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May 13, 1998 Event
Portals: Distribution Centers of the Web The Internet is in the grip of Portal Mania. Portals - the major onramps to the Internet - have undergone a rapid transformation over the last year, refashioning themselves from search and directory services to major content aggregators in news, finance, classifieds, chat, e-mail, sports, and other categories. As a result, portals have established themselves as major launching and destination points for many Internet users. But can portals live up to the hype (and sky-high market valuations)? Some signs are not promising. For example, the advertising revenues that have sustained them to date may be in jeopardy. Portals only account for 15% of total Internet traffic, but they currently garner 59% of all ad dollars spent on the Web. While portal traffic may increase over time as e-mail and other features are integrated, a portal's percentage of total ad dollars spent on the Web is certain to decrease, especially as more sophisticated forms of Web advertising develop. The real key for portals is to go "beyond the banner" and develop other business models that translate eyeballs into revenue. Whether a portal's point of presence and distribution can be leveraged into a successful business over time, however, is still unclear. Certain portal advantages may help maintain their success: First, portals will have superior information about user profiles, for which marketers may be willing to pay a premium. Second, portals will be able to use these profiles to aid e-commerce on their sites. Third, content providers will compete amongst themselves for exclusives with the best portals, improving terms of the deal for portals. Finally, by owning distribution, portals will be able to offer new services in a cost-effective way via hanging these services off of their home pages. Who will succeed in the portal world? Yahoo!, AOL, and Microsoft are top contenders, and Excite, Lycos, and, Infoseek are also in the running. A portal shakeout could be looming on the horizon. At the very least, new revenue streams through partnerships, e-commerce, and premium services must be generated if portal sites are to continue their current success. The likely future, however, is that only the strongest portals will survive.
Portal Mania
Key Learnings
1. Large Portals vs. Small Portals: Though the big players (Yahoo!, et al) will continue to be important, a whole slew of smaller, more subject-oriented players will sprout up to become the portals to specific areas of interest.
2. My Portal: The most effective portals will be the ones that allow themselves to be customized by the user, thus increasing "signal to noise" and delivering content specific to each person's needs and interests.
3. Exclusive Content is King: Offering exclusive content will become much more important as a differentiating factor among portal players which largely offer commodity information (news, stock quotes, weather, etc.) today.
4. Higher Bandwidth Portals: Although their successes to date have been predicated on being nimble, once bandwidth constraints start to get released, portal sites will offer higher bandwidth, richer products that are more engaging than current offerings.
5. Peristaltic Consolidation Looms: Consolidation in the portal space may become peristaltic, resulting in progressive waves of contraction, marked by both a frenzy of alliances and outright acquisitions/mergers, and relaxation.
6. Free Content Won't Go Away Soon: Aside from high-end content/services, consumers are unlikely to pay for access to commodity information. Thus, to retain and grow a large base of users, portals will not charge users in the foreseeable future.
7. Content Providers Will Stratify: Tier one content providers will be able to negotiate exclusives and/or get paid for their content. Tier two providers will share traffic with major portals and likely pay for distribution.
8. E-Commerce on the Horizon. As advertising revenues shrink, portals will earn more of their income from sales. This will mark the beginning of the consolidation, as less successful portals are taken over or go out of business.
9. The Broadest Will Win Big: As new user continue to enter the picture, sites with the best and broadest portfolio of offerings, including content, e-commerce, and other services, are going to win.
10. The Net and Leisure Time: As the Internet goes mainstream, portal sites will drive the general trend of the online medium competing against traditional media (TV in particular) for leisure time.
QUOTE OF THE NIGHT
"There will be a lot of promiscuous interspecies mating which may occasionally yield some non-sterile offspring." -- Rob Swigart