewriting the rules as you go. Martin Reinfried, 26-year-old Excite co-founder, acknowledges that in starting their business he and his colleagues took a decidedly inverted approach to standard entrepreneurial operating procedure.

“We weren’t starting a Web business,” he admits. “We didn’t look at it that way. I think maybe we did it a little backward. We decided to start a company and then we decided what technology we should create. So we chose a technology and decided to build it, not necessarily with the Web or anything specific in mind.”

Graham agrees, noting that before deciding on a product they never consulted with the outside business world to find out if their idea would fly.

“We didn’t even know if there was a business there,” he says. “We were kind of strong in our naivete. We just thought that if we built a great product we would find something to do with it.”

Working with a $15,000 loan from their parents and a set of second hand computers, the new alumni hung up their mortarboards and set about pumping out code. Joe Kraus, the only nonprogrammer in the bunch, spent the time chatting up anyone who would listen to him rave about the start-up endeavor. For his diligent efforts the group dubbed him “Phone Boy.”

Despite a lack of funds the group worked in typical programmer form, seven days a week, heads down, challenging each other to generate the greatest volume of quality code. The six spent nearly all their time together in the same house, scraping by on 50-cent burritos bought with change found between sofa cushions. At one point Van Haren had maxed out 11 different credit cards, and went without car insurance.

“That was OK since I didn’t use my car either,” he notes, “because I didn’t want to pay for the gas and I didn’t have any money to spend once I went out anyway.”

The adversity aside, that first year set the tone for the company and still resonates through the corporate culture today.

“We had our lives tethered together in a very real way,” Van Haren says. “We were very dependent on one another, and we put a lot of pressure on each other. We went from being just friends with a funny idea for a company to being business partners in serious debt who needed to make something happen soon. One way we accomplished this was to meet every day to talk about progress. We would get together for half an hour and everyone would say, ‘This is what I came up with in the last 24 hours.’ We really put pressure on each other to make it work because we knew we had no money and we couldn’t last long this way. We were terribly paranoid, too. It was a very competitive but also supportive environment, and it really helped us to make steady progress.”

A year later the six emerged blinking into the light of day with a genuine information-retrieval product and began pitching it to venture capitalists. Their lack of a business plan, however, combined with a near-total inexperience in matters microeconomic, initially resulted in a distinctly ho-hum response from potential investors.

The company – then named Architext – even received a letter of rejection from an investor they never solicited. Eventually, noted Silicon Valley venture capital firms Kleiner, Perkins, Caulfield and Byers and Institutional Venture Partners saw the light and came through with a much-needed injection of funds, and by October 1995 the company, now renamed Excite Inc., had launched its suite of services at www.excite.com. The software combined search and retrieval with hypertext linking, subject grouping and automatic extracting, now known more informally as the Excite Search.

With this foray into the Real Business World behind them, the five programmers and “Phone Boy” came to realize that for the company to succeed they would need people with genuine business acumen calling some of the shots.

“We all knew we needed a real president, a real CEO,” says Spencer, “someone from the outside. In the Valley when you have a bunch of 21-year-olds with a great technology and a lot of ideas but who don’t know how to build a business, they call that bringing in ‘adult supervision.’ That description fit us perfectly.”

Adult supervision arrived in January 1996 in the person of new CEO George Bell, expropriated from the Times Mirror Company, where he had been overseeing production of a series of outdoor magazines.

Assessing the company’s then headquarters, the second floor of a rundown apartment building near Stanford, Bell commented that it “looked like a college dorm that had just exploded.” But in addition to a wealth of experience in traditional media, Bell also brought to Excite an open mind and willingness to learn.

“You can’t say: ‘Now, listen everybody, I worked at Fox and this is how we did it at Fox and this is how we’ll do it here,'” Bell told Adweek magazine. “Because you’ve got a bunch of people running around who know more about this than you do. You need to check your ego at the door and say, ‘Well, I may be twice these guys’ age and on my fifth job, but they grew up with it in their dormitories.'”

By April 1996, when Bell helped Excite navigate through its initial public offering the company had moved into a genuine office building in nearby Mountain View and grown to include 65 employees. The successful IPO resulted in the sale of two million shares of common stock at $17 per share. The company was growing exponentially, as advertisers, marketers and consumers began to envision the Web’s vast potential. Ironically, the six Internet entrepreneurs credit Excite’s wildfire growth partially to their naivete, which led them to believe they could accomplish anything. Co-founder Ben Lutch coined the term “unencumbered by reality” to describe this curious phenomenon.

“We had no idea what we were getting into,” says Van Haren. “We were cocky and thought we were a bunch of smart guys who could develop this type of technology. What we didn’t realize is that it is really hard to find money and to get people to listen to you, no matter how good you are. But if we had known then how difficult it would be we might never have attempted it. So we kept plowing ahead assuming everything was possible when in fact only one in 50 horses that enter this kind of race finishes.

“We also found ourselves at the right place at the right time. The Internet was becoming a big consumer market and we were a small enough company at the time that we could turn on a dime. We could say, ‘Instead of selling our software to people, we need to build a consumer medium.’ Other companies with similar technologies were so focused elsewhere that they couldn’t respond so quickly. So that definitely worked to our advantage as well.”

1996 turned out to be a watershed year for Excite. With innovative product launches like free email, buddy lists and personalized front pages the ambitious service jumped from number eight in a crowded field of competitors to a clear second behind industry leader Yahoo. In just 12 months traffic jumped from one million eyeballs a day to four million, 13 advertisers mushroomed into 370 and revenues shot from a paltry $145,000 to $14 million.

Reflecting on this period of unimpeded growth, Kraus believes that hiring the right people in the beginning helped guide the company through this sweeping transition.

“Your initial hires are so important,” he explains, “because those initial hires make five hiring decisions themselves. Since people tend to hire in their own image, as the company grows you have to be careful about keeping the company image intact. Since there is still no such thing as an Internet professional, we have built on an amalgamation of skills. We have people from TV, print, credit card companies, video game companies, packaged goods, consumer companies, technology or software companies, and the list goes on. So because our business is really an amalgamation of traditional media, we have been well served to draw from such a diverse set of backgrounds.”

Currently, with more than 40 million visitors a day and 20 million “unique individuals” visiting company Web pages a month, Excite is building market share by constantly adding new features intended to encourage user loyalty. Two years ago 95 percent of all visitors used the service exclusively for searches; today that number is down to 40 percent. Internet surfers are looking to Excite for highly personalized information, including news, weather reports, sports scores, horoscopes, TV listings as well as email, daily reminders and favorite columnists.

Once users personalize their “My Excite” start pages, the service will remember each of their interests, and deliver to specification each time they return. Kraus feels that personalization offers a win-win-win for users, advertisers and Excite alike. Users get exactly what they want, advertisers concentrate their marketing efforts and Excite charges more for delivering the right audience to advertisers.

“Advertising is sold on a cost-per-thousand-impressions basis,” he explains. “Each page on Excite has an ad on it and each time that ad loads that represents one impression. The amount we charge advertisers depends on how targeted their ad is. For instance, if Ford puts an ad generally walking or rotating through the service they are charged roughly $20 per thousand. But if their ad is in, say, the automobiles content area, then the price jumps to around $45. Then there are even more targeted areas, attached to keywords. So if someone does a search on Ford Mustang, then Ford can attach their advertisement to that keyword, and they would be charged $65-70 per thousand.

“So the key to our business is aggregating the largest possible audience and retaining that audience and finding great ways for advertisers to reach that audience. Part of building that audience is through increased awareness and creating a great brand. And that means being creative in the type of promotions you do.”

Excite isn’t the only company wise to the benefits of personalization, however. Such competitors as Yahoo, AOL, Lycos and Infoseek are all maneuvering to become users’ exclusive ports of entry onto the Web – or, as industry parlance has it, “portals,” one-stop protosites that take care of your every online need and whim, from searches and email to chatting and shopping. Loyalty is the key. Users who personalize return five times as frequently as those who don’t. According to industry experts, today My Excite tallies approximately 4.5 million regular visitors, second only to My Yahoo’s 7 million.

Excite is also aggressively pursuing partnership with other players in the online universe. In early May the company announced that it would pay Netscape $70 million to provide a cobranded search service on the browser’s Netcenter site. For two years the companies will share ad revenue from visitors to the site while Excite will become the search engine of choice. The goal for Excite is to turn Netcenter’s large population of often involuntary eyeballs into committed Excite customers.

There is also the matter of generating and implementing new ideas, the lifeblood of any company in such a fast-paced industry. According to Spencer, Excite encourages new thinking while simultaneously compelling people to do their own missionary work.

“Typically what happens,” he says, “is a couple of people will come up with an idea and champion it until they build a sort of consensus. As more people buy into the idea and get excited about it then we begin the full process of evaluation and determining how it will impact other areas of our business. So on the one hand we’ve got the evangelization and excitement, but combined with clear, responsible analysis. If those two look positive then we move forward.

“The important point about this process is that ideas can be evangelized from pretty much anyone within the company. And that’s important for making everyone feel like they can have a positive impact on the company, and on the bottom line, which was one of our goals when we began the company.”

Looking to the future, Martin Reinfried says that while he can’t know exactly what Excite’s services will look like six months, a year or two years from now, he hopes the company stays true to two core goals.”I think it’s very important that as we experiment, change direction and adapt we retain the small company feel,” he explains. “That’s number one. Second, since the key to building customers is in being useful to people, I think we need to learn more about our user base, trace them more and deliver what they want. Personalization allows them to put a great deal of modules in, but we feel we can go much further, to start giving people information based on their interests, even without them telling us outright what they want.”

Toward Reinfried’s first goal, Excite unquestionably retains the small, youthful look and feel of its earliest days. The office space is typically Silicon Valley, emphasizing accessibility and the free flow of information, including spiraling slides employees use to descend from the second floor to the first and readily available bicycles for riding from one end of the building to the other. To counter the long hours and intensely competitive feel, the company provides such recreational and social outlets as a free bagel breakfast every Monday morning, pizza lunches on Wednesdays, parking lot street hockey and a company masseuse.

With the ample experience of the past five years under their belts, the six founders of Excite can no longer lay claim to the “unencumbered by reality” mantle. They are well aware that the real battle is just being joined, especially at this point, when the 500-pound gorilla, Microsoft, has yet to enter the fray. As Internet businesses continue to consolidate, many competitors will fall by the wayside. Yet the Web remains an immature domain, and Kraus believes that for Excite to fend off Yahoo, Lycos and Microsoft and continue growing it must retain the qualities that built the company.

“The great part about the Web and our business is that there are no rules,” he says. “We are writing them as we go along. We have great flexibility, which is important, but it also means that you are going to make a lot of mistakes. The new way for us of doing business is being grounded enough to realize we are not going to do everything perfectly, that we will never have enough information to make perfect decisions but we have to make those decisions anyway and run with them. We will have to revise a contract or change a decision a month or two after it’s been made. That is one of the key ingredients to our recipe for success so far, and we understand that it’s just the reality of being in this business.”

In his recurring role as phone boy, today with the more consequential sounding title of senior vice president, Kraus continues to pitch Excite nonstop. The difference is that today there are far more people eager to listen when he talks about his vision. Recent deals inked with such diverse partners as Office Depot, AT&T, Telecom Italia and the Children’s Television Workshop confirm Excite’s increasing vitality and prominence in the online media world.

“I tell people that we would like to be the dominant media company on the Web,” Kraus says. “That means Excite will be the one place to go to find anything, no matter what you’re looking for or how you want it. As the worlds of TV and the Internet converge, we would also like to be a major player in that medium by providing programming and services. I would love to be the NBC or the AOL of the Web. That is what we think we can be and what we are shooting for.” And why not? So far, Excite has hit every target smack in the center.

Editor’s note: Some material for this article is based on an interview for Selling Power Live! produced by Lisa Ferrari.