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Internet Portals Adapt

A Survey of the Major Internet On-Ramps

“You’ve got mail!”

These three simple words formed the refrain for a generation of Americans embarking on their first journeys online, taking advantage of the first consumer-friendly email system.

Back in the dial-up day, America Online was practically synonymous with the Internet, and many users found enough to keep them interested without ever leaving the AOL site. After a few years of runaway success, though, the innovators and imitators were grabbing their pieces of the action. Hotmail gave users the option to access email from any computer with an Internet connection, for free, breaking AOL’s stranglehold on mail and quickly attracting millions of users. A year after it was founded, Microsoft snapped up Hotmail and added it to its own increasingly formidable Internet on-ramp. About the same time, Yahoo! introduced the search engine that revolutionized the way users found content online. Flush with venture capital and IPO cash, it followed with strategic acquisitions, added email functionality, and turned itself into a full-fledged portal.

Almost everything that users take as a matter of course online today — from email to search to connecting with each other in groups to posting their own content online — first made its large-scale debut on one of the major portal sites.

In the late 1990s and early 2000s, portal sites were the gateways to a dazzling online world that put a wealth of content at the fingertips of the growing online masses. Yahoo!, MSN, and AOL engaged in one-up competition to add more content, more channels, and swallow up more sites in a frenzy to keep and grow their user and advertising bases. AOL mailed millions upon millions of diskettes and CDs to attract subscribers; at its peak in 2002, 26.5 million subscribers accessed the Internet through America Online. 1Wikipedia, America Online, US AOL Subscribers, both Dial-Up and Broadband, as listing in Time Warner's Quarterly and Annual Reports Beyond the big three, a host of other sites vied to become the preferred point of entry for the Internet, including Excite, Lycos, @home, go.com, Netvibes, and later, iGoogle. At stake were online ad budgets that promised, and delivered, exponential growth.

Just a year before it peaked in subscribers, Time Warner acquired AOL in a move that was heralded as the fusion of old and new media, the wave of the future that would bring users all their news, entertainment, and communication through one blockbuster site. Fueled by hundreds of millions of dollars every month in subscriber fees, and with a wealth of new content from its new parent, it seemed AOL was poised to break out from the pack as a new Internet-entertainment dynasty that no one would be able to catch.

On the Internet, though, rapid and unpredictable change is the rule rather than the exception. Broadband and “generic” ISPs gained penetration at a more accelerated rate than just about anyone anticipated. Fast connections soon eclipsed dial-up portals as the preferred points of online entry. At the same time, sites and content proliferated at a dizzying rate. Like the big three television networks at the advent of cable, the portals found themselves in competition with a seemingly endless array of choices catering to every interest and taste.

Fast Forward: AOL on its Own Again

Headlines in December across the mainstream media announced the demise of the AOL-Time Warner union. The partnership never clicked in the big way that was anticipated. Among other things, market changes undermined AOL’s subscription model, and the mashup with Time Warner content never proved to be all that compelling. On December 9, Time Warner divested itself of the once mighty but now struggling portal, with Chairman Jeffrey L. Bewkes offering the tepid spin that the move gave both companies “greater operational and strategic flexibility.”

While in its heyday AOL created its fair-share of dot-com millionaires, its rocky road in recent years has incurred casualties inside and outside the company. As many as 2,500 staffers, nearly one-third of its workforce, are anticipated to lose their jobs as a result of the Time Warner divestiture. Google bought heavily, literally, into the AOL hype, investing a billion dollars in 2005 — and losing nearly three-quarters of it when it sold its stake in July of 2009. 2The Business Insider, “Google Sells AOL Stake Back To Time Warner For $283 Million,” by Dan Frommer, July 27, 2009 In the end, the AOL-Time Warner deal wiped out more than $100 billion in shareholder value. 3The New York Times, “AOL Quietly Returns To Life On Its Own,” by Tim Arango, 12/9/09

But if there’s one thing America Online knows how to do, it’s to survive. Over two decades as a seminal player on the Internet, it has repeatedly had to evolve and adapt to changing tastes, habits and technology. The Time-Warner divestiture is indeed a major setback. But in perspective, it is merely an extreme example of the competitive dilemma facing all of the major portal sites: how to maintain relevance in an online world where the content keeps getting richer and deeper, user expectations keep going up, and social networking is capturing a greater and greater share of time spent online. How will they make visitors and advertisers stick?

Portals are Still the Dominant Force

Despite the downbeat news for AOL, the name-brand portals are still among the biggest players on the Internet. In October 2009, comScore research placed Yahoo! Sites, Microsoft Sites, and AOL as the number two, three and four sites generating the highest volume of unique visitors, with 158.2 million, 132.6 million, and 98.5 million unique visitors respectively — after Google’s chart-topping 164 million visitors. 4comScore Press Release, “comScore Media Metrix Ranks Top 50 U.S. Web Properties for October, 2009,” 11/19/09 Facebook’s 97.3 million visitors put it in fifth place.

When it comes to time spent on the top sites, however, the order shuffles significantly. For the month of September 2009, Microsoft Sites was far ahead of the pack with more than 3.9 billion hours spent (age 15+), nearly a billion and a half hours ahead of number two Google, which garnered 2.5 billion hours; well over double third-place Yahoo! Sites’ 1.7 billion hours; and nearly eight times’ sixth-place AOL’s 513 million hours. Facebook nearly tripled in hours spent year-over-year, to 1.39 billion hours. 5comScore Press Release, “Microsoft Sites Captures Largest Share of Time Spent Online Worldwide,” 11/6/09

The metric that matters most, though, as a measure of success and viability, is ad revenue. Each of the portals has built extensive ad networks that reach well beyond their flagship sites. In October, when it was still part of Time Warner, the AOL Advertising network sat at the top in terms of total Internet advertising reach, at 91 percent. The Yahoo! Network followed at 87.8 percent, with the Google ad network close behind at 86.7%, and the Microsoft Media Network US lagging in tenth place with 78.4 percent reach, according to comScore. 6Op cit

All these numbers indicate that, so far, the major portals have held onto their status as the mass media of the online world. But as with offline media, where advertisers have embraced the ability to target more narrowly, focusing in more specifically on the audiences, online advertisers have a nearly endless range of options to go for quality rather than quantity.

Sometimes, Smaller is Better

“It’s remarkable when you go to these home pages how similar they are,” says Keynote Vice President of Marketing Anshu Agarwal. “What you find, though, is something that hooks people. For Google, it’s search, or for Yahoo!, it’ll be email and Yahoo! Groups. For Microsoft, it’d be similar kinds of things like Hotmail or the MSNBC news feeds. For AOL, it could be some of the innovation — the fact that you can link right from the AOL home page not just to AOL mail, but also to Yahoo! mail, Gmail, and Hotmail.”

But while the major portals may offer a cornucopia of content and functionality, smaller scale, more specialized portals offer something that both visitors and advertisers want: relevance and credibility.

“We’re seeing some of the smaller portals attracting a user base that’s sticking,” Agarwal says. “The iVillage properties, for example, are very clearly geared towards women and continue to perform quite well. Looking back at the comScore numbers for October, they’re number 26 with more than 30 million unique visitors. These ‘other’ sites are able to thrive because they have a loyal following and, month-in and month-out, they get a certain number of eyeballs.

“Everyday Health had nearly 28 million visitors. Anybody that can aggregate traffic and keep folks there because of the comfort level with that page or the design of the page continues to have a role to play.”

That role is relevant not just for visitors, but for advertisers as well.

“They can offer things to advertisers that sites like Yahoo! and AOL can’t offer,” Agarwal continues, “because they’re so targeted. The advertisers can get much better hit rates and therefore iVillage can charge a higher rate than what a generic site can.”

Many Doors, One Room?

Everybody wants their users to be “sticky,” and so everybody is throwing everything they can onto their sites to try to sink their hooks in deeper. For the big portal sites, this means trying to hitch a ride on the social media bandwagon. Both Yahoo! and MSN (along with 80,000 other sites, according to Facebook) have signed on with Facebook Connect, allowing visitors to log on with their Facebook credentials and share their site experience through their news feeds. Google has opted to go with the current underdog, enabling visitors to its 9 million Google Friend Connect sites to log in with their Twitter credentials.

AOL has chosen to leverage its widely popular AIM instant messaging application to create a single social media dashboard dubbed AIM Lifestream. It enables users to update their own status and follow friends’ status, and send and receive messages on Twitter, Facebook, and Digg, as well as send instant SMS messages to friends.

Facebook, too, is determined to maintain its impressive trajectory for time users spent on its site. It has become a quasi Web browsing platform, allowing users to link to other Web sites without leaving Facebook. At this writing, it is testing tweaks to its home page design, including rollover access to the inbox without having to leave the home page, to encourage greater utilization of Facebook as a primary email platform. 7Mashable, “5 Big Changes to Watch in Facebook’s Upcoming Redesign,” by Ben Parr, 11/30/09

With so much homogenization of content and functionality among the Internet’s top sites, preference becomes a matter of the hooks, as Agarwal mentioned — if MSNBC presents the news with a point of view that aligns with yours, that’s where you’re likely to spend your time. But it’s also as much a matter of style, a la “I’m a Mac, he’s a PC.” Some users don’t mind the rigid parsing of content on Facebook; others want the freedom to customize the content and presentation as they can with personalized start pages on Yahoo!, AOL, MSN, or iGoogle. In either case, most people want some kind of consistent starting point to make their online experience manageable.

“There are so many sites now, people are overwhelmed,” says Keynote Director of Public Relations Dan Berkowitz. “They need a home base to start out with.”

Agarwal adds, “The concept of a single portal for any one person, especially in the United States, is really not true, but one person will definitely support two or three different sites during the course of a week. More than that, and I think you’re really beginning to stretch it.”

Yes, But is There an App for that?

So what happens when you’re on the go? Do the big portals have a future in mobile? Does it matter?

The portals face three big problems in the mobile market. First, Web usage habits are radically different from the desktop. Users tend to jump on and off, looking up a particular piece of information, often location based; not something that requires a portal. Second, the challenges of creating a WAP site that displays acceptably on scores of different handsets are formidable. Third and perhaps most importantly, the financial returns are just not there yet.

“It’s very difficult, if not impossible, to monetize a WAP site,” says John-Paul Carriveau, a mobile analyst at Keynote and former member of AOL’s Mobile Partner Services team. “There’s really not a lot of advertising money there, the click-through rates are really low and as a result, sell-through rates are low. It’s a tough climate out there for mobile Web portals.”

Every make and model of phone renders a site slightly (or not so slightly) differently, so developing WAP sites for the mass market requires a huge investment in quality assurance and testing.

“It’s much easier to develop for smart phones, because you can capture a larger share of the audience with less work,” Carriveau says. “You can do an iPhone, you can do Android, you can do BlackBerry and you can get a lot of people. But if you want to be a portal, you have to be accessible to everyone. That’s a lot of work that’s not getting any easier.”

It may present big challenges, but the money is on the mobile Web as being a significant force for advertising — unless Google’s $750 million acquisition of the mobile advertising group AdMob goes sour the way its investment in AOL-Time Warner did. Yahoo!’s North American EVP Hilary Schneider is predicting “exponential” growth in mobile ad spending as early as next year. 8mocoNEWS.net, “Yahoo’s Schneider: We Expect ‘Exponential’ Growth In Mobile Ad Spending, by Tameka Kee, 12/3/09 It’s a market too big for the portals to ignore.

What’s Behind the Next Door for Portals?

Yahoo! has made significant changes to its home page, opening it up to link with Facebook and other external sites. Its new CEO Carol Bartz is committed to beefing up its suite of social networking tools even more. MSN appears to be betting on its new Bing search engine to be a compelling hook. And in a landmark deal, Yahoo! and Microsoft are combining forces, with Yahoo! abandoning its own search in favor of Bing, and in turn selling the advertising for the combined search entity. 9Telegraph.co.uk, “Yahoo! and Microsoft Cement 10-Year Search Deal,” by Emma Barnett, 12/7/09

All eyes, though, are on AOL — or Aol, as the new, independent entity’s identity is now presented in a new, ever-morphing logo. Former Google ad exec and current AOL CEO Tim Armstrong has plans to turn AOL into a content machine, trolling the Web for trending topics and commissioning content on the fly — and leveraging it for ad sales. AOL tapped Saul Hansell, former tech reporter and editor for the New York Times, to head up Seed.com, its site for that will feed content to AOL. 10The Washington Post, “AOL Snags Saul Hansell from the New York Times,” by Leena Rao, TechCrunch.com, 12/8/09

Whether AOL can once again break new ground and regain some of its lost luster remains to be seen. Much will depend on the quality of the content churned from its new machine, as well as its ability to stay connected with the ever more social Web. Indeed, these seem to be the two driving factors that will determine the major portals’ ability to remain relevant and keep their audience: quality content and a robust ability to help users connect to their social networks.

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