April 27, 2000 2:10 PM PDT
Is there room for sites other than AOL or Yahoo?
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Davis takes issue with the distinction that his company--one of the first to define the all-in-one Web site strategy--sits in a class below Yahoo and America Online. Rather, he places the company firmly in the same "bucket," he says.
"I think we've done an exceptional job narrowing the gap ahead of us and a better job at putting distance between ourselves and the rest of the pack," Davis said in an interview earlier this week.
Waltham, Ma.-based Lycos is at a critical juncture--one it shares with many others, as AOL and Yahoo have run away with the lion's share of the Web's eyeballs and advertising dollars.
"There's always been the belief that more of the prize goes to the dominant player and that there's a huge reward for being number one," said Andrea Rice, a research analyst at Deutsche Banc Alex Brown. "What those people who are not AOL or Yahoo are struggling with is that the gap is so vast and more vast than they had expected."
As other portals seek to reposition themselves in a changed market, Lycos is sticking to its guns, counting on its ability to deliver a range of targeted audiences to advertisers through its brand. Analysts say it's a risky strategy, but it's one that could test the conventional wisdom that once-hot portals must adapt or die.
Two years ago the portal race seemed like an open-ended frontier. Scrappy search engines riding high on the Internet stock wave were rapidly adding features and services to their sites, while media companies began hastily assembling their own weapons. The idea was to become the starting point for people looking for some guidance on the unruly Web.
Now many portal veterans--including Lycos, Excite@Home, Disney's Go.com, NBC Internet and AltaVista--need to change their tunes, analysts say. That's because competing for traffic at the top is getting more expensive, and advertisers are putting more money into either industry leaders or businesses that can deliver more targeted audiences.
According to a December 1999 study by Forrester Research analyst Charlene Li, Yahoo, AOL and Microsoft's MSN combined accounted for 15 percent of all Web traffic for the year, while the remaining portals combined accounted for 5 percent. Forrester projects that the gap will rise over time: In 2000, the larger portals are expected to account for 17 percent of traffic and the smaller for 4 percent, and in 2004, the larger ones will account for 20 percent and the others for 1 percent.
Advertising revenues also will show a disparity toward the top. Forrester predicts that by 2004, 40 percent of ad revenues will go to the leading portals, while 3 percent will go to the remaining portals.
The stock market may also add pressure for some of these companies to rethink long-term strategies. With recent drops in the tech-heavy Nasdaq composite index, many formerly high-flying Internet stocks have come crashing to earth, leaving some companies with reduced equity and making it difficult for them to grow.
Unfavorable market conditions were the main reason AltaVista canceled its IPO last week. Even if it had gone public, some IPO analysts already were skeptical about the entrance of another portal into the market.
Change is here
In light of these circumstances, several portals have decided to fine-tune their strategies.
In January, Disney's Go.com was the first portal to signal a shift in its approach. Instead of competing as an aggregator of general content and services, the company decided to retreat into more familiar territory for Disney: entertainment.
The company is focusing on its existing media brands, such as ESPN and ABC News, as it develops an entertainment-focused site.
Excite@Home also changed directions with its Excite.com site. The company last week said it will market its domestic and international broadband properties at the expense of resources for Excite.com--a painful but perhaps necessary move.
"We're not going to spend another three or four years slogging it out with Yahoo and AOL," Excite@Home chief executive George Bell said in a previous interview. "We're not walking away from the narrowband business. But we're focusing more on broadband."
AltaVista also has stepped back, opting to focus on its search engine roots. The company launched a major advertising campaign in the fall worth more than $100 million to portray itself as more than a search engine. But the company wants to focus less on going after Yahoo and AOL and more on its search offerings, executives say.
"We're no Yahoo, and we're not AOL," said Ross Levinsohn, vice president and executive producer of AltaVista. "I think we're generating tremendous revenues and growth without competing with Yahoo and AOL."
NBCi, meanwhile, has placed much of its emphasis on creating a broadband offering. But its Snap.com Web portal remains far behind the pack. NBCi is marketing its service to a general audience and is working on further developing its service for its existing audience.
"Our focus is more on being a personalized infomediary-oriented offering for our members," said Will Lansing, chief executive of NBCi. (CNET Networks, publisher of News.com, owns a stake in NBCi.)
Honing their vision
For companies stuck in Yahoo's and AOL's wake, the mantra remains "focus."
Analysts do not expect the giants' leads to bury the other portal businesses--as long as those businesses change and adapt to where the advertising dollars are flowing. In fact, the smaller portals could take cues from scrappy start-ups that are succeeding in creeping into the class of highly trafficked Web sites, analysts said.
"It seems that at the end of it; Yahoo, AOL and Microsoft have won the reach game," said Patrick Keane, an analyst at Jupiter Communications. "But I don't think the smaller-tier guys are in trouble because a lot of advertisers buy on specific targetability metrics and not on mass markets."
Go2Net, for instance, has recently made noise because of its high margin of profitability last quarter. The Seattle-based company runs a collection of Web sites that drive revenue from advertising and subscriptions. The company trounced Wall Street estimates last quarter after reporting pro forma profits of $8.3 million, compared with profits of $1.14 million a year earlier.
About.com also has made waves by sneaking into the pantheon of the Web's top 10 most-visited sites, according to Media Metrix. Analysts including Jupiter's Keane have pointed to About.com's ability to appeal to advertisers by offering them targeted placements for their network of interest-specific sites.
Amid these changes, Lycos is holding its course, seeking to deliver a range of audiences to advertisers by expanding its offerings.
The company offers a wide range of general information and services, and it labels itself a "multibranded network." During the past year, the company acquired gaming site Gamesville and finance site Quote.com and developed several of its own services, such as Lycos Music.
Lycos' Davis compares his business to a media model similar to network television, in which many brands under one roof keep advertisers happy.
Despite these developments, though, analysts remain skeptical.
"Nobody really knows what Lycos stands for," said Forrester's Li. "It doesn't mean anything to consumers, but it does mean something to advertisers. But they can't survive on one side of that equation. They must unify both sides of the equation."
Jupiter's Keane added that advertisers are looking for targeted placement for their messages. But he has not seen how Lycos can continue to balance its image as a general-interest site and as a collection of specific sites.
"Lycos seemingly needs a differentiation strategy, and I haven't quite seen it yet," he said.