Ever have one of those spontaneous email conversations that breaks out amongst four or five people and creates all kinds of random cross-insights? Given that many of us have no “real” water cooler to swap stories around, the virtual one can be a nice substitute. (Or maybe I should just get out more. On that note, I hope I’ll see a few of you in San Jose in August at the Search Engine Strategies conference.) The participants in this recent email conversation about the latest happenings with the major portals were all savvy folks from midwestern places far from the tech hotbeds of Seattle and San Francisco, so you get the feeling these people have a detached observer’s perspective on tech trends. All work for either major communications companies or Traffick.com, so we’re talking about major brain-power here! One wrote from within the heart of the beast (or more like one of the beast’s tentacles perhaps), the beast, of course, being a large company which begins with “M”. So what did this motley group think of the Current Portal Scene?
The really ferocious competition, at least in the minds of this group, is between MSN and AOL. I don’t know what it is, but it’s as if its competitors like Yahoo so much (like that smart younger brother who always did well in school) that they don’t see them as a foe to be crushed, but rather an interesting third player who they hope can finally get things right and really flourish. (Some loyal Yahoo users, on the other hand, are acting more like jilted lovers now that Yahoo’s forcing them to pay for stuff, and changing their privacy preferences without permission.) As for AOL vs. MSN, it’s safe to say that it’s all-out war. The more any of us looks at the situation, the more it looks to us like MSN has much more ammo that it can bring to this fight, and I don’t mean money. They’ve got technology and of course Strategy. With the two giants pounding each other with competition for the almighty “ISP consumer” and related web services, this seems to give Yahoo an advantage. No one is ruthlessly trying to put Yahoo out of business. Maybe they’re waiting until Yahoo is part of a much larger company. In any case, this buys Yahoo time.
Some of us remain a bit puzzled at how the major ISP’s can go on charging so much for dial-up and offering such weak services. Those who receive free home dialup from their employer, on the other hand, think free is just excellent, and are happy enough to tolerate the slow speed. Yahoo is now coming on strong with its SBC partnership, running radio ads offering enhanced Yahoo services along with its dialup ISP service. Why hasn’t there been faster adoption of broadband? Wasn’t all this dialup competition supposed to be an anachronism by now? Anyway, with this initiative, Yahoo seems to be moving in the right direction towards getting a more locked-in subscriber base, but one wonders if it’s too piecemeal, too incremental.
Some of the hottest competition, most likely, is happening in the most lucrative “verticals.” Some areas, we know, make a lot more money than others. So the big three, and any independents in those spaces, will be particularly competitive, and plenty of marketing dollars are going to be spent on them (and cross-marketing strategies deployed by the big guys). In areas like music and streaming video, there is no clear sense yet where “all of this is going.” We know generally where AOL Time Warner would like to see it all go – widespread consumer embrace of for-fee video-on-demand and so forth, but from a consumer perspective, it’s still a patchwork. We know we’re going to have cool Internet services in our cars at some point, but the question remains when will this be widespread, who will offer it, and again, will it be piecemeal so that we need to keep track of a bunch of different services? In verticals like auctions, none of the big three are the leader; rather eBay, the independent, has won that category. In spite of that, it would be a mistake to assume that the “big portals” are “too horizontal” or “too general.” They are competing like crazy in any of the vertical areas that are known moneymakers. Stuff like sports is huge because of its advertiser-friendly demographic, and yes (even if at a couple of removes), the associated gambling component.
The water cooler talk, then, probably isn’t most insightful when it says “what do you think of Yahoo’s new look?” Instead, we should be looking beneath the surface at the powerful strategic advantages possessed by the major portals, and assessing the degree of threat these advantages pose to their competitors. Looks aren’t everything. Maybe I’m jaded, but I can’t help but shrug when someone asks me how I feel about the new layout of the Yahoo home page. I use a personalized Yahoo page anyway, and I don’t see a lot of changes (or thrilling new developments) in that area, especially since I’m from Canada, where hardly any Yahoos work anymore.
The safest conclusion is that it’s mainstream consumer entertainment that will continue to capture the lion’s share of these companies’ attention. It’s also safe to say, in spite of their passion for growing their subscriber bases, none of these companies are scaling back their ambitions for ad revenues. AOL has always seemed like the grandaddy in the space. But in the long run, if entertainment is married with superior functionality, as it seems to be with MSN and their deep-pocketed parent, you have the portal to end all portals. Only one of the three big companies has any shot at offering clearly superior functionality. They can do so, as they’ve done in the past, by setting up de facto industry standards that everyone has to conform to. (I’m talking about M——, of course.)
Since the portal wars began (and the connotations of the word “portal” perhaps build in this assumption), the debate has not just been about whether AOL’s email was “as good as” Outlook Express, or whether Internet Explorer was “better than” Netscape, or whether Yahoo’s directory was “the best.” In many cases, the outcome has been decided in terms of who figured out how to be most monopolistic, not “better.” Consumers are often clear losers in such a scenario, but even on these terms of limited, oligopolistic competition amongst three or four big players, if the disparity in functionality is great enough, the stuff that works best is likely to take market share away from the stuff that doesn’t (That’s been Bill G.’s point all along, whenever a judge or prosecutor asks him his opinion.)
Are there any clear conclusions to be drawn from this convoluted reasoning? Well here are a few extremely random thoughts:
- (a) Microsoft/MSN will continue to threaten AOL’s market share, especially globally;
- (b) Yahoo is in third place because it is the smallest of the three companies, and not as monopolistic as the other two, and its current incremental approach is likely to keep it there. It’s hard to change over from “free to fee” unless you’re a humongous monopolist, and Yahoo is merely a large company lacking sufficient clout to overcome consumer resistance to its recent heavy-handed revenue schemes;
- (c) be it a big global communications company, or a tiny, spunky, independent, some of the most hotly-contested areas are going to be in vertical categories. Choose the right niche and find customers, and there is plenty of profit to be had. Just ask eBay.
- (d) You may have noticed that I haven’t mentioned Terra Lycos, or any of the many international portals. The global scene is still pretty wide open, and the majors are important but not omnipotent in many markets outside the US. But when it comes to the English-speaking US market, it’s the big three that matter around the water cooler.
- (e) Most of the people who make it their business to sit around speculating on this stuff are too busy to buy and sell stuff on eBay, to chat on ICQ, to download music, or to bet on World Cup Soccer. But someone’s gotta be doing this stuff! And that’s where market research comes in. Now get back to work. But first, send me your thoughts, even if you don’t work for AOL.