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Flexibility key to portal-merchant deals

The deals between portals and online merchants must allow for some flexibility to be worthwhile, analysts say.

To many experienced online merchants and analysts, the key to success in portal e-commerce boils down to one thing.

"Flexibility is kind of the watch word," said Brian Sroub, vice president of marketing for Beyond.com. "If [the portal] sticks to the specific words in the contract, it's

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been my experience that neither side is happy. But if you're looking for a win-win situation as the Internet is evolving, it's really in both parties' interest to be flexible and take advantage of new opportunities."

Beyond that, however, specific advice is all over the virtual map.

Merchants pay the price for portals In a report last month, research firm Jupiter Communications advised e-commerce merchants to develop portal deals based on performance--in other words, considering such things as actual sales from customers, not just raw traffic numbers and advertising placements.

Of the merchants surveyed by Jupiter, only 41 percent had negotiated performance-based elements in their agreements, such as revenue sharing or fees paid to the portal based on the number of customers who clicked through merchant links. Compare that with the number of merchants--72 percent--who paid portals based on the amount of traffic they agreed to deliver.

The report noted that portals are apparently hesitant about performance instead favoring terms based on traffic.

John Hough, a spokesman for Egghead Software, noted the importance of learning which locations and time of day on a portal yields the greatest sales for a merchant. This valued information isn't always evident unless the merchant is allowed to experiment on a site.

"Today it has become more of a business of buying specific locations at precise times, which our research indicates is the most efficient use of online marketing," Hough said.

Tips for merchants
Some words of advice for merchants wanting to strike deals with portals.
• Have a handle on what a customer is worth to your company over the life of the deal. That will help assess a price for exposure on a portal.

• Do you have a strategy for turning that portal user into your customer?

• Seek flexibility in a portal, one that will allow you to change locations on the site or the time of day that the ad appears without major restructuring to the contract's terms.

• Consider the research capabilities of the portal and its ability to offer guidance on its user demographics.

• Inquire about the possibility of integrating your content or research tools into your marketing. For example, an online mortgage firm may want to post its mortgage calculator on the portal.

Source: Beyond.com, Egghead Software, Tel-Save, IDC, and Forrester Research
Shortly after their agreement is under way, merchants often find they need to tweak the arrangement to maximize results--something that's possible only if the portal partner is flexible. Online shops are also increasingly leaning toward targeted marketing, rather than buying billboard ads on portals, Hough said.

Another area to consider is the research capabilities of the portal, said George Vinall, senior vice president of business development for long distance provider Tel-Save. Under Tel-Save's multimillion-dollar deal with America Online, the online giant used its breadth of research to suggest promotional programs and methods to increase Tel-Save sales.

Merchants also may desire more than a static button on a site and want their presence to be integrated into the portal's content. For example, a company that sells mortgages online may want to have a loan calculator added to the site.

Others may decide to forego the portals altogether in favor of less costly ways to draw traffic, online and off.

"Merchants can build networks with other merchants and their sites. Or they can try working with smaller content sites to do deals," said Barry Parr, director of Internet and e-commerce strategies for International Data Corporation.

Kate Delhagen, an analyst with Forrester Research, noted that some merchants are relying on simple word of mouth, which can be very effective on the Internet given the emphasis on community features such as email, chat, newsgroups, and other communication tools.

"Some merchants aren't doing portal deals, but asking their customers to recruit friends," Delhagen said. "You can move a lot of traffic if you're a bookseller and say, 'If you buy a book and refer a friend, you get another one free.'"  

News.com's Sandeep Junnarkar and Jim Hu contributed to this report.

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