Company Taps into College Scene
Page 1 of 3
A few years ago, a portal's primary function was to act as a virtual gateway, "porting" users to other Web destinations. Yahoo! (YHOO), Excite, and Infoseek, among other leading portals, began realizing the flaws in that model. The original plan may have called for such "porting," but the hubs (as they are now referred to) began realizing the advantages of "owning" users.
In the emerging Web economy, companies rely increasingly on advertising and e-commerce based revenues. Owning a substantial user-base is important and the ability to monetize that base becomes imperative. Consider America Online's (AOL) purchase of the Israeli-based instant messaging service ICQ, which it acquired for nearly $300 million in 1997. ICQ had no revenues, but had a solid base of 12 million users and an IM service that had an uncanny ability to virally market itself. Its number of users has since grown to more than 50 million.
More recently, Excite@Home (ATHM) announced it would acquire the online greeting card company Blue Mountain Arts for $780 million in cash and stock, with incentive clauses that may actually make the final deal close to $1 billion. Blue Mountain has virtually no revenue, but brings 9 million unique users to Excite@Home, thereby boosting traffic. The goal is to generate greater revenue through advertising to the users and enticing them to make transactions on the site(s).
Therefore portals are buying traffic, expanding their offerings and hoping to monetize new users' eyeballs and wallets. But in the world of hits and clicks, it's becoming evident that depth beats out breadth. The idea here is that vertical, specialized niches (10,000 feet deep, 1 foot wide) will become more popular among users than horizontal portals (1 foot deep, 10,000 feet wide). So they are going to ESPN.com before searching the sports offerings at Yahoo!, just as they shop for toys online at eToys (ETYS), not Amazon.com (AMZN). Indeed, Yahoo's biggest fear from day one was "what would happen when people knew where they wanted to go?" Consumers are becoming more aware of what to expect and find on the www super-highway, and they're surfing and shopping at the sites that provide the most specialized, in-depth offerings.
Vertical portals target a specific demographic, then focus the content and commerce offerings around that demographic. Obviously a benefit to consumers, and the approach becomes a primary competitive advantage for these players because they're able to deliver a targeted, demographically-focused audience to advertisers, marketers, and e-tailers. Blanket banner advertising across leading broad- portals will die as vertical portals allow companies to get more bang for their buck.