RealTime IT News

The Changing Face of Portal Deals

Are portal deals dead? You might think so, to read the descriptions of these popular marketing agreements in trade and financial publications in recent weeks.

They've been called a "cash-draining curse," "stupid," and "ridiculous."

These types of agreements -- in which a company pays a big traffic generator like Yahoo! Inc. , America Online Inc. , or MSN for long-term placement -- have come into sharp focus as of late because of the gyrations of the stock market. These deals have been accused of sinking (or nearly sinking) players like DrKoop.com , N2K, and even that company's acquirer, Cdnow .

In these tough financial times, when dot-com companies, especially, need to reduce their burn rate, the big bucks usually spent for this high-profile partnership are the most visible targets for cost cuts.

"Any smart businessperson, any smart marketing person, any smart financial person, anyone with half a brain that did a back-of-the-envelope calculation would realize that these deals wouldn't pay for themselves in a million years," said Sascha Mornell, vice president of sales and marketing at domain name registrar Register.com .

Apparently, no one told HomeStore.com (which didn't return calls for this article) about the death of portal deals. The company plunked down a hefty $200 million earlier this month for a five-year deal with America Online. And Network Solutions recently committed to AOL for a "multi-year, multi-million dollar" alliance. Yahoo!, for its part, rounded up cooking supplies e-tailer Tavolo for a multimedia deal, the financial details of which were not disclosed.

But there's no question that the portal deal is changing. Big players like AOL, Yahoo!, and Microsoft Corp. don't hold all the cards anymore. There are very viable vertical alternatives. Companies seeking portal partnerships bring more to the table. Hybrid deals -- where both parties share the risk -- are becoming more standard. And, in many cases, the deals don't last as long as they once did.

The deals still offer benefits, according to Sarah Jellen, strategic partnership manager at Avenue A , an Internet media-buying firm. If a company is young, needs to raise its visibility, needs to keep competitors from grabbing the portal space, and needs to generate a high volume of sales or traffic, Jellen said a deal with one of the big portals makes sense.

"These kinds of deals tend to work best for clients that are in early life-cycle stages. You won't see Century 21 doing that kind of deal, because they're very well branded; they're very well known," she said.

But these benefits don't come without a cost -- a big cost. Jellen advises her clients to expect to pay three times their usual cost-per-sale with this customer acquisition technique. If the client usually pays $20 to acquire a customer, a portal deal will cost it $60. So, it's up to the client to decide whether the side effects -- a "halo effect" from being associated with the big player, possible press attention, and brand building -- are worth the extra expenditure.

Because of these concerns, second-tier portals and vertical sites are becoming the partners of choice for many companies. Register.com, for example, has struck agreements with About.com , Ask Je