RE: UKNM: Re: Portals?

[Elizabeth Van Couvering]

Joining a bit late on a discussion which is obviously close to our heart...

Got a nice article this morning which proposes an interesting typology on

'portals' -- attached below.


I would say there is always a tension on a portal site between providing

links to other sites (the original purpose of the directory & search engine)

and providing valuable content at the site.  We do spend a lot of time

creating what we call 'sticky' content -- ie stuff that brings people back

time and again.


Regards,


Elizabeth Van Couvering

Programme Manager, Marketing & Communities

Excite Europe

+

44 171 447 1832 - evcexcite [dot] com

http://www.excite.co.uk - http://www.excite.fr - http://www.excite.de -


http://se.excite.com - http://nl.excite.com




Donaldson, Lufkin & Jenrette

Jamie Kiggen (

jkiggendlj [dot] com

) 212.892.8985

Tim Albright (

talbrightdlj [dot] com

) 212.892.6801

Sender:

jkiggendlj [dot] com

The Internet Observer, 08.20.98

DLJ Internet Research


You Better Be Ritchie


Commodity. Crows and dark clouds circle at even a whisper of the word.

Is there anything technology investors fear more, with its connotations

of price competition, limited product differentiation, and contracting

margins? Unfortunately, some analysts and many journalists (themselves a

commodity) are quick to put this curse on entire sectors of the

technology universe, especially when the advantages of the sector

leaders are less tangible than storefronts or manufacturing plants. The

Internet portal or gateway companies, like Yahoo!, AOL, and Excite, are

the latest market dolls to receive this big voodoo needle, without even

a nod to the argument that all portal companies are not created equal.

So here's that nod, in the belief that the frequency and stridency of

the commodification thesis is causing some in the audience to nod off.


Rule one: overpopulation does not a commodity make. Granted, there are

at least a dozen sites that are, however loosely, called "portal" sites

(not including variants on the theme like ad networks, local and

user-created content networks, and retail gateways), the majority of

which will almost certainly disappear over the next few years. Adding to


this current lack of crowd control is an ascendant AOL.com and the

promise of the Microsoft Death Star(t) appearing in the firmament,

trying to eclipse any photosynthetic benefit from the brightening stream

of Internet marketing spending.


But while all of this activity should give pause to any entrepreneur

penning a plan for a new and improved Internet gateway, it doesn't mean

the portal business is a bad one. It does mean that investors have to be

even stricter about assessing which portal sites can continue to

differentiate themselves along the following: brand, consumer-centric

utility, partner execution, and sustainable traffic monetization. The

stakes may not be as high as Excite's new mission statement suggests,

but if aiming for some sort of world transformation winds up merely

generating a lot of economic value, we'll be happy.


Before we talk about what will separate the leaders from the laggards, a

little taxonomy may be useful. At the most general level, think of the

portal companies as falling into one of two functional categories:

standalone gateways and start pages. The standalone gateways are

primarily what used to be called the search engine companies (Yahoo!,

Excite, AltaVista, Lycos, InfoSeek), and they compete (or should

compete) by building and promoting a brand that creates consumer

awareness of the site as a primary Internet destination. On the other

hand, start pages generate most of their traffic by being the default

setting of a user's browser, online service, or ISP. Start page gateways

include AOL.com, Microsoft Start, Netscape's Netcenter, and CNET-NBC's

Snap, and it's important to figure out which of these will be able to

transform what is, at least in part, a lower quality traffic stream (did

someone say commodity?) into something more valuable to advertisers.

More on this later.


First, we'll just restate the case we make so often about the standalone

gateways. Without the distribution advantages of the start pages, the

leading standalone gateways have been forced to build a brand and focus

intensely on their sites' utility as they work to attract consumers. The

skills and value proposition forged in the smithy of this necessity

provide the primary competitive advantages of Yahoo! and Excite: each of

these companies has created a unique consumer product, and however

intangible their assets, they have built a wide lead on the competition.

Just look at a single number: Yahoo! has 18 million registered users,

more than the combined core total of InfoSeek, Lycos, Netscape, and

Snap.


Yahoo! and Excite have evolved from directory-based services into more

complex and useful products by creating content channels,

personalization, e-mail and communication utilities, integrated

broadcasting, online publishing, mapping, yellow and white pages

directories, aggregated city and country listings, mapping, classified

advertising and paging, among other things. And while the rest of the

competitive zoo is busy trying to ape yesterday's features, these two

remain way ahead. Look at Excite.com to see the state-of-the-art: Excite

doesn't just offer search, its offers "channeled search", three layers


of search for each keyword entry. It doesn't just offer simple

personalization, it offers modular personalization; every section of its

initial page can be separately and easily differentiated. And while

Excite's initial page is personalized, it doesn't carry a single banner

ad. Is Excite giving up a huge revenue opportunity? Of course not.

Subtle sponsorships permeate the page, without compromising the consumer

experience. This is what's called a good consumer product, and it's very

difficult to replicate.


It all comes down to skills. If Yahoo! and Excite are the category's

feature leaders, their deal-makers as well as their product development

people need to be recognized. Both companies' feature sets were the

result of shrewd and flexible deal-making as well as creative work in

the engineering lab. On the deal side, the ability to identify a

valuable utility, to build, buy or barter for that utility in an

economically sensible way, and to execute the deal and integrate the

product in a timely fashion are traits consistently demonstrated by

Excite and Yahoo! (and by other companies who were once accused of

selling commodities, like Cisco). The result is that the users who flock

to these two destinations find all the utility they need to fulfill a

significant portion of their Internet usage needs. This usefulness

creates true "habituation", which increases not only traffic levels but

also traffic value.


Of course, traffic value is only as good as a site's ability to monetize

that value. Here again is an area where both Yahoo! and Excite have

consistently executed. Both sales organizations have delivered numerous

large deals (Excite has 85 large, long-term sponsorship deals creating a

revenue backlog of $250 million), and serving a broad advertiser base

(at last count, Yahoo! boasted 1800 unique advertisers). This creativity

extends into targeting expertise, which enables both companies to become

more aggressive in striking back-end performance-based deals. Excite's

database marketing expertise, acquired in their purchase of MatchLogic,

differentiates it from almost the other aggregators out there. Oops,

there's that word again: differentiation, the wooden stake in the heart

of the commodity argument.


Now, back to the start pages, which need to be analyzed in a different

way. Sure, the ones most likely to succeed (especially AOL) have

tremendous brands, and this makes early handicapping of this race

possible (i.e. no brand, no chance). But all of the start pages, to a

greater or lesser degree, face the same challenge: how to turn what is

in a certain sense involuntary consumer usage into consumer preference.

In other words, can the start pages get lots of people to actively seek

them out on the Web, in the same way that so many consumers today head

to Yahoo.com?


The goal of a start page gateway must be to keep users from just passing

through the start page to other sites, a phenomenon we gauge, at least

conceptually, by describing something called the "bleed rate". Audience

bleed should be the nightmare of every start page management team,

because if consumers don't stick around long enough to generate page


views (i.e. inventory), what are advertisers going to buy? Here's an

example of what we mean: in the most recent quarter, Netscape's

Netcenter site was ranked second, in terms of audience reach, in the

workplace (behind Yahoo!), and third in the home market; that is, a high

percentage of the online population the site at least once. Yet the site

only generated 22 million page views per day, versus Yahoo!'s 115

million. We hope there's a tourniquet handy, because that's a lot of

bleeding.


The start page portals will inevitably mirror the functionality

pioneered by Yahoo! and Excite, and, as in the case of AOL and its buddy

lists, will pioneer some their own. Already armed with search, e-mail,

channels and chat, AOL, Microsoft, and Netscape no doubt will push

personalization to the forefront in an effort to stem audience bleed.

The overall effort is best characterized by AOL's mantra of "one more

click, one more visit" that would bump its 25 million page views per day

up to 40 million if effectively executed. Netcenter, with an equivalent

level of traffic, would benefit equally if it could reduce its audience

bleed from the 80% to 90% range to the 60% range. This is all

achievable.


But does it allow any of the start pages to overtake Yahoo! and Excite?

To do so, each of them needs to demonstrate substantive product

superiority over the destination networks in order to change user

behavior and impact the grassroots popularity the leading brands enjoy.

The start page portals will have to pioneer the next generation of

utilities, and the content featured on the channels will have to be more

comprehensive, entertaining, and user friendly.


Which brings us to our title. The comedian Albert Brooks tells a story

about being the opening act for Ritchie Valens (Albert's older than we

are). The concert had been delayed for a couple of hours, and as Albert

waited backstage, he could hear the crowd chant "Ritchie! Ritchie!"

louder and louder, pounding on their chairs, stomping the floor, and

generally getting pretty surly. The time for his warm-up role finally

arrived, and as he stood offstage waiting to be introduced amid all the

shouting for Valens and his band, a stagehand with a sardonic look came

over to him and said, in a matter-of-fact way: "You better be Ritchie".

We'd offer the same advice to the portal companies, of whatever stripe:

You better be what the consumer wants. Otherwise, you're just a

commodity.


=================================================

The DLJ Internet Observer, a biweekly research product of the DLJ

Internet Research team, is distributed through email, First Call and

fax.  To be included on the distribution list simply send an email

message to

eqinfomaildlj [dot] com

 with the phrase "subscribe observer"  in

the body of the text, or contact your DLJ salesperson.  To remove

yourself from the subscriber list, send email to

eqinfomaildlj [dot] com

 with

the phrase "unsubscribe observer" in the body of the message.


Donaldson, Lufkin & Jenrette Securities Corporation, 1998 Additional

information is available upon request.



THIS REPORT HAS BEEN PREPARED FROM ORIGINAL SOURCES AND DATA WE BELIEVE

TO BE RELIABLE BUT WE MAKE NO REPRESENTATION AS TO ITS ACCURACY OR

COMPLETENESS. THIS REPORT IS PUBLISHED SOLELY FOR INFORMATION PURPOSES

AND IS NOT TO BE CONSTRUED EITHER AS AN OFFER TO SELL OR THE

SOLICITATION OF AN OFFER TO BUY ANY SECURITY OR THE PROVISION OF OR AN

OFFER TO PROVIDE INVESTMENT SERVICES IN ANY STATE WHERE SUCH AN OFFER,

SOLICITATION OR PROVISION WOULD BE ILLEGAL.DONALDSON, LUFKIN & JENRETTE

SECURITIES CORPORATION (DLJSC), ITS AFFILIATES AND SUBSIDIARIES AND/OR

THEIR OFFICERS AND EMPLOYEES MAY FROM TIME TO TIME ACQUIRE, HOLD OR SELL

A POSITION IN THE SECURITIES MENTIONED HEREIN. UPON REQUEST, DLJSC WILL

BE PLEASED TO DISCLOSE SPECIFIC INFORMATION ON SUCH POSITIONS OR

TRANSACTIONS. DLJSC OR AN AFFILIATE MAY ACT AS A PRINCIPAL FOR ITS OWN

ACCOUNT OR AS AN AGENT FOR BOTH THE BUYER AND THE SELLER IN CONNECTION

WITH THE PURCHASE OR SALE OF ANY SECURITY DISCUSSED IN THIS REPORT.

OPINIONS EXPRESSED HEREIN MAY DIFFER FROM THE OPINIONS EXPRESSED BY

OTHER DIVISIONS OF DLJSC. DISCLAIMER FOR INSTITUTIONAL CLIENTS OF THE

EUROPEAN ECONOMIC AREA (EEA): THIS DOCUMENT (AND ANY ATTACHMENTS OR

EXHIBITS HERETO) IS INTENDED ONLY FOR EEA INSTITUTIONAL CLIENTS. THIS

DOCUMENT MAY NOT BE ISSUED OR PASSED ON TO ANY PERSON IN THE EEA

EXCEPT(A) A PERSON TO WHOM IT MAY LAWFULLY BE ISSUED, OR  (B) IN THE

U.K., A PERSON WHO IS OF A KIND DESCRIBED IN ARTICLE 11 (3) OF THE

FINANCIAL SERVICES ACT 1986 (INVESTMENT ADVERTISEMENTS) (EXEMPTIONS)

ORDER  1995, AS AMENDED.