The idea was to lock in the audience by locking in the value. The plan (as it was so eloquently suggested in a recent comment on Techcrunch) was to build a “Wal-Mart” of the web. A destination so full of product that no audience would ever want to leave or risk venturing outside into the wild, wild web.
This strategy was of course the old ISP “Walled Garden” on steriods.
To deliver on the promise you needed both deep pockets and willing partners. Influential media conglomerates, software providers and advertisers willing to buy into the vision.
The strategy obviously worked because today 5 of the top 10 web sites are portals.
- Half of the top 10 webs are Portals
Portals work because they are significantly more sticky tha most of the web. Particularly when you compare them to online newspapers and magazines.
- Web Portals tend to be more sticky
Their rich “best of the web” mix of content, email, search and trading obviously makes them a more attractive destination than online newspapers and magazines. The only thing that out performs them in the stickiness stakes are the Social Networks (e.g. Facebook and MySpace).
- Web portals are more sticky than online newspapers and magazines
The mega portals are also revenue magnets. Compare the revenues in chart below with The New York Times group revenues of $2.65 Billion (Online revenues are approx 10% of this figure. See NY Times 10% Problem).
- The annual revenues of the 4 Mega Portals
They generate strong revenues and they have beaten the FLINK! factor that plagues online content.
So why does their share price performance look like that of the NY Times? Why have they failed to deliver sustainable shareholder value since the collapse of the dotcom boom?
- What do the Mega Portals and the NY Times have in common?
The answer, of course, is the rise of Google (and now Facebook) and the revolutionary idea that you can be the web’s market leader without actually generating any content.
- Operating margins across the 4 Mega Portals
The outlook for these “Wal-Marts of the Web” is not as good as it once was. The revenue figures for AOL and MSN are in decline. IAC have recently divested a significant part of their portfolio. AOL continues to resolve the problems of the original merger of 2000 by divestiture.
As you can see by the operating margins both Microsoft and IAC are struggling to make it work. Microsoft’s costs are around twice the revenues it generates online.
In contrast Yahoo! revenues are strong, even if the margins aren’t, and this is perhaps why Microsoft has spent the past 4 years trying to create a mega-merger of the web’s number 2 & 3 in a bid to create a new market leader.
So the messages are mixed. Microsoft clearly believes in the future of the Portal (or at least in Yahoo!’s advertising network). While IAC and AOL are currently trying to “Shrink to Greatness”.
The question they should be asking themselves today is how do we become the Google of the MobileContent market? or, at the very least, they should be asking themselves: Do portals have a future in the MobCon landscape?
The Mobcon Radar maps the major investment and product development activity undertaken by each of the market leading web portals since the end of the dotcom boom.
It allows us to see what shape their convergence strategies are in. It also indicates to what extent the things they have tried in the past will help them to become more profitable in the future. The assumption being that activity across all 12 segments would illustrate the strongest MobCon strategy.
We had a detailed look at Microsoft two weeks a go so let’s now see what’s on the radar for the other 3 major players in the portal space.
The over-riding strategy for each (as it was so eloquently suggested in a recent comment on Techcrunch) was to build a “Wal-Mart” of the web. A destination so full of product that no audience would ever want to leave or risk venturing outside into the wild, wild web. Each player, as we shall see, has executed this strategy differently.
Let’s begin with Yahoo!
History:
Yahoo! was one of the first web search engines and search directories. Originally funded by Sequoia Capital in 1995 it went to IPO in 1996 and quickly diversified into a web mega portal. Yahoo!’s bubble burst, along with the rest of dotcom back, in 2000-01. It was also around this time that Yahoo! engaged Google to become its default search engine. It revoked that decision four years later after acquiring AltaVista’s search technology.
In response to the Google problem Yahoo! has spread its interests across a broad base of advertising networks, content, DIY media and software.
Today:
The advertising networks are a key part of the Yahoo! strategy. The Yahoo! Advertising network has the third largest audience reach in the US. The Yahoo! portal has the seventh largest. Both of these rank higher than Google’s equivalent network and portal.
Microsoft has been a key player in the Yahoo! story since 2005. The software giant has made multiple approaches to purchase Yahoo! and merge it with its own MSN Portal. The combined audiences of the web’s second and third largest sites would displace Google as the market leader. The pair recently announced a J.V. search deal (Techcrunch).
You may also like to take a look at paidContent.org’s Yahoo! should merge with CBS Corp. (NYSE: CBS) or Viacom (NYSE: VIA), or buy Brightcove.
Tomorrow?:
Having unwittingly walked away from their competitive edge (e.g. Search/Google) only to rediscover its real value a few years down the track they are now renegotiating a similar deal with Microsoft. There appears to be something cyclical in Yahoo! strategic thinking (if not their direction).
Having once again gone “Back to the Future” in their strategic thinking they are probably not in a strong position to become a market leader in the Mobile Content landscape.
What's on Yahoo!'s radar?
Now lets look at AOL.
History:
The AOL story is of course, along with WorldcomMCI, the story of the dotcom boom. The story of how the ISP AOL acquired the media giant, Times Warner for $164bn. The story of a new media company that tried to become an old media company. The story of a company that wrote off $99 bn (at that time America’s largest ever reported corporate loss) in shareholder value within just 2 Years of the merger.
The AOL strategy since 2002 has been to try and recover from this fateful merger of the old with the new.
Today:
Today, as AOL prepares the split from its parent, Time Warner, the focus is once again on content and content management. The CEO, Tim Armstrong, is preparing AOL for survival in the fragmenting web (Techcrunch) by investing heavily in professional content providers (e.g. Journalists).
See TechCrunch’s Erick Schonfeld post Aol’s New Model: Fighting The Downward Trend for a recent update on the new AOL Business Model (25th Nov 09).
Tomorrow?:
Is AOL, like Yahoo!, also intent employing a Back to the Future strategy?
A quick look at the radar would suggest they are in no position to secure market leadership in the Mobile Content landscape. In reality they appear to be planning to fight yesterday’s battles tomorrow.
What's on AOL's Radar?
Finally we’ll take a look at the Interactive Corporation (IAC) radar.
History:
Interactive Corporation began the decade with the most diversified of the portal strategies. They did not bank on single portal but a portfolio of branded web sites.
In their portfolio was the Home Shopping Network (TV), Citysearch, Excite and Match.
They continued to add more properties to the portfolio throughout the decade. Key brands included Ticketmaster, RealEstate.com, Hotwire, Lending Tree, AskJeeves, Trip Advisor, Hotels.com, and Expedia.
In 2007 they reversed their strategy and proceed to divest themselves of the core HSNetwork (Home Shopping), Interval, Ticketmaster and LendingTree properties by listing them as entities.
Today:
IAC is a much smaller operation than it was 2 years ago. Revenues have fallen by over 75%. Operating income by 125%.
The eCommerce engine has been removed and the company is now an online media pure play.
Tomorrow?:
The “shrinking to greatness” approach can also be interpreted as yet another Back to the Future strategy. The MobCon radar suggests that, having recently restructured itself as an online content pure play, IAC has yet to develop a comprehensive Mobile Content strategy.
What's on Interactive Corporation's Radar?
Summary
So three different approach to building the “Wal-Mart of the Web”.
- Yahoo! through internal growth (i.e. Search to Portal)
- AOL through a primary acquisition (i.e. Times Warner)
- IAC through a diversified portfolio of acquisitions (e.g Ticketmaster)
In all cases the strategic focus today is to go Back to the Future of the business.
The web’s mega portals, like their smaller old media online rivals, are turning to premium content to provide the hook to attract the rapidly fragmenting online audiences and advertisers.
As Tim Armstrong recently described AOL’s strategy in an interview with Techcrunch.
We have come up with a content strategy that fragmentation is our friend… We’re doing over 3,000 pieces of content a day online, and much more than that soon… This is a way for us to build a community.
The portal strategy is of course the antithesis of the FLINK! theory described in my recent post What If: Journalism is the real reason Newspapers are dying?
FLINK! theory suggests the real hook for the portals was originally everything but the content (e.g. the email accounts, search engine and the instant messaging). The recent emergence of Facebook, Linked In and MySpace confirms this and suggests that perhaps the mega-portals, with their email account and instant messaging, were in reality the first large scale social networks.
This is also what makes Tim Armstrong’s comment about community so interesting.
The question is: Is it too late to make the transition from portal to social network? Perhaps if they had thought “Disneyland” rather than “Wal-Mart” they may be more profitable today?
To take a look at the other MobCon Radars in this series see Apple, Microsoft, New York Times, News Corp, Google and Nokia, Facebook, mySpace and LinkedIn and Amazon, AliBaba and eBay..
Further Reading – Updated 12-11-2010
- How the AOL-Time Warner Merger Went So Wrong – The New York Times
- What Happened to Yahoo! – Paul Graham
Posted on October 27, 2009
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