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The Battle of the PortalsWho will be left standing in the fiercest contest in cyberspace?There's no August in Internet time. While much of the business elite is spending the waning days of summer relaxing at the beach -- or dodging hurricanes -- the world's busiest Web sites have been locked in a fierce struggle. So-called portal sites, nee search engines, have already won the first skirmishes in the battle for Net supremacy. They've proven that they can grab the lion's share of traffic and an even greater share of Web ad dollars, and, in a few cases, generate profits in this fledgling medium. Now, the portals are squaring off against each other. Industry wisdom holds that over the next two years, a shakeout will occur among the top sites -- leaving perhaps only four or five major portals surviving. While Internet ad revenues are growing at a steady clip, there are only enough dollars to support a few operations of the scale of Yahoo! (YHOO), says Chris G. Charron, an analyst at Boston-based Forrester Research (FORR). Yahoo! may be the portal king now, but close to a dozen other sites are aiming to topple it -- or at least grab one of the coveted few spots reserved for masters of the Web. To emerge as one of the victors, a site will have to do more than provide search tools that ultimately send millions of visitors elsewhere. It will have to develop "stickiness," in Web jargon -- which means finding ways to keep Net surfers coming back to use the site's tools and features while persuading the visitors to reveal their tastes and buying habits. That way the portal can pelt them with targeted advertising and E-commerce offers that will generate big revenues. ROLE MODEL. There's not much mystery about what it takes to keep an online audience coming back. America Online (AOL), which announced Aug. 27 that it has grown to 13 million customers, figured that out a while ago, and now the portal sites are imitating AOL's approach. They're adding chat, E-mail, and Web-page hosting for their visitors -- all elements that help "build community." On the Web, "Lycos (LCOS) owns the community space, without question," declares its chief executive, Robert Davis. He points to a handful of community sites, including Gen-X favorite Tripod, that his company has acquired since February to make sure its 19.5 million individual viewers a month, by Davis' tally, stay hooked. "While everyone slept, we've dominated," he declares. Well, maybe. In early August, AOL began a semi-public beta test of Hometown AOL, a personal home-page-building Web site of its own, comparable to free home-page pioneers GeoCities and Tripod. A week later, Excite (XCIT) launched a beta version of Excite Communities, a toolbox allowing groups of users to build online clubhouses replete with chat rooms, message boards, and the like. The next day, Aug. 17, Yahoo!, which already owns a chunk of GeoCities (GCTY), debuted its own Yahoo! Clubs, which is much the same as Excite's offering. Walt Disney Co. (DIS) portal play Infoseek (SEEK) -- of which the larger company owns 43% -- is said to be readying a similar product. "They're all the same," says Patrick Keane, an analyst at Net market researcher Jupiter Communications. "They're all doing the exact same thing as their competitors." On purpose, it turns out. Within the walls of Cnet's (CNWK) San Francisco headquarters is a "war room" decorated with printouts of the Web pages of Snap!'s competitors, says Cnet Chief Executive Halsey M. Minor (Cnet launched Snap! last September but spun it out into a separate company after selling a 19% stake in the venture to NBC). "Everyone has all their competitors' pages on the wall," he says. "There are no secrets. There isn't much you can't copy." DEAL-DIZZY. Increasingly, it seems, copy means buy. Huge runups in stock prices this year have created a currency that portals can use to collect smaller companies whose services and technology they can graft onto their sites. Snap! and Infoseek, meanwhile, are newly flush with cash from selling minority stakes to large media companies that don't want to be left out of the booming portal business -- a move that more portals are expected to make. In fact, portals have announced a dizzying array of deals this summer, including acquisitions, marketing agreements, and alliances. Consider this three-day span in August. On the 10th, AOL announced both an alliance with AdForce, which has technology for managing the delivery of Web advertising, and a partnership with JFAX to provide E-mail, fax, and voice-messaging services to members of its CompuServe service. On Aug. 11, Lycos announced that it was buying WhoWhere, a Net company whose Angelfire division, another free home-page provider, has 1.3 million members and was named the fastest-growing Web site in the first half of 1998, jumping from obscurity to the top 10, according to traffic-watcher Media Metrix. Infoseek announced on the same day that it was acquiring Quando, which makes intelligent comparative shopping tools and Internet event guides. Yahoo! was involved in several deals announced Aug. 12, including a partnership with Individual Investor Online to do monthly stock chats and a deal to distribute content and advertising from Microsoft (MSFT) HomeAdvisor, a site offering tools and information on buying real estate. Establishing a strong brand name is central if the sites are to snare loyal customers from the horde of ordinary folks who are expected to surge online in the next year or two. Yahoo! has proven the master at marketing so far and so has America Online. But AOL now faces a challenge: How to keep from losing ground to the portals, while making its own transition to the Web. The portal contenders seem to have Big Media companies on the run. But it's too soon to count them out, or so say traditional publishers. And in fact, the history of radio's early days -- where parallels to the Web are uncanny -- implies that large media players with lots of muscle may yet bowl over the entrepreneurs. That's just one reason that portal stocks are so volatile. The other may be that when you compare their products, it's hard to separate one portal site from another. Eventually, Forrester's Charron thinks Yahoo!, Microsoft, and AOL will come out on top. He likes AOL's strong revenue stream, its base of 13 million paying customers, and its treasure trove of detailed demographic information. Yahoo!'s dominant position on the Web, meanwhile, is allowing it to grab ad revenue from competitors. Microsoft is, of course, Microsoft, with theoretically unlimited resources, the Internet Explorer browser tie-in, and a collection of strong commerce-oriented category sites, which will soon fall under the umbrella of its own portal wannabe, MSN.com. SURE BETS? In a recent report, Boston technology consultant Patricia B. Seybold picked AOL and Disney as sure bets among the four or five "destination" sites to survive to the year 2000. The other spots, she says, "are up for grabs." In an Aug. 18 report, Goldman Sachs analyst Michael Parekh noted AOL, Yahoo!, Netscape (NSCP), Microsoft, and Excite as the top five. For Jupiter's Keane it's pretty simple, "Whoever spends the most and out-brands their competitors will win. It's business and marketing 101." Still, the dynamics can change overnight. Big money from big media concerns can dramatically improve the prospects for flagging portals. "Snap! was an airliner on fire coming into the foamed runway," says Internet analyst Vernon Keenan, founder of San Francisco-based consulting operation Keenan Vision. "That NBC cash allowed them to pop out the wheels at the last minute. Now they can repair the airship and get it back up." Gartner Group (GART) Research Director Patrick Meehan now counts Snap! on his list of portals most likely to succeed. Ultimately, Web surfers may not wish to visit something as vast as a portal if they can bypass it and still find what they want. Eventually, individual users will focus on a much more diverse set of niche portal sites that fit their needs, argues Bill Benedict, president of Alpine Meridian Inc., a Greenwich (Conn.) company that consults on Internet strategies. The portals that don't stay in the top tier won't go out of business. But they "will have to develop a more focused strategy to survive," adds Charron. Moreover, a backlash against portal titans could develop if the public views their efforts to collect data and do direct marketing as an invasion of privacy. "Marketers face a challenge in balancing their need to target and the users' desire for some level of privacy," says James C. Balderston Jr., an industry analyst with Zona Research. Beyond that, there is always the risk that in a bear market or an ad recession, the portals' newfound financial stability could disappear. Portals, like the leaders in all emerging industries, will have to manage both their expenses and their growth. The next few months may help decide which portal sites remain in the game. That's why, even if the dog days of summer, there's no truce in the portal wars. By Amey Stone and Patrick Lambert
in New York, with Linda Himelstein in San Mateo, Calif. RELATED ITEMS
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Updated Aug. 28, 1998 by bwwebmaster
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