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Online firms play musical chairs

Everyone at the Jupiter online services show has to be thinking the same thing: A few years from now, only a few of the companies represented will remain.

NEW YORK--Everyone at the Jupiter Communications Consumer Online Services conference this afternoon had to be thinking the same thought: A few years from now, only a few of the companies represented will remain.

Not even the companies--fledging local Web content businesses--deceived themselves into thinking they were all going to make it.

"This competition for local ad dollars will drive a shakeout and consolidation of this business," said Jeff Killeen, president and CEO of Pacific Bell Interactive Media, which runs At Hand, one of many content sites duking it out for the promise of between $60 billion and $80 billion of local advertising revenues. That doesn't include the potential for national advertising dollars, a market that at least some players are actively targeting.

Killeen was stating the obvious. "The reason we're looking at this market is people make 70 to 80 percent of their purchasing within 10 miles of their home," said Paul DeBenedicts, president and CEO of America Online's Digital Cities.

What is not clear, however, is just who is going to make it and why. Will it be the sites run by the online services like Digital Cities and Microsoft, which is slated to launch its long-anticipated Sidewalk service soon?

Perhaps it will be services sponsored by telephone companies like Pacific Bell's AtHand and US West Interactive's new venture, DiveIn, to be officially launched March 18.

It could be that the answer will come from the newspaper world, where players like New Century Network are making their debut by repackaging the online versions of major newspapers and turning them into local information sites.

Still, the sites that make it also could wind up being independent start-ups like CitySearch, one of the first sites to launch a local service.

All of them, of course, profess to have found the winning formula. But all of them can't be right. There just isn't enough ad revenue for such a crowded field.

To survive, the companies will need to have a few key ingredients, according to Mark Mooradian, a Jupiter analyst who hosted the panel. They'll need editorial independence, a quality product, and money, lots of money.

The companies bring in different strengths and weaknesses. For instance, while Microsoft has no shortage of cash, it is starting at a disadvantage because people won't necessarily trust the brand name as an editorial independent organ of a software company, Mooradian said. The telephone companies face the same hurdle and they've admitted as much.

On the other hand, sites like New Century Network have plenty of editorial independence, but face the incredible task of getting several disparate businesses to work together in a medium with which none of them are completely comfortable.

Newcomers like CitySearch have neither brand equity nor a reputation going for or against them. But CitySearch is also one of the most well established businesses of its kind, Mooradian added.

Any of them could make it, Mooradian explained, but not all. The array of companies seeking to profit in the space is somewhat "dizzying," in his words.

What makes matters more complicated is the fact that all the services are essentially trying to do the same thing. Sure, there are differences. For instance, Sidewalk is focused on arts and entertainment while AtHand is focused only on California. Digital Cities, New Century Network, and CitySearch are all trying to be the clearinghouse site for people to find what's going on in their community at all levels, from entertainment to community events.

But all are after the same customer: the one who wants to go online to find out what to do with themselves. That customer probably won't be willing to scan ten different sites. He or she will want one great site, regardless of who runs it.