SMART COOKIES - A question of portals - With internet and e-commerce fever raging, everybody wants to be a portal. Is this wise? Will they make money? We pull back the curtain.
Let's start with basics - what exactly is a portal?
In the early days of the internet, Yahoo! and its competitors (Lycos, Excite etc) were known as search engines or directories. As their business concept has evolved, they have become known as portals.
A portal is just what it sounds like - a gateway providing consumers with access to three of the four internet Cs: Content, Commerce and Community (the fourth C is Communication); and access for vendors of products and services to consumers and sales.
That's in the internet world. Used in the same sense in the pre-internet world, Tesco is a commerce portal for grocery products; Cosmopolitan is a content portal for women's lifestyle and fashion; and Channel 4 is a portal for niche TV programming.
How will portals generate revenue and profits?
Firstly, vendors pay to advertise their brands - on banner ads, page ads, or search listings. Portal ad revenues depend on attracting consumers to their site, with good content and community services - a good example is Cosmopolitan.
Secondly, portals share in the revenues from e-commerce - from variable commissions or fixed placement fees, or by becoming e-commerce vendors themselves and earning the gross margin on sales.
A hot online topic is the merging of 'content' (with its advertising revenue model) and 'commerce'. Ads on content pages now invariably click through to vendors' e-commerce sites, and advertising is being priced per click-through or per completed transaction.
Isn't this all rather reliant on ads? What if consumers find that off-putting?
Another way for portals to make money is by charging consumers directly for subscription or usage. The 'subscription model' was pooh-poohed in the early days of the internet, and now even the AOL ISP-plus-portal subscription model is under heavy attack. But as consumers start to want more quality control, editing and customer service online to manage time-wasting garbage overload, it could bounce back. Glossy mail-shot property magazines survive on advertising, but business professionals fund The Economist through subscription; hotel rooms provide free city listing magazines, but regular travellers buy Zagat's in the US or Michelin in France for restaurant recommendations.
What's the best weapon now in the portal war?
The competitive battle now is around customer acquisition. Consumers are time-pressured and technophobic, so whoever gets to them first, or leverages an existing brand relationship, has a good chance of becoming their primary portal. So the original content-based portals such as Yahoo!
are being attacked by portal wannabes from technology and device vendors (PCs like Dell, mobile phones), network vendors (ISPs, cable/satellite TV, mobile operators such as Orange, BT) and software vendors (Microsoft, with its MSN portal); and established consumer brands from any sector, like banks and grocery retailers, offering free internet access.
What will determine the winners or losers?
After customer acquisition, the challenge for portals is to make the customer relationship into something valuable. I use AOL as my ISP (for e-mail) but as a portal it's useless. Portals need to build stickiness to make consumers stay on their pages longer, and they need to convert customers into e-commerce transactions. To do that, they need to deliver real value-added content and community services, and high-quality, highly edited e-commerce choices and links.
But what about the more generalist portals?
Generalist 'horizontal' portals such as Yahoo! may have problems with this because of their sheer breadth of coverage. Hence the rise of 'vertical' portals focused on particular interests and markets, such as travel or football, akin to special-interest magazines. With their tighter focus, they could be more valuable to consumers and so, generate greater stickiness and commerce conversion. With any ISP's 'favourites' tab, they are one second away. And for advertisers, they are better targeted to specific customer groups - like cable versus broadcast TV.
I'm fond of my portals, but they're not up there yet with the best ones from my youth: Doctor Who's tardis, Alice's rabbit hole, or the one in the Fantastic Four building that transported The Thing into The Negative Zone.