Bankruptcy begins @Home

Mitsubishi’s a part of it, though Sony reportedly stays out. The top eight banks in the world are all supposedly members, as are a number of trading companies. Now that Excite@Home has filed for U.S. bankruptcy protection, there almost has to be some discussion within the company about why keiretsu failed them.

At one point, there used to be an explanation of this Japanese business philosophy on the Web site of Kleiner Perkins Caulfield & Byers, the Silicon Valley firm who backed the US$6.7 billion merger of Excite and @Home. It’s gone now, but the familiar graphic symbolizing corporate unity — two hands shaking — remains. Instead, you can find a useful definition on Corpwatch.org, which translates keiretsu as “a grouping or ‘family’ of affiliated transnationals with broad power and reach.” Furthermore, it says: “Operating globally, integrated both vertically and horizontally, and organized around their own trading companies and banks, each major keiretsu is capable of controlling nearly every step of the economic chain in a variety of industrial, resource and service sectors.”

It all sounds a lot more auspicious than the merger of Excite and @Home last year, which will likely go down as a textbook case of how to bungle organizational integration.

Indeed, the whole mess, which will see the company’s high-speed network sold to AT&T for US$307 million, presents a useful case study for companies like Hewlett-Packard, which is trying to close a deal that will see it merge with Compaq. One would hope Carly Fiorina is personally overseeing the autopsy. Here were two companies whose growth had essentially reached a plateau, much like Compaq and HP (though in a much healthier economic climate). Unlike Compaq and HP, they seemed like the Reese’s Peanut Butter Cups of the technology industry: two great companies that would be even greater together. Content would come from Excite, which then battled for dominance in the portal market against Yahoo! The @Home service, meanwhile, would provide the pipes to funnel the content to its 3.7 million subscribers.

To all appearances, Excite and @Home were indeed a “family” of affiliated transnationals, but perhaps in the wrong way. Whereas @Home is made up of a traditional workforce of cabling experts, Excite epitomized the New Economy workforce: the entrepreneurial spirit, the loose management style, the surfboards. To the @Home old-timers, it must have felt like the bratty little brothers had been appointed babysitters for their parents.

The management changes came quickly. Tom Jermolk, initially the chairman of the joint entity, quit after less than four months to join a venture capital firm. George Bell, who replaced, him, drafted his own letter of resignation four months after that, exactly eight months after the deal had first been struck. It’s hard to imagine how a clear vision for such an unwieldy organization could be formulated in the midst of these executive shuffles.

It would have taken at least one year for the two firms to assess each other’s corporate culture and adapt accordingly. In the meantime, the company had to contend with the ongoing regulatory hurdles that challenged many cable companies. To make things worse, it continued to try and build its content strengths through some weird acquisitions. These included the US$780 million purchase of Blue Mountain Arts, an electronic greeting card company (which is probably creating e-sympathy cards as we speak) and iMall, an unprofitable online retailer that cost Excite@Home US$425 million.

If the downfall of Excite@Home proves opposites don’t necessarily attract, it also demonstrates that the marriage of content and distribution is more difficult than it looks on paper. Yahoo!, which has been rumoured to be in merger talks with everyone from Excite in its pre-@Home days to Rupert Murdoch’s News Corp., has typically favoured partnerships over outright mergers. Sex before marriage may not cement a lasting relationship, but at least you know who you’re dealing with in the morning.

sschick@plesman.com

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