Jackie Bennion
When Internet darling Yahoo! announced its second-quarter earnings earlier this month, it not only sent Wall Street into a frenzy; it also made the founders of the Web search site, Jerry Yang and David Filo, the latest additions to the Billionaire Boys Club.
Two weeks ago, Broadcast.com went public with the biggest opening stock gain in Wall Street history. Formerly called Audionet, the money-losing Web listing service of Net broadcasters beat the previous records set by Yahoo! and Netscape, and gave the company an instant $1,06-billion valuation.
Last week, it was the turn of search site Excite to share the wealth. But the question on any pragmatist’s lips is what wealth?
To much fanfare, Yahoo! posted a $34,9- million loss, followed by Excite with an $80,2-million loss. Nevertheless, these Internet wunderbrands have one thing in common: one of them could be the next Microsoft.
It’s this rampant speculation that keeps investors buying in a flurry and pushing valuations of these companies into the stratosphere. To put the Yahoo! figures into perspective, the young company’s share price peaked at $2 071 this month, while workstation manufacturer Sun Microsystems, despite its $750-million profit last year, languishes around the $50 mark.
What does Yahoo! have that Sun doesn’t? The answer is portal power. Or as some are beginning to call it, “portal-pie-in-the- sky power”.
Internet companies have been lining up to turn their tired old corporate websites into portals. By organising the crazy mess of the Web into neat directories, portal sites believe users will love the convenience. Your eyeballs then become important commodities to sell to any other website and advertiser willing to pay dearly for a spot on the portal front page.
“It’s all very breathless right now,” says James Balderston, an analyst with Zona Research in California. “Nobody has come forward with the model that transforms eyeballs into profits. The potential is substantial. But … it’s only the promise of a dollar, and it’s unclear how much of those expectations are due to Internet fairy dust.”
Certainly, what the portals are trying to achieve through building these Internet gateways is great for business folk, who look on them as border patrol posts, ideal for tracking people and goods. But the experts agree there simply aren’t enough dedicated eyeballs to keep 10 or so of the current contenders in business.
“The notion that people want to surf endlessly is goofy at best,” says Clay Ryder, another analyst. He says the portal experience is analogous to people moving to a new neighbourhood.
At first, they need a local directory to help them. But once they know their way around, they start searching out their own favourite spots. “The portals are also betting a great deal on the idea that people want gobs of information all of the time,” he speculates. “They don’t.”
Rebecca Eisenberg, a columnist with the San Francisco Chronicle who also runs a webzine called NetSkink, says that portals need consumers a lot more than consumers need portals.
“The cold, hard truth is that portals serve no purpose beyond collecting a set of links to information you may or may not care about. They have little content of their own and, even though some portals claim to be customisable, like My Excite and My Yahoo!, most are customisable only within limits.”
Another Web mainstay under “reconfiguration” is the search tool. Companies are tweaking their search engines to return “preferred customer” listings after your keyword search.
Similar backscratching deals are being struck with advertisers who pay portals to have search-related advertisements appear on your screen. For information purists, there’s no such thing as a free search any more.
As more traffic is filtered through fewer of these catch-all supersites, the easier it becomes for portals to control the Web experience, collecting important data on surfers, like their viewing and buying habits, and personal interests. The portals then sell those profiles to marketers and other potential spam-like irritants.
All this surveillance is a boon to advertisers who want to target campaigns accurately, but troubling for Web diehards who cherish the organic side of the Net.
Until those revenues materialise, portals will continue to borrow each other’s ideas and tap the same news and information services. When My Yahoo! was launched, for example, My Excite soon followed.
The attitude among all these emerging hub sites is grow fast or go home. To do this, however, some are building their empires on shaky foundations. In May, Excite gave $70- million to Netscape to provide a portion of the search services for Netcenter, Netscape’s portal.
The pay-off for Excite is access to the estimated 35-million surfers who use Netscape’s Netcenter as their starting point for surfing sessions. But its two- year relationship with Netscape could quickly sour as both increasingly compete for the same business.
This aggressive search for users and revenues isn’t likely to ease up as more people venture online. Yahoo!, Excite, and the rest of the portal pack want to be the first to greet you when you set out to buy online. To attract and keep visitors, however, portal sites know that they have to offer a lot more than directories of other links on the Web.
Recently, chat rooms have arrived, along with free e-mail, online shop and games. It’s cyberspace echoing the real world – build a community people want to spend time in.
If portals can build and sustain these communities, they will start to achieve revenues that are worth talking about – first from e-commerce, with sales commissions on goods sold, and second from the amounts they can charge advertisers.
Now that the boldest media, telecommunications, and Internet companies are cosying up – borne out by the recent partnerships between Disney and Infoseek, NBC and CNet – the Web will evolve to its next stage.
But who’s likely to win the eyeballs war and make good on all this potential? “They’re all racing to become the Microsoft Windows of the Web,” says Neil McManus, senior news editor at the @Home Network, a company that provides fast Internet connections through cable TV wires. “So far, Yahoo! is winning.”
The portals that began life as search engine companies are certainly in the best position to capitalise on users. The top four – Yahoo!, Excite, Lycos, and Infoseek – are consistently among the 10 most visited sites on the Web.
Microsoft and Netscape are also well in contention. Both will milk their browser dominance to build customers, and Microsoft is notorious for starting last, finishing first, and spending its way through mistakes. Not forgetting AOL, which has more than 12-million subscribers, $1- billion in cash, and is one of the few portals with a solid reputation for original content.
The rest will have a harder time, and some, inevitably, will be swallowed up by big entertainment conglomerates as they look to spread their brands and influence across the Web.
Will all this bode well for consumers? “Yes,” says Bell. “You have to prioritise the consumer experience because if there aren’t any consumers you won’t have advertisers.”
The silver lining for Yahoo! and the rest of the portal wannabes yet to live up to their multi-billion dollar price tags is that the confidence of investors gives them deep pockets to carry on playing the game until it pays off.
Everyone’s betting on the future. We’ll just have to wait for the fairy dust to settle to see who’s got burned.