Interesting Wall Street Journal Article.
Portal Pandemonium Explodes As Web Sites Clamor To Be Seen
By Nick Wingfield
The Wall Street Journal Interactive Edition
SAN FRANCISCO (Dow Jones)--It's odd to talk of a land grab in a boundless, immaterial world like cyberspace, but that's what happened last week.
Let's recap: On Monday, Excite Inc. (XCIT) agreed to pay Netscape Communications Corp. (NSCP) a whopping $70 million in advertising revenue over the next two years in exchange for a featured spot for its search service on the Netscape home page. Excite clinched the deal for Netcenter, one of the most-visited sites on the Net, after outbidding Infoseek Corp. (SEEK ), CNET Inc. (CNWK) and other eager contestants.
That same day, Lycos Corp. (LCOS), another "portal-site" operator, signed a broad alliance with AT&T Corp. (T) that included an agreement to produce a Lycos "on-line service" - essentially a CD-ROM containing a browser that automatically links users to the Lycos site via an AT&T Internet connection.
The deal was widely perceived as a response to a similar service produced by Yahoo! Inc. (YHOO) and MCI Communications Corp. (MCIC), and as another play for the coveted "start-up" screen users first see when they log on to the Internet. But AT&T was promiscuous last week: Before the ink on its Lycos agreement was even dry, Infoseek and Excite were trumpeting virtually identical deals with the telecommunications giant.
What's going on here? Call it portal pandemonium. The key to last week's furious dealmaking was a new round of accepted truths adopted by most Internet companies: that user traffic is gravitating toward a handful of starting points, or portal sites, and that such sites, like acre plots on the Jersey shore or storefronts in Times Square, are scarce. Owning - or, in the case of Excite's deal with Netscape, leasing - choice Web real-estate is considered the surest way to attract user eyeballs and, by extension, the highest premiums from advertisers and merchants who want to showcase their on-line offerings.
It wasn't supposed to turn out this way. With its almost infinite capacity for new information and relatively low barriers to entry, cyberspace was seen upending - not reinforcing - the rules of distribution that have held sway in other media, allowing, for instance, a handful of TV networks to control what most Americans watch. But while the major portals
- which include Yahoo, America Online Inc. (AOL), Excite, Lycos, Infoseek, Netscape and a few others - draw the biggest portion of audiences and advertising budgets today, analysts don't expect distribution to become as concentrated on the Internet as it is in other media.
In other words, the Internet won't become a complete throwback to four years ago, when CompuServe, AOL, Prodigy and a few other proprietary services tightly controlled access to on-line information. With the exception of AOL, the ascendance of the Web virtually wiped out the other on-line services (anyone remember Apple Computer Inc.'s eWorld?), allowing countless publishers to draw users directly to their sites. But the incredible wealth of Web data could be overwhelming for users, which led to the development of search engines from Yahoo, Excite and others that helped users rummage for information buried within the Net's bazaar.
Portal -2-: Battle Rages For Control Of Start-Up Screens
Gradually, though, the search engines themselves came to look more and more like the on-line services they had helped displace. The standard formula for today's portal site sounds a lot like Prodigy circa 1993: e-mail, real-time chat, bulletin boards, magazine and news articles, and electronic shopping. ("Portal" is one of the more striking Web misnomers: After all, the sites are doing everything they can to keep users from leaving their domains for those of other sites.) There is a critical difference between the portals and their proprietary predecessors, though: Except in the case of AOL, the portals don't have the same ironclad lock on users, since they don't control the network connections used to log onto the Internet.
But there are subtle ways portals control what you see - or, at least, when you see it. Control of start-up screens - the first Web page users see when they connect to the Net with a browser - has become a battleground for the portal sites. CNET's Snap Online was the first to make a concerted effort to negotiate rights for browser start-up screens, but it has run into stiff competition from Yahoo, Excite, Lycos and Infoseek.
What's more, control of start-up screens still largely rests in the hands of browser-software companies and Internet-service providers - a fact that has had the effect of turning major sites into portals by default. No one believes Netscape's Netcenter, for instance, has more traffic than Lycos because it's a better site - it's the leader because most consumers haven't bothered to change the start-up page set by their Netscape browsers to something else. (Think of it as the cyber-equivalent of the blinking 12:00 on all those VCRs.) Analysts, though, expect that will change as corporations and consumers become more savvy about reprogramming their start-up screens.
Whatever their initial advantages, however, the portals clearly have struck a nerve with Internet users. Some industry observers attribute their immense popularity to a craving among people for shared experience, which the fractious nature of the Web has only exacerbated. A familiar brand like Yahoo, the theory goes, is as comforting to weary Web surfers as the site of McDonald's golden arches is to an American tourist far from home. The sheer variety of things on the Internet, says Neil Weintraut, a venture capitalist at 21st Century Internet in San Francisco, can amplify the value of having a couple of powerful starting points.
Others see the core searching and directory services as a key draw for the portals. "Consumers are lazy," says Patrick Naughton, chief technology officer of Walt Disney Co.'s Buena Vista Internet Group, formerly called Starwave. "They want convenience. They don't want to type in URLs, and bookmarks were never a good idea."
Just how popular are the portals?
According to Forrester Research of Cambridge, Mass., they account for about 15% of the Web's total traffic. That's not too shabby, though it's still a sliver of TV networks' 67% share of the viewing public. Forrester doesn't accept the conventional wisdom that traffic is consolidating around a handful of portal sites, however. According to a recent report, the firm says, the major portals' share of Internet traffic has remained flat for the past 18 months, even though portal "page views" - a prime measure of site traffic - have nearly tripled.
Portal -3-: Some See A Shakeout Ahead
In spite of their comparatively small slice of overall Internet traffic, the portals are still the most visited sites on the Net and, as a result, command a huge premium from advertisers, pocketing about 59% of total on-line advertising revenues. But Forrester believes that figure will drop to 30% by 2002 even as portals' share of traffic increases to 20%. The reason, as Forrester sees it, is that advertisers will get more comfortable venturing beyond the familiar stable sites at the same time that techniques for advertising on nonportal sites, such as ad networks, become more accepted. In the meantime, Forrester analyst Chris Charron uses a Godzilla-style slogan to refer to the appeal of portals: "Traffic matters."
"Right now, the currency of the Internet is traffic," Charron says. "Traffic dictates financial valuations. It dictates advertising allocations and partnerships."
Promotional partnerships with on-line publishers and merchants have become a vital source of revenue for portals. But partnering with a portal isn't the only way to get traffic, and in some cases it isn't the most effective - a fact that could lessen the importance of portals in the future. Buena Vista's Naughton, for instance, says television promotions are a key factor in driving traffic to its sites: The ESPN SportsZone and ABCNews.com sites, for example, get a boost from promotions on Disney's corresponding television channels. "Our TV assets are probably more important" than distribution deals with other Web sites, he says.
That belief could partly explain why traditional media companies, like Disney, have avoided moving more aggressively into the portal market themselves by either acquiring an Internet firm or by building their own portal. It is more likely, though, that older firms have shied away from Internet acquisitions because of the staggering valuations Wall Street has given to portal companies.
Given that situation, many analysts believe the portal market is ripe for a shakeout that could catalyze a deal between a new-media firm and a member of the old guard. But some go a step further, wondering if the tables may be turned at some point in the not-too-distant future.
"It's likely that before the end of the century, new companies like Yahoo [will] end up backing into broadcast media by partnering or even acquiring broadcasters," Weintraut said.
-Nick Wingfield; 415-765-6102
"Dow Jones News Service"
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