Within the span of a week, the Internet's edges shifted. On Apr. 30, Walt Disney Co. announced it was buying the remaining two-thirds of Web publisher Starwave Corp. that it didn't already own. On May 4, Excite Inc. agreed to pony up $70 million to Netscape Communications Corp. for premium access to its Web visitors. The same day, search engine company Lycos Inc. trumpeted a distribution deal with AT&T WorldNet, only to have Excite announce a similar agreement with AT&T two days later.
This isn't just another round of dealmaking in Internet time. These maneuvers are the latest--and largest--by companies jockeying to become major ports of entry to the Web. Each of these so-called portals hopes to attract millions of consumers a day who will begin their Internet adventures there and stay at the site as they use free E-mail delivery, do Internet searches, and use other services.
It's an all-out bid for survival. As the vast Web divides into just a handful of key channels--akin to the dominant TV networks--attracting surfers is becoming crucial. As with the major TV networks, the more viewers, the more advertising money these sites can demand--manna to Web site operators desperate to transform their bets into real businesses. The time for that transformation has never seemed nearer. Portal contender Yahoo! Inc. has 30 million different users each month--just shy of the 33.3 million viewers that TV's Seinfeld claims. "It's a catalytic time period for companies in this space," says Mark Mooradian, an analyst with Jupiter Communications.
Indeed, that's why Netscape and other Internet companies are so eager to form alliances and bulk up their critical mass of viewers. This prospect is drawing advertisers, who sense a mass market finally taking shape. Ad revenue is expected to hit $4.9 billion by 2000, up from $1 billion last year, according to Jupiter. "It's a market-share war," says Keith Benjamin, an analyst at Banc-America Robertson Stephens.
And the war is only going to get worse. The latest round of partnerships upped the ante. With Disney's purchase of Starwave, which gives it the ability to offer sports, news, and entertainment, there are now nearly a dozen major portal contenders. But experts say only four or five will survive. America Online Inc., the No.1 online service, is considered one of the top long-term contenders. Its users make up 38% of Web traffic from home, and they typically use the AOL.com site as a launching pad. The many monthly visitors to Yahoo! give that service a lead in brand recognition that's hard to beat, analysts say. And Microsoft Corp., which has deep pockets and plans this year to create a megasite dubbed "Start," is always a good bet.
AOL COPYCATS. That leaves but a couple of open seats, a situation that is sure to trigger more partnerships. But this time around, experts say, portal wannabes will try to do deals that steal a page from the success of AOL--by linking their content and services with Internet access. Yahoo! has done just this. In January, it announced an agreement with MCI Communications Corp. in which the long-distance carrier's Internet-access customers are delivered to the doorstep of Yahoo! In early May, Lycos and Excite announced similar agreements with AT&T. "You'll totally see more of this," says Mooradian, who cites Internet service providers Netcom, Earthlink, and MindSpring as likely partners for the up-and-coming portal crowd.
You'll also see more snazzy services. As companies try to one-up one another, they will add goodies ranging from cheap long-distance phone calls over the Net to customized information. Microsoft, for example, recently bought Firefly Network, which has technology that monitors Web behavior so the service can recommend products. Now, portal rivals are expected to improve their offerings with services like personal E-mail alerts.
Yahoo! has a carrot of its own. Through an agreement with phone carrier IDT Corp., Yahoo! is offering long-distance phone calls over the Net that can cost 95% less than regular calls. Netscape says it plans a similar feature. "They're going to keep adding service after service to get ahead," says analyst Ron Rappaport of Zona Research Inc. "There's no one recipe for success for any of these guys."
WORTH THE MONEY? Take the Netscape-Excite deal, which has analysts and investors scratching their heads. Excite is paying $70 million to get 50% of Netscape's search traffic in the first year of the deal. Excite is banking on an extra 8 million to 10 million daily page views, the number of pages called up on a Web site. Excite will offer 10 consumer content areas on Netscape's Web site, including shopping and the arts. And Excite will share revenue with Netscape from ads it sells on the search and content areas.
That's a lot of new traffic for Excite, but some analysts question whether the high-dollar deal is worth it. Under attack from Microsoft's Internet Explorer browser, Netscape's browser share has declined from a high of 85% in late 1996 to 60% today. Analysts expect Netscape's share to continue to dwindle, leaving Excite with a lot less than it paid for. Netscape says its browser share rose in March after its recent move to make the product free.
Some also question whether Excite will get what it wants from the advertising side of the deal. While the No.2 search engine will be responsible for selling all the ads on the co-branded search engine and content areas, it's uncertain whether it can sell enough to recoup $70 million. "This deal is a stretch," says Benjamin, who has pushed back his forecast of when the company will break even, to the fourth quarter, in part because of increased costs associated with the deal.
That's not the only risk. By working with Netscape, Excite could dilute its brand and become overwhelmed by its more dominant partner. Excite is helping to build another company's portal rather than buttressing its own site, says Jeffrey Mallett, chief operating officer at rival Yahoo!, which along with Infoseek, Excite, and Lycos, has been a search service on Netscape for the past two years. Mallett says Yahoo! didn't want to grow heavily dependent on Netscape: "We didn't want to go back to the heroin."
George Bell, Excite's chief executive officer, insists the traffic Netscape guaranteed will easily cover his investment. Though Excite sells only 13% to 15% of its ad space, real estate on highly trafficked areas like Net-scape sells at a greater premium, he says. And the Web is growing so fast that building brand awareness and traffic remains his No.1 job. "We think that's pretty virgin territory," Bell says. "Look at the $70 million as a downpayment on leasing a prime piece of real estate."
Surprisingly, though, Excite didn't cut an exclusive deal with Netscape, which is divvying up the remaining 50% of its search traffic this year among other engines. The search engine business is a lucrative one for Netscape, which generated $35 million to $40 million in payments from the engines last year.
For Netscape, the Excite partnership is part of a belated play in the consumer market. When Netscape launched its NetCenter site last September, it was primarily for business users, and the consumer field was left to AOL, Microsoft, and Yahoo!
Netscape soon realized it was passing up a big market and started adding fare for consumers. With the Excite deal, Netscape picks up new content, not to mention much-needed cash: The company lost $115.5 million last year.
For now, the game is about adding me-too services. "All of us are kind of playing hopscotch," says Barak Berk-owitz, vice-president of marketing at Infoseek, a Sunnyvale (Calif.)-based search engine. But if sites hope to catch the loyalty of fickle Netsurfers, they'll need to find something to set themselves apart.