The Great Portal Purge
Last year, 1-800-Flowers.com was a company so sold on the idea of portal advertising that it spent itself into the red to expand its marketing presence on the gateway Internet sites. Including some existing ads on AOL, the flower seller spent tens of millions on online advertising. The money went to such well-known portals as MSN, Excite, and Yahoo!, as well as to lesser known ones such as eCircles.com.
But Flowers discovered that not all portal deals are worth the money and this year it's trimming back. It's keeping America Online and Yahoo, and such less-trafficked portals as Oxygen.com. But Flowers is close to tossing its accounts with middle-tier players such as Lycos and Excite. "Portals have to be able to deliver branding and sales," says Chris McCann, Flowers' senior vice-president. "Most of them didn't do it."
That's just the kind of attitude that could signal a coming shakeout among portal players. The biggest and smallest will survive, but those in between could be heading for trouble. Portals were recently considered the undisputed mass market of the virtual world. That's because they promised advertisers a huge audience with multimillion dollar deals that range from running banner ads to creating their own shopping sites and content on the portal.
Now, the wisdom of paying big bucks for such deals is coming under scrutiny. The reason: dot-coms both large and small are increasingly unhappy with the results--folks simply aren't clicking on their ads nearly enough. "You're buying reach, but it really isn't there," says media planner Carl Kotheimer of Horizon Media. Mighty Yahoo promises to deliver a third of the online universe to advertisers, but even that translates to just 12% of consumers in general, says Kotheimer.
What's more, in the wake of last April's Nasdaq nosedive, dot-coms are scrambling to cut costs. And money for portal deals, considered an essential part of dot-com marketing strategy only a few months ago, has been among the first to go. These days, the price tag for such high-visibility deals simply doesn't seem worth the return. Jupiter Communications analyst Michele Slack predicts a wave of renegotiations as newly Net-savvy companies insist on tying pricing to results, not just eyeballs.
"CHERRY-PICK." Indeed, the shake-up has already started. Many portal deals, signed with great fanfare within the past couple of years, are crumbling along with the financially strapped dot-coms that signed them. Software seller Beyond.com pulled the plug on its myriad portal deals--a move that cost the company $11 million in early-withdrawal fees. But faced with losses of $125 million in 1999, it couldn't afford them. Even companies without financial woes are reconsidering. "We just reduced our portal commitments from $12 million to $6 million, with negligible impact on sales," says Doug Mack, CEO of home furnishings e-tailer GoodHome Inc. "The key is to cherry-pick the best parts of the deals," he says.
Portals aren't taking the dot-com revolt lightly. They're working to attract more long-term deals with offline companies such as Target and Sears. For starters, they are hustling to make their sites more alluring for Web surfers. They're creating in-depth content sites, beefing up their own ad campaigns, and providing an array of services. No longer is it enough to offer a search engine and e-mail. Now address books, calendars, bill-paying services, file storage, and even standard office forms have become portal perks. "The end game for portals is to become the desktop for the user," says James Vogtle, director of e-commerce research for Boston Consulting Group Inc.
For advertisers, the big payoff will come as portals find ways to extend the amount of time people spend on the site. Yahoo! Inc., for instance, has worked hard to offer more than just a quick stop-off point for consumers entering the Internet. It has beefed up everything from games to streaming video to shopping. And it has added specialized content to create more highly targeted ad space. Yahoo recently expanded its Finance Vision area to compete with other online investment sites, and early results are promising. So far this year, Yahoo has picked up 1,000 new advertisers, according to Anil Singh, Yahoo's chief sales and marketing officer.
BIG THREE. More features are on the way. "If that means that we have to move away from the portal model," says Singh, "then you bet that's what we're doing." Indeed, why should Yahoo provide a click through to another site when it can keep the eyeballs--and the dollars--in-house?
That, of course, has always been AOL's approach. Since 1996, its revenues have jumped from $15 million to nearly $2 billion, while the average daily time spent online has more than quadrupled, to about an hour, says Meyer Berlow, AOL's president of interactive marketing. That explains why such megaportals will survive. At the same time, the smaller speciality portals with their loyal followings will also do well. By 2004, Forrester Research Inc. projects that the Big Three--Yahoo, MSN, and AOL--along with niche sites such as wedding site theknot.com and babycenter.com will account for 64% of all Web traffic and 72% of ad revenues. The broad-based portals in the middle will have just 1% of Web traffic. "The middle ground is a dangerous place to be," notes Boston Consulting's Vogtle.
For portals stuck in the middle, to survive means either merging, as Lycos did when it was acquired by Spain's Terra Networks, or dominate a technology niche, such as Ask Jeeves' natural language search engine. But in the tough new world of portals, the basic dilemma remains: Do the ads deliver? "It's so much money," says Jupiter's Slack. And so few clicks.