Are Portals Losing Their Luster?

Recent statistics from Forrester Research Inc. show that many e-merchants are shying away from exclusively using popular portals to promote their products online — instead they’re turning to traditional media.

Even though the deals with the Web portals like Yahoo!, Lycos and AOL are getting pricier by the month, the percentage of Internet traffic generated by the top 9 portals will top out at 20 percent by 2003, from 15 percent in 1998, according to Forrester estimates.

This less than dramatic growth is causing some e-marketers to question if portals are giving them enough bang for their bucks. In an April survey by researcher Jupiter Communications, fewer than 5 percent of the 22 e-commerce executives polled said they were likely to renew their contracts with portals.

For instance, MotherNature.com Inc. told Business Week in its latest edition that last year it turned down a one-year $5 million (US$) deal with AOL to promote its products in favor of spending it advertising dollars on traditional radio and print advertising. As a result, the site has increased its traffic fivefold.

“We declined to pursue the AOL deal because we didn’t see how we could ever make money,” Michael T. Barach, MotherNature.com’s chief executive explained.

How much bang for the buck?

Forrester estimates that most companies pay about $200 to acquire each new customer using conventional media, while they would pay about $452 per customer for a $12.5 million deal on AOL. But what’s unclear so far about this scenario, analysts say, is if the additional cost brings a more focused buyer to a company. If for instance, such a customer spends more than one attracted by traditional media — the additional cost might be worth it. Plus, industry experts say that category-specific portals do much better job of delivering than other portals.

Clicking fever slowdown

Another trend Forrester discovered is that the number of people clicking on banner ads has dwindled to less than 0.5 percent from 2 percent last year. In addition, some analysts say by using traditional advertising — instead of portal — an e-marketer has a greater chance of reaching the masses, who don’t spend a great deal of time online.

Despite the disenchantment some have with portals, it hasn’t translated into a slow down of their growth. AOL has jumped from sixth place in 1998 into the No. 1 slot on this year’s listing of the top hundred info-tech companies compiled by Business Week.

Embryonic stage

Some industry experts say the continuous morphing of portals and the flood of new Internet surfers coming online daily will ultimately decide the long-term future of portals — especially since e-commerce is still in its embryonic stage. They say questioning the rates is simply a healthy sign proving the market economy is still intact. After all, they point out, portals can easily recapture what they’re losing by simply lowering their rates, or even offering their own multimedia packages — including offering radio and print.

What do you think? Let’s talk about it.