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Information Technology: THE INTERNET
PORTAL COMBAT COMES TO THE NET
Why all those online heavy-hitters want to be your doorman
Microsoft Corp.'s 10 Web sites are among the biggest draws on the Internet, visited by a third of all U.S. Web surfers. Yet it's just not enough. So the software giant is whipping up a super Web site that will showcase all its online properties, from travel to car-buying to news, and include services such as free E-mail and a search engine to explore the rest of the Web. The new site, which could be ready as early as this summer, will be called "Microsoft Start"--a telling name, since the software maker is hoping all these goodies will persuade cybernauts to make it their first stop on the Net.
It's home sweet home page. And Microsoft isn't the only business trying to create the best one. Yahoo!, CNET's Snap! Online, Excite, Netscape, and half a dozen others are making bids to become the launchpad to the rest of the Net. They are jamming their Web sites chock-full of free services--chat, customized news pages, entertainment listings, even personal finance advice--hoping Netizens will visit them first to get most of the stuff they need.
The theory: If a Web site becomes a major gateway to the Net, or "portal," it will boast traffic from a big chunk of the 55 million Web surfers. That could draw advertising dollars, online shoppers, and lucrative sponsorship deals, transforming money-losing sites into cash machines. The prize is huge: Advertising on the Net is expected to hit $7.7 billion by 2002, up from $940 million in 1997, and E-commerce could balloon to $37.5 billion, up from $2.6 billion last year, according to market researcher Jupiter Communications Co. "It's hard to find any of the major sites that aren't seeking to be the start site," says Laura Jennings, vice-president at Microsoft Network, the No.2 online service.
The idea of portals marks the latest twist in the Web's evolution. A year ago, search-engine sites such as Yahoo! and Lycos feared they would become commodities. So they began touting themselves as newfangled "networks" that--much as in the TV world--would act as channels funneling programs, information, and news to subscribers. Now, they and other ambitious Web-site operators are taking it further, attempting to become one-stop, full-service sites.
And none is more successful at it today than America Online Inc. AOL is the No.1 doorway to the Net, with its 11 million subscribers accounting for a hefty 39% of Web traffic, according to Media Metrix-The PC Meter Co. AOL's oodles of content, shopping, chat, and E-mail have drawn hordes to the proprietary online service. Now AOL is beefing up its Web site, AOL.com, to ward off the portal wannabes. Its site offers features once only available on the online service, such as instant messaging--a real-time E-mail exchange much like chat--and NetMail, which lets AOL users check E-mail from the Web without having to use the AOL service.
PILING ON. So far, it's paying off. AOL's revenue from advertising, goods, and services sold electronically rose to $108.8 million in the December quarter, up 87% from a year ago. But AOL is facing stiffer competition. CNET Inc., for example, is muscling in by licensing Snap!--a collection of Web content created by others--to such biggies as Toshiba, GTE, and Compaq Computer. "Our bet," says Halsey M. Minor, chief executive at CNET, "is that everybody combined will be able to generate more customers than AOL."
But first, CNET and the others must outdo the online giant--a task that's triggering an all-out features war. Excite Inc., Yahoo! Inc., and others are piling on services that are being matched almost instantly by rivals. Last October, for example, Excite paid $35 million in stock for Netbot Inc., which developed an online shopping technology that helps find products across a welter of Web merchants. But before Excite could launch the shopping service on Nov. 26, Yahoo! trumped it by unveiling a similar comparison-shopping feature through a licensing deal with Junglee Corp. of Sunnyvale, Calif.
The latest must-add feature: online communities. These let Web surfers homestead by setting up their own pages around common interests. "Neighbors" chat online and exchange information on topics ranging from Southern living to Broadway. Yahoo! kicked that off in January by taking a $5 million minority stake in GeoCities, a privately owned Santa Monica (Calif.) online community that was ranked the seventh most popular site, according to RelevantKnowledge Inc. Lycos Inc. followed by acquiring Tripod Inc. on Feb. 3 for $58 million in stock. The Web community for twentysomethings boasts 1 million members. Now, AOL says it's considering a similar service. "This space is very unforgiving because your competition is one click away," says Jeff Mallett, vice-president of business operations at Yahoo!
It's also getting more expensive by the day. Take Yahoo!, which licensed a search service two years ago and developed features in-house before buying additional ones in the past year--at a total cost of $205.5 million. To recreate that same service from the ground up today would cost between $500 million and $1 billion, analysts say. "The separation between the haves and the have-nots will begin in earnest in 1998," says analyst Mary G. Meeker of Morgan Stanley, Dean Witter, Discover & Co.
BULKING UP. So, too, will the pace of acquisitions, as the "haves" bulk up with extra features and make a grab for subscribers, figuring they don't have much time left to get established. One likely buyout candidate, say analysts, is Mirabilis Ltd., an Israeli startup that has developed real-time chat now used by 4 million people. Also attractive: WhoWhere? Inc., a Mountain View (Calif.) company that provides free E-mail and was the 15th most popular site in January. Experts also bet iVillage Inc. will be snapped up soon. The New York-based company, which owns the popular Parentsoup site, is one of the top Net communities, with 2 million monthly users, offering information targeted at women on finance, parenting, and work. Co-founder Candice Carpenter says iVillage has been approached by media companies, though she won't name them. "We've had inquiries, and it's speeding up," she says. "This is in the air."
So who will be standing when the portal combat is over? Experts say there will be four major doorways to the Net, maybe six--including AOL, Yahoo!, and Microsoft, which are sitting pretty with the most traffic and the deepest pockets. Experts say Excite and media companies such as Time Warner or Disney--which is starting to put its gateway pieces together--will duke it out for the other spots.
The smaller players, such as Lycos, which had 18 million daily page views in the latest quarter, and Infoseek, with 12.5 million, need to partner up, says analyst Alan M. Braverman of Credit Suisse First Boston. That's because their numbers--and ability to attract advertisers--are dwarfed by the 65 million page views and the breadth of the services Yahoo! is putting together. Infoseek executives decline comment about a partnership, saying they are in a quiet period after a secondary stock offering. Lycos, which turned profitable in the October quarter, says partners have indicated interest in the startup. But, says CEO Robert J. Davis, "we're completely committed to growing as an independent company."
The way the competition is shaping up, even small fry can leverage the success of the biggies to draw a crowd.By Heather Green in New York and Linda Himelstein in San Francisco, with Paul C. Judge in BostonReturn to top