GeoCities as a Portal...
news.com.
Racing to the start line
By Jim Hu
Staff Writer, CNET NEWS.COM
May 14, 1998, 4:00 a.m. PT
special report Once they were just innocuous
Internet search engines with catchy names like
Yahoo, Excite, and Lycos.
Now they may be on the verge of maturing into the
new media conglomerates of the next millennium.
And the space they occupy has become the
coveted "promised land" for many others waiting
for the right moment to wedge their way in.
Over the course of a year, the search engine has
evolved to a large site offering a laundry list of free
services such as email, personalization features,
chat rooms, and a variety of content such as stock
quotes, local news, and weather. These directories
have now evolved into Internet "portals"--virtual
shopping malls, town centers, and news hubs rolled
into one.
Companies desperately trying to compete in this
space have caused a mad rush for eyeballs that has
resulted in a spate of
acquisitions,
partnerships, and
distribution deals.
It has become a
topsy-turvy
high-stakes
"Monopoly" game
where technology
companies such as
Microsoft and
Netscape Communications have--or promise to
have--the leading edge; and traditional media
companies such as Disney, Time Warner, and
Viacom are finding themselves in the odd position
of scrambling to catch up.
In this landscape, the name of the game is market
share--to be won at all costs for the coveted gold:
advertising revenues. It may take a while for the
dust to settle, but when it does the new order of the
Internet will emerge. Until then, everyone is vying
for a piece of the action.
The action--with millions of new users logging on
every year--is big, and promising to grow
exponentially.
By one estimate--in a study conducted by research
firm Jupiter Communcations--there are currently 25
million Internet users in the United States, and the
population is expected to jump to 56 million by
2002.
With figures like these, companies are willing to
spend millions in hopes of eventually cashing in,
even if they are not yet able to do so.
Portal site companies are injecting millions of
dollars into marketing efforts hoping to attract new
Internet users needing direction and guidance in
cyberspace.
The goal is to get the user to designate the
company's portal site as "home page" in his
browser. Once he does that,
the designated page is the
first one he sees upon
logging onto the Net and
launching his browser.
It is then up to the portal site to keep him there.
That's why portals are loading the sites with
features and accessories. The idea is that once the
user finds the page, he won't want or need to leave.
And the longer he stays, the more features he uses,
and the more he generates in advertising and
perhaps commerce revenues for his portal site.
A portal site generally earns the coveted spot of
home page in two ways: by enticing the user to go
into his browser and manually plug its address into
his "home page" window or by delivering a
preprogrammed browser to the user with its site
already designated as the home page.
Many portals prefer the latter strategy because
most users tend to either not tinker with their home
page or change it very infrequently. That's why
portals are continually inking deals with Internet
service providers to deliver the prepackaged
browsers.
In the past month, several portal sites have teamed
up with service providers to give users access,
along with what industry analysts are calling a
"Web-based online service," which is really just a
home page link to a portal.
For instance, Net access provider and
telecommunications giant AT&T has signed deals
with three portal sites--Lycos, Excite, and
Infoseek. And in March, Yahoo and MCI
Communications joined forces to provide a
Web-based online service.
Snap, part of NEWS.COM publisher CNET, has
been credited as a pioneer of this strategy, but it
currently lags behind market leaders Yahoo and
Excite.
The fight, however, is not over--not even close.
That's why companies are delving into their bags of
tricks to draw those customers. Consumers are
getting bombarded with television commercials,
billboard advertisements, and free software
giveaways--anything to attract them.
"That's why you see companies acquiring new
customers," said Derek Brown, an analyst with
Volpe Brown Whelan. "They want to acquire
customers today, have them personalize their
service with individual stock quotes, email services,
and leverage that acquisition today into retention
and loyalty that will bring a repeat customer
tomorrow. That's what's behind the partnerships
that have been happening."
In other words, the strategy is to rein in new users
through marketing, and then try to keep them on
your site by giving them anything they want from the
Internet.
No doubt it's an expensive business model. But the
rewards at the end of the tunnel are worth it.
Becoming the trusted Internet gateway for
millions--Web veterans and
newbies alike--translates into
lucrative advertising deals and
multimillion-dollar contracts
when renting out valuable real
estate to commerce partners.
To get an idea about real estate value, last week
Excite agreed to pay $70 million over a two-year
period to power Netscape's Netcenter search
engine and collaborate on cobranded channels. The
deal is one example of how far a company is
planning to go to harvest eyeballs and market
share.
"This medium is going to be huge," said Joe Kraus,
senior vice president and cofounder of Excite. "So
there's an interest in spending money. Positioning
your success now will be positioning yourself in the
future. It's only going to get more expensive."
At the same time, many portal companies have
more cash on hand than they ever imagined
because their stocks are soaring. They use their
stock, which some analysts consider overvalued, to
continue snapping up new properties.
But companies that can afford to enter the space
have good reason to rush in, according to Andrea
Williams, an analyst also with Volpe Brown
Whelan. The window of opportunity for a company
to be a viable competitor in this space may be
closing.
"Look at how quickly Amazon.com captured the
book market--they are now the third largest
bookseller in the U.S.," said Williams. "In a very
short period of time, the landscape could alter
dramatically given the category and given the
growth in this medium and willingness for
consumers to spend money online."
As the landscape stands, the Internet is clearly
being dominated by companies that are evolving
into media giants. Most analysts agree that market
leaders Yahoo and AOL will come out of the battle
alive and kicking.
Yahoo, which began as a simple search directory,
has become the embodiment of the portal
evolution. Yahoo has evolved over time, now
offering popular free services such as email and its
MyYahoo personalized page. Month after month,
the site enjoys the highest traffic on the Internet to
the point that Wall Street has boosted its stock
more than 100 points over a 52-week period.
In the proprietary service space, AOL enjoys a 12
million member subscriber base whose Internet
browsers are preprogrammed to go to AOL.com
when logging onto the Internet. AOL has thus
leveraged its huge membership base as a means to
gain revenue from advertising, while being in a
prime position to attract users outside its
proprietary circle.
But the landscape could be set to change, as bigger
forces with deeper pockets prepare to enter the
space.
Other players, such as Excite and Lycos, also have
leadership positions. And still others, such as
AltaVista, Snap, and Infoseek, are in solid
contention.
Perhaps the one company that is sending chills
down the portals' collective spine is Microsoft. The
much-anticipated launch of its own portal, dubbed
"Start," signifies the software giant's commitment to
muscle its way into this space, after being
disappointed in the proprietary realm with its online
service Microsoft Network.
"One thing we learned from the MSN Premier
business was that the world of proprietary services
to develop the biggest, coolest service is a model
that isn't going to work for the long term," said Ed
Graczyk, lead product manager in the Web
essentials group at Microsoft.
Likewise, Disney chief executive Michael Eisner
recently hinted that it plans to "be aggressively
competing" on the Net, underscoring expectations
among many analysts that traditional media
companies are waiting for the right time to make
their move into the space.
Disney has the advantage of content as its starting
point. Hypothetically, it can package news (via
ABC News), sports (with ESPN), and children's
programming (such as Daily Blast) into one site. It
is a model that can kill two birds with one
stone--boost traffic on its portal while diverting
traffic to its specialized content sites--thereby
reaping the advertising rewards.
As for the technology, analysts believe traditional
companies with a lot of money can simply acquire
the technology they need to become a competitive
portal.
"If they can't create it themselves, they'll buy their
way in," said Williams.
The strategy can be seen in Microsoft's own list of
acquisitions and license deals. The behemoth
licensed Inktomi's search technology to power its
search engine instead of developing its own. In the
beginning of this year, Microsoft acquired email
provider Hotmail for an estimated $400 million.
Industry analysts would not be surprised if a
company like Disney followed suit.
Nevertheless, in light of these efforts to beef up
home pages to become everyone's one-stop
gateway, the fact remains that the portal space is
still in its infancy and vulnerable to changes in user
preferences.
Since the major portals market has become
homogenized with sites that contain similar
customization features, it may take larger, exclusive
content deals for these sites to begin developing
identities of their own.
And the question remains: are the portal strategies
today going to work if everyone is doing the same
thing?
"Considering the fact that you have a number of
players doing the same thing, differentiation is very
difficult," said Patrick Keane, an analyst at Jupiter
Communications. "At one time, differentiation was
adding features. Now, the true search and directory
players all provide the same things. Search has
become a commodity."
Though portal sites are bending over backwards to
compete with each other, Keane points out that the
landscape's future may be dictated by an
increasingly Web-sophisticated population. This
fact puts the current portal model into question.
"As users become more savvy, they ultimately have
less of a need of a meta-aggregator of content and
may choose a really specific niche along their own
demographic or content," Keane said.
For example, as Web newcomers become
seasoned veterans, many are more
bookmark-proficient, and choose to navigate the
Web themselves instead of relying on one site to do
it for them, Keane noted.
However, the fact remains that the Internet is a
rapidly growing medium that has not fully
assimilated into households around the world. As
millions jump online every year, there will still be the
need for someone to organize and categorize
content.
And right now, it seems Internet users find portal
offerings all the more attractive as they take
advantage of free technology offerings, and the
ability to personalize their pages with content that
means something to each individual.
The deals will continue to be inked, alliances
formed, and competition intensified until the
landscape begins to take shape. And companies
that emerge relatively unscathed may become the
new media conglomerates of the 21st century. |
