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Commerce eclipsing content

Revenues from ad-based content aren't enough for Web portals, which are linking with commerce partners for more-reliable cash flow.

Jim Hu Staff Writer, CNET News.com
Jim Hu
covers home broadband services and the Net's portal giants.
Jim Hu
4 min read
Forget content, the portal world is becoming an e-commerce world.

It wasn't long ago that portals were able to trump subscription-based services--with the notable exception of America Online--by offering free Web content. But lately, the paradigm has begun to shift.

This comes as no CNET holiday guide surprise, given that e-commerce has matured into a major source of revenue on the Internet. And as market research firms continue to forecast billions in potential online revenue, online strategies also are changing to accommodate the boom.

E-commerce market potential is clearly positioned to outstrip that of advertising, say market researchers. Jupiter Communications expects holiday season e-commerce revenues to reach $2.3 billion, up from last year's $1.1 billion. Forrester Research predicts that e-commerce revenues this quarter will reach $3.5 billion, tripling figures from the same period a year ago.

While Web portals continue to attract hordes of Netizens searching for free information and services, portals and publishers in general have increasingly seen that advertising-supported content is not enough to survive on the Web.

"Most content providers expected that their business would be driven by advertising revenues, and what they've seen is that the size of the advertising market is fairly small, still," said Kate Delhagen, a Forrester Research analyst.

"Advertising's total market value is about a tenth that of e-commerce's market value," she added. "Portals simply can't generate enough dollars from advertising."

Mark Mooradian, an analyst with Jupiter Communications, agreed. "In the same way content captured everyone's imagination two or three years ago, commerce has displaced that."

Portals: virtual shopping malls
Web portals heavyweights such as Yahoo, Excite, MSN.com, Netscape Netcenter, and Lycos, have shifted their focus from simply aggregating content to providing starting points for online shopping.

Portals have built designated shopping channels that aggregate links from retail partners, such as , CDnow, and other product-specific companies. The partnerships provide a lucrative revenue stream, since merchants pay portals millions of dollars over many years to gain sponsorship on a shopping page. Often, they also strike revenue-sharing agreements.

AOL has achieved fame in the industry for its ability to attract multimillion-dollar partnerships in the same model. AOL has inked a number of high-profile deals that give merchants exclusive rights to sell their goods in a given category.

And with the holiday season around the corner, portals are expected to step up to the role of online shopping mall. For retailers, this holiday season will serve as a litmus test to see how well their portal investments pay off.

Already, portals are preparing for the shopping onslaught and the increased expectations from their partners. For example, Excite and AOL last week introduced online "wallets" in an effort to expedite e-commerce transactions. Instead of entering billing information each time a user visits separate merchant sites, users register once and can shop over a number of sites. Yahoo is also expected to announce it own online wallet by the beginning of the holiday shopping season.

"We've reached a point where there's plenty of interesting offers for viable goods and services online, and security issues are better," said Julia Pickar, an analyst at Zona Research. "Now is the time to push for e-commerce and have people convert their behavior.

"They've established the comfort zone, now they want to see how they can monetize that."

Buying the buyer
Portals have also made hefty investments to please their commerce partners.

Lycos has made a number Holiday shoppers expected to flock online of bids to increase its e-commerce vendor reach by creating a Web-property network. It has made a number of high-profile acquisitions this year, gobbling up small Web communities and directory-based services, such as Tripod, WhoWhere, and Wired Digital. Lycos said it can now sell advertising packages that can reach more users, while pursue deals with their e-commerce partnership competitors--such as partnering with Amazon in some of its sites, and Barnes and Noble in others.

But Lycos's acquisition of Wired Digital, demonstrated how content remained secondary to the commerce-oriented cash cow.

The object of Lycos's eye was HotBot, Wired's search directory that has cultivated a dedicated user base of seasoned Web users. Lycos said HotBot's appeal is a user base that is not skittish about purchasing online. Though the Wired Digital deal also includes popular editorial content with Wired News, HotWired, and WebMonkey, Lycos wanted to increase its appeal to advertisers, and especially to potential merchant partners.

"Essentially, instead of them becoming a portal, they want to become more of a hub," said Vanderbilt. "So there will be a more meaningful customer database that they own, and they want to cull additional value from that by passing on customers with their partners."

Toeing the line
The Web's movement toward commerce also raises a number of ethical issues, especially for editorial content producers, such as magazines or topic-specific publications. Already, the editorially-oriented Web sites, including CNET News.com, feature links leading to retailers, such as booksellers. News sites, such as CNN, ABCNews, and MSNBC also toe the editorial line by offering commerce channels alongside editorial content. And the list goes on with magazines, such as Newsweek or Salon, and entertainment sites, such as Disney, either support or feature e-commerce channels.

Though content has become a tool to attract users to advertising and commerce, editorial on the Web raises a number of issues that have yet to be resolved, said Delhagen.

"Some consumers, probably a minority, are very sensitive of objectivity of the press," she said. "Now there's a lot more [focus] on convenience and getting needs addressed in one-stop shopping.

"The PC-based screen is the first time where we can consume content and buy products at once I think that that is the epiphany that many companies are facing now, and that there will be some editorial angst over erosion of the editorial channel," she added.