Web Portals Seek to Increase
Rents Paid by Online Brokers
By REBECCA BUCKMAN
Staff Reporter of THE WALL STREET JOURNAL
Call it the power of the portals.
All-purpose Internet "portal" sites, including
Yahoo! Inc., Excite Inc. and Netscape
Communications Corp., are trying to squeeze
money out of some of the hottest businesses
on the Web -- online brokerage firms.
The portal operators essentially want to raise the rents -- or set pricey new
ones -- for online brokers to occupy valuable real estate on their Web sites,
which are key places for brokers to recruit new customers.
Portals generally serve as gateways to other
parts of the Internet. They can offer the online
brokers a potent combination of advertising,
special promotions and hyperlinks to the
brokers' own Web sites.
Now Yahoo, one of the most popular portals,
wants to charge tiny Web Street Securities Inc.
of Northbrook, Ill., more than $10 million a
year to splash its name across Yahoo's site, up
from roughly $2 million now. Though Yahoo declines to comment,
documents outlining Yahoo's new proposal are part of a lawsuit Web Street
recently filed against Yahoo over a separate Web sponsorship arrangement.
Netscape, the browser provider that is now
trying to flesh out its own gateway site,
called NetCenter, has offered a deal to
several brokerage firms that would bring
NetCenter about $7 million a year from
each firm, say people close to the talks.
And Excite is rumored to be after a
multimillion-dollar relationship with one
major brokerage firm and smaller deals
with other firms.
Netscape and Excite decline to comment on specific numbers, though a
Netscape spokeswoman confirms her Web site "is in the process of signing up
other people" for its finance area, whose chief sponsor is financial titan
Citigroup Inc. The people close to the negotiations stress the companies'
asking prices could easily come down.
Analysts say some portal sites are justified in jacking up their asking prices,
since the recent, explosive growth in users makes their Internet space highly
prized. Others, though, grouse that many sites are simply following the lead
of America Online Inc., which last summer announced that four brokerage
firms would pay it $12.5 million each a year for space in AOL's popular
personal-finance area. For some, the new price was 10 times what they were
previously paying.
But a backlash may be brewing against such big-ticket pacts, particularly those
now being shopped around by second-tier portals. Bill Burnham, an
Internet-brokerage analyst with Credit Suisse First Boston Corp., has called
the prices of some recently proposed deals "absurd." Analyst Steven Hall, who
works for the Concord, Mass., technology consulting firm Gomez Advisors,
goes so far as to charge that online brokers are "being held hostage" by the
big Internet names.
At an online industry forum in New York last week, Quick & Reilly/Fleet
Securities President Thomas C. Quick, whose company, a unit of Fleet
Financial Group Inc., runs two Internet trading firms, said, "We will not be
spending $10 million or $12 million on any particular site." Jerry Gramaglia,
the head of marketing at E*Trade Group Inc., said in an interview that his
company expects to focus on its existing relationships with AOL and Yahoo,
while considering other portals "more opportunistically on a performance
basis."
Many brokerage firms have become more savvy about Internet advertising
and now funnel their dollars to fewer, key sites, Mr. Gramaglia adds. Fleet's
year-old Suretrade Inc. brokerage unit, for example, now advertises on less
than 30 sites, down from about 78 when it first opened its doors, according to
Vice President Rich Hagen.
Still, "the traffic levels at Yahoo and the subscriber levels at AOL cannot be
ignored," says David Readerman, an analyst who covers Internet companies
for NationsBanc Montgomery Securities. "What the Internet companies are
saying is, you have to pay to play." Generally, analysts don't expect the new
higher rates to wind up boosting commissions paid by online stock traders.
And when they do decide to partner with a portal, online brokers aren't
entering into deals blindly, firm executives point out. Most carefully track
how much it costs them to acquire customers through specific Web
placements, studying how many people visit the sites, how many "click
through" to the broker's home page and, most important, how many sign up
as customers.
In its proposal to Web Street, Yahoo suggests firms could expect a huge 4.6
billion "page views," or requests for Web pages made by individual users, in
1999 if they bought space near Yahoo's stock-quote and portfolio-information
services. Still, not all firms need that high a profile. Nicole Vanderbilt,
director of digital commerce at New York research firm Jupiter
Communications, says it's noteworthy that big discount brokers Charles
Schwab Corp. and Fidelity Investments decided not to re-sign with AOL over
the summer. The firms say they didn't need the extra exposure.
But with online brokers "trying to capture as many customers as they can in
an emerging market," many will pay the going rate, says Brett Bullington, an
executive vice president at Excite. |
