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Portals:
The business potential of highly trafficked web sites Business Information Review - Oct 98
1994 was the ‘big bang’ of the web. Netscape’s home page was the default website greeting millions of users each morning as they powered on their computers. Most users don’t know how/don’t bother to change this default and it is this behavioural inertia that plays a large part in the huge view/traffic figures for the home pages of Netscape, Microsoft and others. In other words, the portal traffic cops arose, and are shaping the experience of Internet users, because these users are ceding control of their Internet experience. It is this demographic trend that is currently setting the distribution chain for information provision of the future. The key portals are listed below. With the exception of the ubiquitous Microsoft all of these companies have only been around for a few years, yet already command staggering market capitalisation values. Serious money.
In talking about the role of information in the new emerging economic models of an Internet enabled society, Professor Danny Quah of the London School of Economics has differentiated between the average and marginal value of information as a commodity. These same economic principles will apply to portals. In their efforts to be all things to all people, portals have incorporated a variety of features and have essentially become commodities. The average value of portals is high - they are becoming increasingly central to Internet communication and information gathering for millions. Yet the marginal value for these portals is low, in order to simply maintain market share portals are having to invest large amounts in exclusive partnership deals with both Internet Service Providers and content owners. Who’s making real money yet? However, for those portals which manage to differentiate themselves, their marginal value will be high and the potential profits being quoted by Wall Street analysts are huge. The different elements of the marketing mix will each contribute to these attempts at differentiation, most notably branding. To use an analogy to better explain this difference between average and marginal value let us compare information with water. Just as water is vital for our physical survival, information is vital for business success - a fact which is increasingly being recognised at the corporate board level. However there is not much money to be made from the production of water, the people who make money from water are those who provide the pipes down which the water runs. The most profitable water sold is that which is most highly branded - Evian anyone? Therefore as commodities, portals are desperately seeking to differentiate themselves from one another. Lets consider the different elements of the marketing mix and how they apply to portals’ attempts at market differentiation: Product: Spot the difference - there’s a prize if you do. Netscape’s Netcenter portal has been dubbed ‘Yahoo too’ whilst Microsoft’s offering, www.start.com, has been labelled ‘Yahoosoft’. All portals offer the same product portfolio - search engine, stock quotes, free email, local news, weather reports, maps, directories etc. Distribution: Its what portals are about - controlling as many aspects of the information distribution chain so that the user needs only to leave that portal when absolutely necessary. That’s why the product features mentioned above are offered free - to increase the portal’s ‘stickiness’ so the user hangs around as often and as long as possible. In this context one can appreciate how the same behavioural inertia that resulted in the development of portals starts to extend into where users source information - including financial and business information that could once have been considered the preserve of information professionals - but not anymore. At one end of the distribution chain, portals have been signing multimillion dollar deals with Internet service providers (Yahoo and MCI, Lycos and AT&T) (1) in order to extend their reach down the distribution chain to reach more ‘eyeballs’ (‘charming’ US term for Internet users who visit/view a web page). At the other end, portals have been signing expensive, exclusive deals with an array of content providers including familiar names such as Dow Jones (see below) and Standard & Poors. Netscape’s Netcenter even has a channel called ‘Business Information’. However, there are now signs that other intermediaries in the distribution chain are starting to exercise their leverage - PC manufacturer Compaq recently announced plans to launch their own portal site whilst competitor Gateway launched a portal site in May and has, in its first two months of existence, attracted over 100,000 ‘eyeballs’. Price - much of the information and services provided by portals are free, supported by revenues from ads and sponsorship. For example a search on Yahoo! for information relating to cars will probably also generate customised ads for a car manufacturer such as General Motors or Ford. These ads are served only to users searching on key words/terms that are of relevance to the car manufacturer. Yahoo! receives hard dollars whilst the advertiser is ensured that their adverts are delivered to a targeted and individual audience of one every time. Its that Internet maxim of content and commerce. The same technology could easily be transferred to web business information products - in principle. The system isn’t foolproof - a recent search on Yahoo! for information on Boots plc resulted in an advert for a Texan supplier of US cowboy boots - no thanks. Promotion - this is one of the key areas in which portals will differentiate themselves. In the US one can see adverts of Internet websites on television. However, recently there has been an interesting turn of events - ‘old media’ (i.e television networks) have been buying portals. In mid June Disney Corp, which owns ABC television, acquired a large stake in Infoseek (2). Only a week before NBC had purchased a stake in smaller portal player Snap. Earlier AT&T had reportedly attempted to by AOL but was rebuffed. Industry commentators expect further announcements and have tipped CBS, News International and Time Warner on the ‘old media’ school and Lycos, Yahoo! and Excite on the Internet side (3). (News International subsidiary Fox, last year tried unsuccessfully to acquire Pointcast). If you, as an information professional are scratching your head and wondering ‘what’s this got to do with me?’ then just remember that it was the purchase of three regional US newspapers by Knight Ridder Corporation from the mouse house, sorry Disney Corp, that resulted in the disposal of the Dialog and DataStar services by Knight Ridder to the UK’s MAID plc, thus creating the world’s largest business information vendor. Several information vendors are also owned by larger media conglomerates (e.g Thomson, Pearson, Reuters etc.). This recent media industry consolidation reflects the coagulation of Internet traffic around portals, and could yet extend to the traditional business information market. Last year the Financial Times amalgamated its web division - FT.com with that of its more ‘traditional’ business information division, FT Information, to create a single integrated division - FT Electronic Publishing. Brand - brand embodies the ‘spirit’ of a product or service -i.e. what it represents and the lifestyle values that it is associated with. Consequently it can indirectly determine the demographic make up of a portal audience - young hip types or old men in stripy trousers? A portal (indeed any) home page can be said to have two properties - utility and affinity. Utility refers to the functionality of that home page for the user’s requirements, whilst affinity describes user identification with that home page - i.e. its brand.
Search Engines A few years ago, consumer online services such as CompuServe threatened to supplant the efforts of traditional online vendors to push their newly windows enabled products down the distribution chain and extend their market to reach the holy grail of the ‘end user’ market (of course tell one of these ‘end users’ how they are categorised and they’ll greet you with a blank expression - ‘a what?’ - information consumers do not define themselves in terms of their information consumption - but by what they do with that information e.g. one is not an ‘end user’ of products supplying marketing information such as market research reports, one is a marketing professional). This never materialised - with the exception of AOL the organic web supplanted them. But the web’s huge morass of content was overwhelming and so search engines and directories were brought out of the domain of the information professional and became invaluable tools for the everyday person. Now search engines are being portalised and are increasingly looking like those old services, with their chat, email and shopping features. As tools for sourcing information, directories have undoubtedly benefited from the web - who would use a hard copy directory that starts dating the moment its is published if an up-to-date electronic version exists? Unfortunately search engines just haven’t earned it yet. If information professionals are met - perhaps deservedly - with a blank expression for categorising people as ‘end users’, just try start talking to these same people about boolean logic. Although the search engines/languages of professional information products and Internet websites are based on similar boolean logic (and, or, not) there is no standard and the bewildered user is obliged to learn several variations of this theme if they wish to use different products/ Internet search engines. Whilst this is fine for the domain of the information professional (its part of the raison d’etre), its no good for the ‘end user’ out there. Small wonder that most people tend to stick with one or two favourite search engines - thus reinforcing the behavioural inertia responsible for the portal concept. The developers of Internet search engines simply extrapolated the boolean logic of information products onto the web, whilst failing to acknowledge the difference between the two - information products are highly structured whilst the web is not. The context that is provided by indexing in information products is not available on the web (which is one reason why structured directories such as Yahoo! grew in such popularity) and consequently searches which are based on keywords cannot recognise differences in semantics and ideas - there is no context, or frame of reference, for the keywords used in the search term. A recent feature in the June 20th issue of The Economist, ‘Hits and Misses’, reported on an interesting new development in search engine technology - a development that could serve to reinforce the pre-eminence of portals. Based on the citation index, which is widely used in the academic world, this new search language examines the context of a keyword search. It determines which pages about a particular topic have lots of links to them (authorities) and which pages do the most citing (hubs). Hubs are akin to portals (indeed some of the portals are actually beginning to refer to themselves as hubs) in that they act as a jump point for anyone interested in a subject. This experimental system is known as Hyperlink-Induced Topic Search (HITS). You get your HITS at the portal (4).
Content The Information vendor market will come under new threats from new entrants/competitors in other business areas who nevertheless view the provision of content as a value added service in the fierce war for customer loyalty and dollars. Cosy, indeed rigid, boundaries of the Information market will not remain static for much longer - one has only to consider the experience of increased competition in other markets - especially personal financial services where new entrants to this hugely lucrative service activity range from Microsoft to supermarkets. Two examples that relate to the information industry include US based E Trade and Taiwan based Sinanet.com. US financial services provider E Trade aims to be the financial portal on the web and now provides research reports by major banks for the public for free (5) - reports that were previously only available to brokers on real time services such as Bloomberg, or by information professionals (after a time embargo) on services such as Investext - how will the information vendors respond to this threat? Conversely in the UK, a parallel effort to create a financial portal has witnessed a content provider - the Financial Times - team up with a financial services organization - Quicken - in order to establish itself as the defacto location for financial information. Same objective, similar strategies, different tactics, but same (unknowing?) outcome - the boundaries of information provision and who (where?) users source this information from are being redefined. In the word’s of Daniel Chiang, President and CEO of SINANET.COM, the company "is a leader in providing timely and comprehensive business and financial information to Chinese Internet users". It serves over 40M page views a month to over 600,000 unique visitors. Until only quite recently such a thing wouldn’t even have existed. Dow Jones have recently signed an agreement with this portal to provide a range of business information, particularly the Dow Jones Index, which covers over 2,900 companies (6). Dow Jones are right to partner with this important portal - as an early adopter Dow Jones will benefit from its relationship with a key distributor to a market sector that will undoubtedly grow in size and importance. This alliance also effectively acts as a barrier to market entry for other information vendors and serves to underline the importance of portals on the availability of information for consumers and their inherent distribution implications for information vendors. Writing for Interactive Investor (www.zdii.com) Jamie Corroon, analyst at US Internet research organization Hambrecht & Quist, commented "Exclusive distribution deals are perhaps the most significant, and effective, barriers to entry in a market when product differentiation is slight. As such Yahoo!, Lycos and others have launched their own ‘online services’ by partnering with Internet service providers. This effectively moves the portal down the distribution chain to greet the user when they first dial up to the net." (7). One final, related point for consideration, is that portals offer Information Providers, that is, the owners of the intellectual property, a distinctive advantage and new market which will not be available to Information Aggregators such as Lexis Nexis or Dialog. Portals are signing deals with the content owners. Portals are seeking to control/influence as much of the distribution chain as possible and Information Aggregators, who are essentially distributors of other people’s content, will not be welcome. The aggregators have nothing to offer the portal players. The providers, with their highly branded content, do.
Commerce However, it is the first type of electronic commerce - that related to content, that is the subject of interest of this article. The combined 1997 ad revenue for seven top US portals (Yahoo, Infoseek, CNET, AOL, Excite, Lycos and Sportsline USA) was US $475M. Netscape’s default home page pulled in over $108M in advertising fees in the same year - approximately 18% of its total business (8). The same article also went on to claim ‘The more users - known as ‘eyeballs’ in the trade, who visit, the more money a portal site can make from both, from advertising, taking a piece of the pie from other companies that use the portal to sell their goods, and similar arrangements’. This experience of electronic commerce is not universal. There are large differences between the US and Europe, and it is the disparity in Internet population size between the two regions that is largely responsible for the frequent (and incorrect!) laments about Europe lagging behind, loosing competitiveness etc. In the US the Internet population accesses the net from home and the experience of electronic commerce has centred around ad funded content based sites, which up until quite recently mainly haemorrhaged money for the publishers who owned them. In Europe, most people access the Internet from their PC’s at work (except for France). Consequently this has fostered an experience of the Internet which is primarily focused on the business applications and benefits of the Internet. A recent survey in May by MORI highlighted these differences in electronic commerce between the two regions (9). Of over 900 European organizations surveyed, over half were confident that ecommerce was the best option for their future business. 25% were already making a profit in online commerce. Europeans have more readily embraced electronic commerce, so it is not populations, but experience, that is determining the direction of electronic commerce. Whilst all of the main portal players are American, the world’s three largest business publishers are European, so when it comes to content, Europe, with its long and rich history in publishing, has a key strength to play. Europe has learned from the early US adopters which has consequently resulted in the reduced time to market for European organizations’ electronic commerce plans that are currently emerging. Since the deregulation and liberalisation of the European telecommunications market last year, telecoms costs have, on average, collapsed from being ten times more expensive than the US to just five. In an interview with Information Strategy in June 1998, (10) Martin Bangemann, the Commissioner responsible for telecommunications, IT and information policy across the EU, confidently predicted that telecoms costs would further fall to approximately just three times more expensive than the US by the end of this year, a trend that will continue for the foreseeable future. This collapse in pricing has also been matched with a corresponding investment and upgrading of telecoms infrastructure across Europe. In America, the experience of ecommerce has primarily centered around ad funded content sites and on business to consumer transactions. So whilst behavioural inertia has contributed to the development of portals, it is this emphasis on business to consumer commerce that has fostered their mass market commercial development, thus creating a virtuous circle of distribution - content - commerce - distribution. Europe, whilst lacking the larger home Internet penetration/access rates of the States, has focused on business to business transactions. However there are several factors which could witness the evolution of European portals:
These developments are being encouraged at a global level by both governments and multinationals, so that companies can better realise the economies of scale and associated cost benefits of electronic commerce and web transactions - otherwise they will need to support two different business models (11).
Conclusions Next: References Related material: The role of portals in the evolution of web searching This article has been reprinted in its entirety from the September 1998 issue of Business Information Review with permission from Bowker-Saur | |||||||||||||||||||||||||||||||||||||||||||||||||
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