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Portal envy doesn't always pay

If 1998 was a year when big media and Web companies leaped into the battle for portal dominance, 1999 may be remembered as the year of retreat.

If 1998 was a year when big media and Web companies leaped into the battle for portal dominance, 1999 may be remembered as the year of retreat.

Just a year ago, it seemed so 1999: The year in technology simple. Add search, content aggregation, popular Web tools such as free email and stock quotes, and voila: out comes a portal ready to take on leaders such as Yahoo, America Online or Microsoft.

But what 1999 showed all too painfully was that the window for opportunity for second-tier players had already come and gone.

Most companies that looked to the portal model to catch the leaders were disappointed, as Web consumers increasingly stuck with the most popular sites or branched away to "vertical" plays focused on specific topics or audiences--such as iVillage, eBay and Amazon.com. As a result, come-from-behind companies hoping to offer all-in-one services, such as Excite@Home, Disney's Go Network, Lycos, CMGI's AltaVista and NBCi, found it much more difficult to gain ground.

Looking toward 2000, analysts now say they see little room for more than two or three full-fledged portal sites. As a result, they predict, second-tier players will face a choice in the coming year: find ways to stand apart, or join the leaders.

"They have to differentiate themselves and become a specialty player or be absorbed by one of these bigger companies," said Safa Rashtchy, an equity analyst at Piper Jaffray.

A key example of the changing attitude toward portals came from Time Warner, which early on put most of its eggs in an all-in-one site strategy.

This year it turned abruptly Time Warner to shutter Pathfinder away from portal ambitions, scrapping its Pathfinder site and embracing a niche approach. The media behemoth now plans to launch a series of "vertical hubs" that focus on topics such as news and personal finance. Time Warner recently launched its entertainment hub, Entertaindom, and more sites are expected to be unveiled.

Still, the events of 1999 haven't completely shut the lid on the portal envy of 1998.

For Internet investment company CMGI, the answer still lies in creating a portal to drive traffic to the myriad properties under its investment and operational umbrella.

CMGI decided it would place its bets on AltaVista, which it acquired in the summer from Compaq Computer for $2.3 billion. In the fall, CMGI unveiled a $120 million consumer advertising campaign in an attempt to challenge Yahoo and AOL, and it recently filed to take AltaVista public in hopes of raising $300 million.

But 1999 also showed the first signs of skittishness among newcomers hoping to buy their way into the top tier. Broadband network @Home paid $7.2 billion for Web portal Excite in an attempt to market its cable access services to Excite's users. The venture got off to a troubling start, however, as the site stagnated and rumors persisted that AT&T, the company's largest shareholder, was in backroom negotiations to do a deal with AOL. Now the company plans to spin out the Excite portal as a separate tracking stock.

Excite@Home and other second-tier companies remained in hot pursuit of the leaders, making numerous acquisitions in hopes of staying afloat in the race for user traffic.

Among the slew of deals in 1999, see related story: Web portals buy to survive Excite@Home acquired Blue Mountain Arts for an estimated $1 billion in cash and stock. Lycos laid plans to acquire smaller vertical sites, such as Wired Digital, MP3 music player Sonique, financial site Quote.com and online gaming site Gamesville.com.

Then there was Disney. The entertainment giant launched its Go Network portal in January, but the site has failed to gain significant ground in the audience race. During the past year, Disney acquired the rest of Infoseek it didn't already own, spun out Go.com as a separate tracking stock, and instituted more centralized control over the venture while continuing to promote the site throughout its television and film properties.

In addition, Go.com is engaged in a copyright battle with GoTo.com, which could result in Disney losing the right to use its logo.

Whether there's room for yet another portal is questionable. For many of these companies, 2000 may be a pivotal year. Money is being lost as the media giants fight to show a significant traffic upsurge, and the coming year may force many of these companies to re-examine the industry to figure out whether it's worth shooting for the moon.

Among several like-minded analysts, Forrester Research's Charlene Li predicts that traffic--as well as advertising revenue--will increasingly go to the top-tier and vertical portal players.

"Traffic declines and less-qualified traffic at other broad-based portals like Excite and Lycos will cause advertising share at these sites to shrink...by 2004," Li wrote in a report published this month. "Instead, retailers will spend their marketing dollars with vertical winners."