Last week rumors were flying that AT&T was unhappy with its existing broadband portal deal with Yahoo. And this week, The Wall Street Journal reported Comcast wants a bigger slice of the revenue pie in its deal with Internet search giant Google.
AT&T and Yahoo have downplayed the rumors, saying they are actually expanding their relationship. Meanwhile Comcast and Google remain mum on their deal, but insiders say that Comcast is re-evaluating the Google partnership as part of a broader deal it's considering to add advertising to its Web site.
Whether AT&T eventually splits from Yahoo, Comcast ditches Google or neither of those possibilities comes to pass, one thing is clear: broadband penetration has changed the game, and new Internet power brokers are emerging, making it necessary for players to renegotiate deals made only a few years ago.
"ISPs have always faced a challenge when it comes to attracting customers to their portals," said Joe Laszlo, an analyst with Jupiter Research. "But they are bringing more to the table today in terms of subscribers and their own content, so I think naturally there is some rebalancing going on. But I don't think it's a traumatic thing; just an evolution in the relationship with the Internet companies."
As more advertising dollars move online, broadband companies see a big opportunity. For the last couple of years online advertising has grown about 30 percent year over year, according to the advertising and marketing research firm eMarketer. The increase in spending comes as more advertisers shift away from placing ads in traditional media and spend more to advertise online.
But most of the advertising spending is concentrated among the top four Internet portals--Google, Yahoo, MSN and AOL--according to eMarketer. Google alone captured about 25 percent of the overall online advertising dollars spent in 2006. In 2007, eMarketer projects, two-thirds of the $19.5 billion expected to be spent online will go to those four big Internet companies.
"As more traditional advertisers shift their budgets toward online, they're more likely to spend that money on traditional online companies, such as Yahoo and MSN," said David Hallerman, senior analyst at eMarketer.
Still, the opportunity to make money from advertising is there, and broadband providers want a piece of the action. Comcast started experimenting with advertising on its portal about nine months ago, and the company is looking to expand its efforts. It already has a request for proposal circulating among Internet companies to find a suitable partner to help attract more advertising dollars.
What's in a portal?
Since cable operators and telephone companies first started selling high-speed Internet services, they wanted to offer more than just dumb pipes delivering access to the Internet. They wanted to provide a reason, beyond simple speeds and feeds, to keep customers loyal to their services. Developing a Web portal or home page for direct interaction, where they could showcase other services to existing customers, became an important element of their strategies.
Jupiter Research analyst
Some companies, such asand partnered with big Internet companies like Google only for certain features, like search. Others, such as AT&T and Verizon Communications, partnered with existing giants to offer co-branded services that included premium content that users couldn't get on regular Web portal sites. AT&T, then SBC Communications, struck an . Verizon took a multipartner approach, . Its will launch later this year.
At the time most of these deals were struck, companies like MSN and Yahoo had more clout with consumers when it came to the Internet than did phone companies or cable operators. As a result, some deals likely favored Internet players more than broadband providers.
That appears to be the case with AT&T and Yahoo, which struck their deal back in 2001. According to news reports, AT&T actually pays Yahoo to allow its subscribers to access Yahoo's content. Some estimates are that Yahoo makes as much as $250 million annually from the AT&T deal.
Meanwhile, Google has been paying some of its partners, such as Dell and News Corp., to use its search engine. Google hasfor putting its search engine on MySpace. Comcast is also getting paid to use Google's search engine, although some say Comcast wants a bigger cut of the advertising revenue.