Our research suggests that more consumers in Germany, for example, are likely to use broadband connections than narrowband ones as early as 2003 and that consumers everywhere in Europe will spend more time and money on broadband connections, perhaps by 2005. Owning a portal, therefore, seems attractive again.
Accordingly, a host of cable companies, wireline and wireless network operators, owners of narrowband portals, and media groups are vying to establish more than 100 mobile, 30 broadband PC, and a handful of interactive-TV portals, adding to the 200-odd narrowband ones already available.
Which contenders will succeed? The answer depends largely on how well they adapt to the two trends shaping the emerging broadband landscape. The first is the convergence of broadband platforms. Soon consumers will be able to access identical broadband service regardless of whether they use the televisions in their living rooms, their mobile devices on the way to work, or their PCs at the office.
The second trend is a shift in competitive advantage among competing portals. Today, those owned by broadband-access networks have a head start as part of the package they offer their customers, most of whom are disinclined or technically unable to switch later. But the technical, regulatory and commercial factors that make it worthwhile for owners of access networks to build portals are disappearing. In the longer term, portals owned by access providers will have no particular advantage, and the market will be open to all.
These trends mean that to thrive, portals will eventually need to serve end users across the full range of broadband platforms; being linked to an access network or an existing narrowband portal won't be enough. This sounds like an opportunity for smart, independent new entrants. But establishing a broadband portal requires lots of money, skills and partnerships that incumbents, especially access providers and leading Internet portals, are more likely than other players to have. If these incumbents can learn to please customers, their portals could flourish in the multiplatform future.
At present, broadband-access providers try to lock their customers into their portals, creating a series of closed business systems. The providers' success varies across platforms, depending on how easy or attractive consumers find it to switch portals or bypass them altogether.
Users of broadband PCs are already hard to lock in. Often Internet sophisticates, they can and do choose their preferred services or portal--probably their favorite narrowband one if it has added broadband features. Mobile Internet users could also, in theory, reject their access provider's portal. In practice, mobile-access providers make switching difficult: They may refuse to give other portals crucial information, such as someone's location, and the small screens and limited keypads on mobile handsets make it hard for people to browse competitors' sites. Even if switching were easy, today's mobile users, who are less Internet-savvy than PC users, would probably do what most narrowband Internet users do: Stick with their first portal.
Interactive-TV customers, by contrast, are locked in tightly: They can reach services and navigation tools only through the portal that comes with their access provider's set-top box and can't "roam" without subscribing to another access provider's service.
This landscape limits competition among portals within and between platforms, making a closed-portal strategy worthwhile, at least on mobile and interactive-TV platforms. But once platforms converge and consumers can switch portals within and between platforms, a closed-portal strategy will become unworkable on all of them.
Several factors will make it increasingly attractive and feasible to open up portals to all people on every platform. First, there is the economic potential. An access provider may have a ready market for its portal among its own customers, but as a portal opens up to all broadband users, a much larger market beckons. Moreover, the chance of a clear run at the biggest potential markets means that open portals on open platforms, unimpeded by access providers, will attract the best service and content providers. Closed portals on closed platforms will become unattractive to service and content providers--and, in turn, to end users.
The leading portals on each broadband platform will help set de facto standards--for interactive TV, for example, application formats such as Multimedia Home Platform (MHP). Device manufacturers and service providers will then be unwilling to forgo economies of scale in order to provide proprietary solutions to vertically integrated portal and access owners with closed business systems.
Furthermore, regulators are unlikely to let dominant access providers use closed, proprietary standards and interfaces; the European Union has already signaled that broadband providers, which operate, for all intents and purposes, as local monopolies, won't be allowed to use closed standards. Finally, convergence itself will force portals to open their sites to competition. The greater the technical convergence among broadband platforms, the more pressure portals will feel to offer customers new content and services from other platforms.
Value chains will open up at different rates on each platform. As we have seen, the broadband PC platform is fairly open already. The value chain for the mobile Internet has begun to open up, and the process will probably be completed in two to three years. But the value chain for interactive TV is likely to remain closed for at least five years, until switching costs for consumers fall.
Broadband portals must develop their strategies against these trends, focusing first on their native platform but with an eye to the multiplatform future. Although the conditions for free competition are emerging within and among platforms, even imaginative standalone portals are unlikely to do well, since to break even, broadband portals need a heavy investment, great content and lots of users, who may not be prepared to pay for content. Companies that already possess each requirement still have the strongest position to dominate their native platform. But these companies too will need partners to build high-quality portals that will attract and keep customers in the future.
For all broadband PC portals, particularly standalone ones, the prospects are uncertain, though the platform is open to competition.
Among access providers, only the biggest, such as T-Online International, in Germany, can justify developing portals, since these companies have enough customers to ensure that adequate numbers of them will use the access provider's broadband portal rather than someone else's. Successful broadband PC portals are most likely to grow out of, or be closely tied to, leading narrowband portals with established customer bases. Many such portals are now adding broadband content.
Contenders unable to reach sufficient scale on their own would do best to work with partners from either their own or other platforms. Already, some smaller broadband PC access providers have joined with independent portals to reach critical scale, and even the bigger ones need to ally with vertical portals and content providers. For independent PC portals, another possibility is to ally with an interactive-TV portal, because the independent portal could reuse the television content on the PC platform and share content rights, platform costs and, potentially, customers.
The mobile portals' average revenues per user will be higher than those of today's narrowband portals. In Europe alone, the mobile portals' 2005 turnover is estimated at more than $5.3 billion, some 10 percent of the expected market for mobile services. Contenders for these projected revenues include mobile-access providers, narrowband portal providers, new independent mobile portals, content providers and even handset manufacturers.
Over the next two to three years, few contenders will be able to match the advantages enjoyed by mobile-access providers. Using their existing security information and billing systems, these providers can easily levy payments from consumers, and, as we saw, they can make it hard for customers to switch portals. But these advantages will soon diminish: Regulators will probably ensure that users can switch more easily, and customers will become more discerning. Faster mobile networks and more capable user-friendly devices will make it easier to use the mobile Internet without portals. And since break-even scale for mobile portals is likely to be around five million active users, many operator-owned portals will need to go beyond their existing mobile-customer bases by recruiting "switchers."
Operator-owned portals will have to move quickly to build the reach, the scale, the skills and the relationships needed to survive more open competition. One option is to acquire other mobile portals. Another is to share content, partnerships and customer bases across two platforms by allying with narrowband or broadband PC portals; interactive-TV portals make less-attractive partners, for it is still technically hard for these types of portals to share content. In three to five years, we expect the mobile-portal field to be dominated by a few portals owned by or shared with leading mobile operators and to converge, partly or wholly, with fixed Internet portals.
An interactive-TV portal's hold on its customers is a mixed blessing. On the one hand, the access-network owner can lock customers into proprietary offerings and so extract higher direct and indirect revenues. On the other hand, these owners need lashings of revenue to subsidize set-top boxes, develop relationships with content providers and invest in proprietary content and technology. The calculations differ for satellite and cable-access providers in different areas, but we estimate that an interactive-TV provider needs more than four million subscribers to break even, though the closed business system limits the market of a successful provider to its own customers.
Developing interactive-TV portals today is therefore an option open only to access providers with sufficient reserves of patience and finance to be confident of winning large numbers of access customers.
The closed world of interactive TV is bound to open under the influence of regulators, consumers, and content and service providers. But interactive-TV portals are betting that by then they can exert such a strong appeal to customers that they will be able to compete successfully in the open market. Their strategy is to develop this appeal partly through alliances with portals that are already on competitive platforms.
DirecTV, in the United States, for example, offers a package called DirecTV/AOLTV, which lets users access America Online's portal and other online services through television sets. A similar deal with Microsoft, for a service called UltimateTV, allows DirecTV subscribers to use some of the software company's online content for television. Given the strength of interactive-TV portals on their native platform, as convergence progresses they will be well placed to attack players on the other broadband platforms by supplying competing portal services.
There will be a period of grace before competition among portals breaks out across platforms. All aspiring multiplatform players should use their native platform, no matter what it is, to develop business models that will thrive in the new climate. Making investments now will help multiplatform players exploit the convergence of technologies as they mature. These players should consider acquiring key technologies, user bases of early adopters, and skills in generating content.
Obviously, acquisition isn't the only way to harness such capabilities; partnerships with specialist firms may be wiser for smaller companies. But all contenders will need partners of some kind, since no single company will be able to master all three platforms technically and also provide quality content. Among large single-platform operators, in services or access, a substantial user base is the asset that will attract the best partners; the priority for these operators should thus be to increase their market lead on their native platforms rather than to try to grow organically on the other two.
Small single-platform access or service providers would do better to build scale by finding similar partners on their native platforms. These providers could then attract good partners, with different but complementary assets, from the other two kinds of platforms.
Companies that own a number of access platforms might consider rolling out an offering at the first level of convergence. But they should do so only if the overlap between their customer bases is very high and they can quickly reach critical scale with the converged offering on all platforms. Otherwise, these companies would do better to pursue separate strategies, with separate partners, for every platform.
For more insight, go to the McKinsey Quarterly Web site.
Copyright © 1992-2001 McKinsey & Company, Inc.