Excite@Home Plays With Pogo.com

Excite@Home sees interactive online games -- such as those offered by its latest acquisition -- as fundamental to the development and consumer adoption of broadband, and it believes pogo.com's position among narrowband online game fans will facilitate consumer migration to the flagship @Home Internet service and future set-top platforms. Like many analysts, Excite@Home is bullish on the category.

By Nico Detourn (TMF Nico)
September 1, 2000

As part of its efforts to build the market for high-speed consumer Internet applications, Excite@Home (Nasdaq: ATHM) announced Thursday that it is buying privately held pogo.com, a leading provider of online games. The terms of the transaction and its purchase price were not disclosed but Dow Jones, citing an Excite@Home spokesman, has pegged it as an all-stock deal valued between $125 million and $150 million.

The company said pogo.com's multi-user games will be a "cornerstone" in offering interactive broadband content, and will be leveraged as a key asset of its planned high-speed interactive TV service. "Online games are shaping up to be a 'killer app' for the set-top box market," said Byron Smith, Excite@Home's head of consumer broadband services and chief marketing officer, in yesterday's announcement.

Buying pogo.com also plays into Excite@Home's strategy for attracting and acquiring new customers. Interactive online games, even more than conventional music and video, have high bandwidth demands. The company sees them as "fundamental to the development and consumer adoption of broadband," and will integrate pogo.com's services across the still mostly narrowband Excite Network.

The company believes that pogo.com's position among narrowband game fans will facilitate consumer migration to the flagship @Home Internet service and also to future set-top platforms.

Whatever position pogo.com has comes in good part from providing interactive game services to other websites. In addition to earlier agreements with both @Home and Excite, pogo.com's distribution network includes Alloy.com (Nasdaq: ALOY), Time Warner's (NYSE: TWX) Entertaindom.com, Disney Internet Group (NYSE: DIG), iVillage (Nasdaq: IVIL), NBCi (Nasdaq: NBCI), and Sony (NYSE: SNE). In the spirit of good gamesmanship, Excite@Home said these partnerships would continue after the deal's expected fourth-quarter close.

The Game Game
Like Excite@Home, which already had a 10% equity stake in the company, pogo.com is part of the Kleiner Perkins Caufield & Byers "keiretsu" of companies; its initial venture funding came from KPCB, whose funds also helped pay the bills, separately, for Excite and @Home in their early days. Other pogo.com stakeholders include Nokia (NYSE: NOK), Liberty Digital (Nasdaq: LDIG), and SBC Communication's (NYSE: SBC) Ameritech.

But Excite@Home is not alone -- or even the latest -- among online companies playing the interactive game game. Yesterday, Sega announced the formation of Sega.com, an online game portal integrated with SegaNet, a high-speed online console gaming network and ISP for Sega Dreamcast and PC users. Sega cites a Forrester report that says online gaming will comprise 24% of video game market revenue by 2000, up from 2% today.

Last month Go2Net (Nasdaq: GNET) and Microsoft (Nasdaq: MSFT) co-founder Paul Allen's Vulcan Ventures made a $20 million cash investment in Sandbox.com, an interactive sports and entertainment games provider. Sandbox.com online games will be offered at Go2Net's PlaySite and Silicon Investor sites, and at a future broadband version of PlaySite. Seventy percent of Sandbox's revenues are derived through direct marketing services.

In November of last year, Lycos (Nasdaq: LCOS) paid $207 million for Gamesville.com, an online game developer and direct marketer whose slogan is, "Wasting Your Time Since 1996."

Also last November, America Online (NYSE: AOL) and entertainment software developer Electronic Arts (Nasdaq: ERTS) did a deal to create interactive games and content for distribution across AOL's properties. Electronic Arts also announced then a new business to create and operate online gaming sites under an agreement with AOL, which invested in the new enterprise.

In its announcement yesterday, Sega noted that many "analysts are bullish on the category." Apparently, so are many of the online world's most ambitious players.

And so the games continue.

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