Web Portals - Portals Capture A Share Of Electronic Commerce, 1998-2001

PORTALS CAPTURE A SHARE OF ELECTRONIC COMMERCE (1998-2001)

In 1998 the major portals were laying the groundwork for adding electronic commerce capabilities to their sites. Yahoo!, for example, acquired software developer ViaWeb Inc. to support business transactions at its site. Many larger corporations, including Office Depot, CitiCorp, and Barnes and Noble, began paying portals for space on their sites. Excite, for example, was charging Office Depot $1 million per year for space on the Excite Web site. Barnes and Noble entered into a five-year, $40 million agreement with America Online to become the featured bookseller on AOL.com. CitiCorp began marketing home-based banking services at Netcenter.

As portals became the default starting point for Internet users, they replaced what were known as online services. Both AOL and The Microsoft Network (MSN), for example, realized they would be more successful if they were positioned as Internet portals rather than simply as online services or Internet service providers (ISPs). Online services that were unable to develop into portals, such as CompuServe and Prodigy, pursued other strategies.

By 1999 the leading portals—Yahoo!, Lycos, Excite, AOL, and others—were among the most prominent of Internet companies. They enjoyed high stock valuations and financial backing from blue-chip companies. More than 20 major brick-and-mortar companies announced plans to develop their own portals. One problem facing the Internet portals was their inability to distinguish themselves from one another. Most portals offered the same features and functions, even to the point of using identical language to structure their content into channels. As a result, as many as 22 million Internet users—more than half the market in 1999—said they had no loyalty to any of the portals, according to research firms Media Metrix and IDC.

Toward the end of 1999 the leading portals added shopping capabilities and other services for the holiday shopping season. AltaVista launched a network of online services that included Shopping.com. Lycos launched LycosShop, which included product reviews and information and links to selected retailers. Lycos also acquired the gaming site Gamesville.com and financial site Quote.com. Excite@Home, formed when Excite was acquired by high-speed Internet access provider At Home, acquired online greeting card company Blue Mountain Arts. Yahoo!, meanwhile, bought GeoCities to enhance its community-building and Internet publishing efforts. It also acquired Broadcast.com to offer more streaming media to users and more rich media options to advertisers.

Many consumer portals began courting the business-to-business (B2B) market during 2000. Yahoo! had already introduced Corporate My Yahoo! in 1999, which featured personalization tools and allowed the integration of corporate content. In 2000 Yahoo! launched its B2B Marketplace, a central site where buyers and sellers could compare prices from different B2B communities across the Web. B2B Marketplace was designed as a portal leading to other vertical trading communities, also known as vortals, rather than as a large trading community of its own.

America Online's B2B initiatives in 2000 included positioning Netcenter as a portal for business professionals. In Fall 2000 AOL unveiled its new Netscape Netbusiness service, which was designed to help small businesses build Web-based storefronts and engage in business-to-business e-commerce. AOL and PurchasePro, a marketplace developer, formed an alliance to develop Netscape Netbusiness. Netscape Netbusiness was organized in three sections: My Industry, My Business, and My Life. It included e-mail, a business version of Netscape Instant Messenger, industry-specific news, market research, expert opinions, maps and directions to member businesses, and community tools for sharing information. Hewlett-Packard agreed to link its HP Business Store to Netbusiness, while Monster.com agreed to develop a recruitment industry marketplace for Netbusiness.

According to a study by Booz-Allen & Hamilton, portals were more successful in attracting eyeballs than were entertainment or financial sites in 2000. Nearly 98 percent of all U.S. Internet users visited a portal during 2000, compared to 80 percent visiting an entertainment site and 43 percent visiting a financial Web site. The study found that users spent 49 percent of their time using portals as a search engine or gateway. The rest of their time at portals was spent using other portal options, including telecommunications and Internet services (17 percent), news and information (10 percent), online communities (6 percent), directories and classified ads (4 percent), entertainment (4 percent), financial services (3 percent), and shopping (2 percent).

During 2000 Web portals appeared to be turning those eyeballs into electronic commerce and enticing their visitors to portal-affiliated shopping sites. According to June 2000 ratings compiled by Nielsen/NetRatings, Yahoo! Shopping was the Web's top portal shopping site with 5.8 million unique home-based users, or 7 percent of all Internet users. AOL's Shopping Channel had more than 3.4 million unique visitors, while AltaVista's shopping area drew 2.6 million unique users. MSN's shopping center ranked fourth with 1.2 million unique shoppers.

When it came to online shopping, portals offered visitors specialized search engines and the ability to comparison shop. Portals also attracted more small retailers through their storefront business models first made popular by Yahoo! Shopping. Portals also offered auction sites that attracted many small businesses. These developments reduced the cost of selling online for smaller businesses and made it more attractive for them to sell online.

The portals' e-commerce strategies seemed to pay off during the 2000 holiday shopping season, when the leading portals experienced higher growth rates in holiday sales than stand-alone online retailers. American Online reported an 84 percent increase in holiday sales from $2.5 billion in 1999, while Yahoo! and Lycos both said that the e-commerce activity generated by their shopping services doubled from the previous year. By comparison, e-tailers had an average growth rate of 40 percent for the holiday season, according to the Yankee Group. Yankee also reported that 57 percent of online consumers began their online shopping trips at a portal or a portal-based mall. While portals enjoyed higher growth rates than stand-alone retailers, specialty brand name e-tailers were still considered to be the leaders in online shopping.