Nowhere is this more evident than in the case of Netcenter, the portal site that seemed to have a lock on much of the Web's traffic through Netscape
If fewer people use Netscape's browser, then fewer will be funneled toward the Netcenter portal--not a good thing for a company charging millions of dollars to other portals and merchants looking for the highest volume through exposure on the site.
"There was a point in our history when 70 percent of our traffic depended on traffic from Netcenter," said Barak Berkowitz, the Go Network's former senior vice president of worldwide marketing. "Today, it is down to under 10 percent?We have said that we are working our way out of the dependency on the Netcenter deal."
Excite is planning to do the same as of June 17, according to its quarterly report filed this month with the Securities and Exchange Commission. Excite said traffic was "significantly below expectations" during the first four months of the Netcenter agreement.
Yahoo has already severed its relationship with Netscape. The long-time partner canceled its deal with Netscape because it said the relationship had become more of a hindrance than a help.
Ellen Siminoff, Yahoo's vice president of business development and strategic planning, said the companies agreed to part ways when Netscape was developing Netcenter. "It was a distraction of our resources," she said diplomatically.
Siminoff explained it didn't make economic sense for Yahoo to help Netscape build a competing portal, especially one that she felt would not be as good as her company's site. Although such distribution deals were important a few years ago, she said, "it has become less so today."
Easy for Yahoo to say, given its enormous traffic numbers. Smaller portals and online merchants still rely on such mass distribution to compete.
"Over the past three years, our revenues have increased due to sizable traffic. People still value our traffic as they build out their sites," said David Beckwith, director of search and navigation for Netcenter, which reported 32 million daily page views in its fourth quarter. He said demand for Netcenter's traffic remains "healthy" despite Netscape's special challenges as both a browser and portal operation.
But for the larger, more established portals such as the Go Network and Excite, he acknowledged that Netcenter is likely becoming a smaller slice of their overall traffic. "It depends on who you talk to--but sure, as the bigger guys become portals, we're becoming a smaller percentage of their traffic," Beckwith said.
The Go Network, for example, was launched in January after Disney bought an equity stake in portal Infoseek last summer. The original deal between Netcenter and Infoseek gave rise to Go, which Berkowitz said has seen traffic rise from Disney's ESPN.com and ABCnews.com.
Based on recent figures, Web measurement firm Media Metrix ranks Netcenter sixth for the month of March in terms of Web reach. Netcenter's 19.9 million tally of so-called unique visitors falls well behind of top-ranked AOL network's 31.4 million and Yahoo's 30 million.
Initially, portals such as Yahoo, Infoseek, Excite, and Lycos paid anywhere from $4.7 million to $12.5 million for 5 to 40 percent of their click-throughs on Netcenter, according to filings with the SEC from April 1997 through 1998. Under these deals, the portals served as premier search engines on the site, rotated automatically whenever a surfer visited its home page.
But last spring, Netscape announced that it would build out that page to become a full-scale portal and would select a partner for a Netscape-branded search engine.
Excite stepped up to the plate and paid a whopping $70 million for the privilege of powering the Netscape-branded search engine, and for a guaranteed 25 percent of rotations for its own branded search engine on the Netscape search page.
The two-year deal, however, got off to a slow start.
"Traffic early on wasn't what we thought it should be," said Brett Bullington, an Excite executive vice president.
Although traffic has improved after changes were made by both companies, Excite said it will lose money from the deal unless Netcenter "generates impressions significantly greater than the guaranteed amount specified in the agreement," according to SEC documents.
Excite does not expect revenue from the cobranded services to exceed 10 percent of the company's total revenues during the term of the contract. Last year, Excite generated $154.1 million in revenues.
After it pulls out of Netcenter, Excite may be refunded up to $45 million, depending on the settlement terms, for amounts paid in advance.
Others haven't decided whether to continue their relationship with Netcenter after the Netscape-AOL merger. Last November, America Online announced it would acquire Netscape for an estimated $4.2 billion. It is unclear whether AOL will sever the agreements that Netcenter struck with the various portals.
While that decision is debated, other forms of distribution are cutting into Netcenter's business potential. Lycos, for one, instantly expanded its distribution by acquiring such properties as community builder site Tripod, search engine HotBot, and media site Wired Digital. Lycos has advertised and marketed all three properties, as well as itself, in traditional media such as radio.
In sizing up its Netcenter deal and whether Lycos has received a return on its investment, Lycos vice president Jeff Crown put it this way: "The combination of traffic and revenue we receive is reasonable, but it's becoming more borderline. So four or five months from now, given our distribution spread, it may not be as practical for us to be involved."
News.com's Dawn Kawamoto contributed to this report.