1. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-1 DAY 6 Agenda Today September 26 –Intro to Online Portals -Tony –Yahoo! - Donnie September 29 –Case study Proposal due –StarMedia -Kristin October 3 –Tellme Networks, Inc. – Anup –Recap of Online Portals October 6 –Intro to Online Content Providers -Tony –Boston.com - Steve October 10 –CNET 2000- Jeff

2. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-2 Case study possibilities Ebay Paypal Craig's List Google NetZero EarthLink Napster Epionons.com

3. internet business models Chap 2 Intro tom eisenmann

4. Chapter Two Internet Portals

5. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-5 por  tal n. A doorway, gate, or entrance, especially, a large and imposing one. Webster’s New World Dictionary

6. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-6 AGENDA What is a portal? The portal business model: acquiring, retaining, and exploiting traffic Portal economics Portal prospects

7. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-7 What is a portal? Portals aggregate Internet traffic by providing navigational assistance, information content, and other services to users, then exploit that traffic through advertising and electronic commerce partnerships.

8. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-8 Types of portals Mass (Horizontal) portals direct users to a broad range of content/commerce destinations –Examples; Yahoo!, AOL.com, Netscape, Excite, MSN, Lycos Vertical portals: (aka “niche” or “affinity” portals) direct users to content/commerce sites within a single thematic area, e.g., personal finance, sports, childrens –Examples: ESPN.com, iVillage, Marketwatch, CNET

9. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-9 Significance of Portals 80% of Internet users pass through a portal site monthly; portals account for 20% of all Web page views (Forrester) 31% of content site traffic comes from distribution partnerships with portals (Forrester) 18% of online shopping revenue originates through portal deals; will grow to 20% by 2002 (Jupiter)

10. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-10 Portal Business Model ACQUIRE TRAFFIC RETAIN TRAFFIC EXPLOIT TRAFFIC

11. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-11 Issue: Do you have to pay to acquire traffic? ACQUIRE TRAFFIC RETAIN TRAFFIC EXPLOIT TRAFFIC

12. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-12 FIVE WAYS TO ACQUIRE TRAFFIC Internet Access Enablers –Vertical integration: own ISP –Build home page for ISP; split revenue –Browsers -- 20% default –PC Manufacturers (sweet-heart deals) Search/Directory Services Utility Services (e.g., free e-mail; calendars; personal web pages; instant messaging) Vertical Integration With Content/Commerce Sites Offline Promotion

13. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-13 Issue: How much to spend to retain traffic? ACQUIRE TRAFFIC RETAIN TRAFFIC EXPLOIT TRAFFIC

14. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-14 RETENTION TOOLS Free e-mail Personalized home page (e.g., My Yahoo!) Communities of interest (personal web pages; chat) Shopping bots; commerce malls; auctions Future: frequent shopper points? Bill presentment and payment?

15. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-15 For each tool, ask: How much value for users? –Microsoft research: one-third of portal users demonstrate “portal behavior,” i.e., use three or more services (NY Times) Any opportunity for differentiation, versus other portals? How “sticky” is the tool?

16. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-16 Issue: How to extract value from traffic? ACQUIRE TRAFFIC RETAIN TRAFFIC EXPLOIT TRAFFIC

17. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-17 Examples of Portal Deals

18. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-18 Issues Deal Terms –Exclusivity –Payment for impressions vs. click-through vs. new customers –Length of contract Premium for reach Depth of user information collected

19. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-19 YAHOO! P&L

20. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-20 Issue: “Winner take all”? Modest demand-related increasing returns to scale –Communities of interest; chat; instant messenger Ad sales: premium for reach Despite efforts to promote retention, customers tend to use several portals Significant scale economies in providing services and in sales and marketing functions Conclusion: portals are subject to reasonably powerful scale economies, the category had “winner take all” attributes

21. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-21 Portal Prospects Maturation of the user base Maturation of the advertiser base –20% of audience; 65% of ad spending (Forrester) –One-third of marketers not likely to renew deals Broadband discontinuity

22. McGraw-Hill/Irwin © 2002 The McGraw-Hill Companies, Inc., All Rights Reserved. 2-22 Future Cost Of Portal Deals More expensive if: –Portal shakeout occurs –Content/commerce sites intensify “get big fast” strategies Less expensive if: –Portals drive less traffic –Portal competition improves deal terms –Content/commerce sites consolidate or abandon “get big fast’ strategies