Last modified: May 14, 1998 5:00 AM PDT
Racing to the start line
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
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 households hooked up to the Internet in the United States, and the number 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.
Go to: Specialized gateways