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Tuesday, November 24, 1998 Published at 18:15 GMT


Business: The Company File

Portal wars

Smaller search engines may come under pressure

Portal power is behind the dramatic consolidation of the Internet.

In the past year the number of portals has proliferated as companies have struggled to ensure that Internet consumers log on to their home Web page.

Portals were originally just search engines, where people could look for specific topics on the Web.


[ image: Meida companies like Disney are linking with portal sites]
Meida companies like Disney are linking with portal sites
But now they have evolved into large sites, offering personalised features like e-mail, stock quotes, and news, in order to attract and hold the attention of their viewers.

The payoff is advertising revenue - based on the number of people who visit the site.

With the numbers using the Internet set to double in the next five years, this is beginning to be a highly profitable business.

But the portals have to be clever in creating "sticky" ways of keeping their customers happy, with personalisation pages and home page builders.

And browsers with their search facility are an important way to attract new viewers.

Netscape itself, stymied in its rivalry with Microsoft, has been turning itself into a portal by creating the Netcenter site.

But it is becoming increasingly difficult for portals to differentiate themselves as distinctive, with everyone offering the full range of features.

Multi-brand strategy

America Online's acquisition completes its strategy of "mutli-brand" portals.

The company has long believed that the best way to grow is to develop separate brands which are pitched at separate markets, yet use the company's common technology base.

In the past AOL has acquired former rival Compuserve, which is now pitched at business users, and ICQ net messaging centre.

It also hopes to ensure that if its propriety sites decline - like AOL's main site which charges up to $29.99 a month for unlimited internet access - it can still make money from its free websites.

It has created its own free site, AOL.com, as well as continuing as an Internet Service Provider.

Together, Netscape, with its 20 million visits a month, and AOL, with 14 million subscribers, will dominate the Internet's portals.

They will have two of the four largest sites. Only Microsoft, with its own MSN network, and Yahoo!, the largest network search engine, will be in the same league.

Other browsers tie-up

The increasing consolidation of the Internet has left some of the other portal providers out in the cold.

Already Infoseek has tied up with one of the largest media companies, Walt Disney, which also owns the ABC TV network in the US.

In Europe, Lycos had a deal with Bertelsmann, the German media giant, to develop a customised service for eight European countries. Lycos is the largest search engine in Europe.

And Excite, another portal search engine, powers the search facility at Netscape's Netcenter, in a deal that cost them $70m.

Now all these deals could unravel. Bertelsmann, which also has a 50% stake in AOL's European operations, is likely to switch to another search engine. But it will also have a strategic say in how AOL operates outside the US.

"The conflicts of interest are, to say the least, extensive," said Noah Yaskin of market research firm Jupiter Communications.

Boost for e-commerce

The increasing convergence of search engines, directories and internet service providers is all being driven by a desire to boost electronic commerce.

Millions more people are expected to buy through the web and the sites that can direct people to trusted suppliers will be the most profitable.

It was no accident that shortly after the Netscape deal was announced, Microsoft tied up with leading bookseller Amazon.com to become its default music site.

The diversity of the Internet and its dizzying growth is resulting in the kind of consolidation in trusted brand names and the dominance of a few players that characterises the rest of the business and media world.



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The Company File Contents


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