Commentary: Portals: A Golden Door For Pc Makers

These days, it seems every company, from to Zapata, wants to be a portal, a general-purpose starting point--and, hopefully, sticking point--to the World Wide Web.

The latest victims of portalmania are PC manufacturers. On Sept. 23, Dell Computer Corp. announced a deal with Excite Inc. to create a custom version of the startup's Internet navigation site for Dell customers. Beginning this fall, when consumers buy one of Dell's Dimension PCs, they will be able to sign up for Internet access from AT&T or SBC Communications Inc. Then, using either a basic browser from Dell or Microsoft Corp.'s Internet Explorer, they will be ushered to a Web page co-branded by Dell and Excite.

Why? Dell has found that getting on the Internet is driving consumer PC purchases, and it wants to make the experience simple for customers. But there are deeper motivations. The fact is, there's a fundamental shift under way in personal computing. PC users are relying more on the Web to do basic tasks, whether calculating their investments or catching up on news. As they do, the PC and the software loaded on it are becoming merely the vehicles connecting them to a wide array of services on the Net. In short, the battleground has shifted from the physical desktop to the virtual space where people go to work and play.

FLEXING MUSCLES. And that's where PC makers see a glimmer of opportunity. Over the past several years, PC makers have been relegated to the role of distributor for Microsoft's software and Intel Corp.'s microprocessors. They have watched their margins erode even as Microsoft and Intel have grown fat off lush profits. Now, with the Internet, PC makers see a chance to grab control of the customer relationship--and perhaps their destinies.

It doesn't hurt that Microsoft is embroiled in a landmark antitrust suit and has the Justice Dept. and 20 states watching its every move. Just two years ago, Microsoft threatened to revoke Compaq Computer Corp.'s Windows license for merely offering Netscape Navigator alongside Internet Explorer, according to a deposition by a Compaq executive. Today, emboldened by the suit, PC makers are flexing their muscles before they atrophy. Let Microsoft have Windows. PC makers are realizing they can do an end run around the software giant by staking out their own cyberspace real estate.

Now, just about every PC maker is ginning up an Internet plan. The first was Gateway Inc., which in May created its own Internet service and portal, Infoseek, which is now wed to Walt Disney, has a distribution deal with WebTV. And Compaq is negotiating with potential partners to trade a stake in its Alta Vista search engine for Internet content or broadband Internet access. The planned portal "will be very important for our future," says Earl L. Mason, chief financial officer at Compaq.

CRUCIAL LINK. These deals--and no doubt more to come--are the latest twist in the search for a winning business model on the Net. For portal companies, big PC makers such as Dell and Compaq can steer millions of customers their way. For PC makers, portals suddenly look like a key revenue stream: Companies such as Excite and Infoseek pay millions for the privilege of being featured on a brand new PC, and then there are opportunities to share ad and transaction revenue generated on the joint sites. For profit-starved PC makers, "why throw that away?" asks Bruce Smith, Internet analyst at Jefferies & Co.

It's more than easy money, though. Indeed, the greater value in these portal deals may be the link they allow PC makers to build with their customers. By directing users to a custom home page, PC companies can keep their brand front and center and answer technical questions. And PC portals provide a valuable trove of customer data that they can use to market products. Dell, for example, figures that it can persuade many customers who sign up for its high-speed Net access to also upgrade to more powerful machines. Most of all, portals allow PC makers to differentiate their offerings--even innovate. For PC makers, portals might just be the starting point for new profits. But will they stick?

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