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Changes Coming, But Net Should Keep Flying High
Date: 12/29/98
Author: Pete Barlas
The Web will continue to fly high in '99, but it may be a bumpy ride for some companies, experts say.
Small portals - network companies that help find information for Web users - likely will consolidate or sell out to their larger brethren.
At the same time, executives contend that electronic commerce - the sale of goods and services over the Net - will skyrocket as more retailers jump online with better ways to sell and market products.
''E-commerce is exploding this year,'' said Tim Brady, vice president of production for Yahoo Inc., one of several large portals. ''Consumers are more comfortable with buying online, even more than we expected.''
In the last few years, the Web has become packed with portals, companies that were known as search engines when '98 began. Big firms such as Yahoo, Lycos Inc., Excite Inc. and Infoseek Inc. coexist with smaller ones, including Snap LLC, Pathfinder Network and AltaVista Search Service.
But there won't be enough traffic, advertising and revenue from transactions to support that many portals, analysts say.
''You can expect to see some consolidation among the portals this year,'' said Barry Parr, director of economic strategies for International Data Corp., a Framingham, Mass.-based market researcher. Consolidation, however, likely will take place between smaller portal companies, analysts say.
Mergers between top portals such as Yahoo, America Online Inc., Excite and Lycos will be nearly impossible, says Jim Barksdale, president and chief executive of Internet software maker Netscape Communications Corp. Each of those portals has such high market-capitalization rates, Barksdale says.
''The issue is (whether the merger) is affordable, given some of the recent run-ups in their market caps.'' Barksdale said. ''When some companies like Yahoo are trading at 60-plus times revenue, it makes it very difficult to build a successful winning business model.''
Smaller portals, though, could get bigger in a hurry. Some could get a boost by partnering with media magnates such as Time Warner Inc. or large Web companies such as Amazon.com Inc., says Keith Benjamin, managing director of BancBoston Robertson Stephens, a San Francisco- based investment bank.
''It makes sense for a company looking to be a network for content and electronic commerce,'' Benjamin said. ''The No. 1 type of information people want (on the Net) is about buying something.''
That's why some portal companies are making strides to increase user traffic and boost e-commerce. These companies are trying to cash in on the growing e-commerce demand, executives say.
Earlier this month, Yahoo and Lycos both launched online shopping stores, each loaded with retailers selling everything from cookies to computers. Lycos is hoping that its online store will provide another way for the company to increase Web traffic in '99, says Jeff Bennett, the company's vice president of e-commerce.
''It's an opportunity to buy products directly from suppliers while you are in the Lycos environment,'' he said.
Yahoo, Lycos and others appear to have picked a good time to jump on the e-commerce bandwagon. Sales of goods over the Web in the U.S. are expected to reach $11.9 billion in '99, up from $7 billion in '98, according to Jupiter Communications LLC, a New York-based market researcher.
Some of the biggest categories of goods sold online include books, music CDs, software and computers. Retailers and manufacturers such as Staples Inc., Levi Strauss & Co. and Intimate Brands Inc.'s Victoria's Secret stores started selling on the Web this year.
Victoria's Secret launched its site for the Christmas shopping rush and to prepare the company for the new age of cyber-retailing, says Dan Finkelman, senior vice president of business planning for Intimate Brands, based in Columbus, Ohio.
''There's no doubt that five to six years from now, we expect the Web to be very significant in terms of sales,'' Finkelman said. ''We decided that it was time for us to experiment.''
With more businesses rushing to the Internet, Web developers are trying to find new ways to keep up with demand in '99. One example is Santa Clara, Calif.-based Web developer Inventa Corp. Two months ago, Inventa launched a new program to speed up the process for getting companies on the Web.
With its new RapidWeb program, Inventa is setting up basic e-commerce sites for companies in six weeks -half the time it used to take. Companies are anxious to test market skills on the Web and don't want to wait, says Ashok Santhanam, Inventa chairman and founder.
''Customers are looking for quicker ways to establish e-commerce capability,'' Santhanam said. ''They want to get up and running quickly to see if (the Web is) worthwhile.''
So far, many companies already see value in the Web.
Seventy-three percent of all companies sell products on the Web, according to a recent survey of 60 firms by Gruppo, Levey & Co., a New York investment bank specializing in the direct market industry. Web operations for 43% of those firms doing business online are profitable.
Gruppo's study also found that 95% of the companies surveyed maintain Web sites to appease customers, while 92% do so to stay ahead of competitors. All are focusing on anticipated growth in Web traffic. The number of Web users in the U.S. alone is expected to reach 69.8 million by '99, up from 56 million in '98, IDC says.
Companies are beginning to realize that it's becoming more common for consumers to buy products online, says Karen Burka, vice president for Gruppo.
''The volume of users is there, and people seem to be pretty comfortable using their credit cards online,'' Burka said. ''I think we are going to continue to see that in '99.''
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