The honeymoon period is over for European portals as increased costs from heightened competition will force many out of business.
According to a report from Forrester Research, called Picking Europe’s Portal Winners, too many portals in Europe are competing for an audience that is simply too small and diverse.
With too many portals servicing too few online users, players are forced to spend huge amounts on marketing and offline advertising campaigns to stand out from the crowd.
Excite for example, recently spent $5 million on a TV and poster campaign but Forrester warns this kind of marketing does not guarantee financial success.
“Despite their best efforts most portals will fail to convert eyeballs in to profits,” said Jo Sawyer in the report. “Heavy financial losses will force most contenders to recast their roles online - or fold.”
The problem is simply one of economics, revenue streams being limited while costs are high. The majority of European portals can not afford to keep up with their rivals in the extra marketing, staff, content, new tools and services needed to grow offerings and stay competitive.
By 2002 Forrester sees just 17 winners emerging from the current 43 contenders. Yahoo is expected to continue as the number one player, leaving other US invaders behind.
“This multinational giant has what it takes to prevail: market momentum, money, brand clout and device commitment,” said the report. However, even this relative Internet giant is faced with a major challenge turning its traffic into profit. (see earlier story)
The other players will be forced to build on their core strengths: Lycos will build a network of European community sites, while Excite will focus on online shopping, says Forrester.
The “also rans” in the portal race according to Forrester include Freeserve, Sky and French contender Nomade.
Forrester's report recommended ecommerce companies allocate 60 per cent of their distribution budget to cultivate partnerships with the winning portals, while conducting a bit of ‘ambulance chasing’ of weaker ones.
“Scan flailing portals in order to snap up talent, tools, technologies and relationships that can jump start an ecommerce initiative,” urged the report.
The company also expects increased competition as more telcos enter the portal space armed with hefty resources, an ISP customer base and businesses in mobile telephony and TV.
The winning portals will continue to expand, predicts Forrester, as they shift focus away from a single Web presence and offer services to the new breed of Internet devices, such as Wireless Application Protocol phones and interactive TV.
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