In its second-largest acquisition, Amazon buys the company for $970 million.
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The merchant then works with the portal partner to achieve it. Vice President Jonathan Morris won’t say whether the targets are actually specified in the contract, but he does report that the company and its portal partners share data on performance regularly. “We don’t want to wake up 12 months after the contract was signed and say, that deal was terrible,” he says.
Companies such as Bluefly that exist only on the Internet have another challenge in making portal deals work. In a fast-changing market where they must bob and weave to survive, the rigid, multi-year portal commitments of earlier times make little sense. Yet the tens of millions of shoppers on AOL, Yahoo and MSN were just what Bluefly was after when it launched in 1998. It got what it wanted by negotiating deals with all three portals-but only for one year at a time.
And it dedicated staff to supply what Morris believes is the missing ingredient whose absence can tank a portal deal: tight management. BlueFly has a full-time manager and additional support to oversee each deal with AOL, Yahoo and MSN. They’re in constant communication with the portals. Based on measures such as the number of impressions, the number of click-throughs they receive and the dollars they generate, Bluefly knows which promotions are working best, which areas of the portal perform best, and where in the portal to concentrate impressions, expand them or pull back; and it acts on the data in real time.
“It requires someone at the portal and the merchant talking daily to monitor and manage the deal,” says Morris. “Even with as much negotiation and back-and-forth as goes into the portal deal, it doesn’t compare with the work that goes on after you sign the contract in monitoring performance and working to make sure it flourishes.” The result? Customer acquisition costs have dropped more than 70% at Bluefly over the past year, due in large measure to what it’s learned about how to work with the portals.
More for the portals
Jupiter has forecast that the percentage of e-commerce driven directly by major horizontal portals, now estimated at 18%, will grow to 20% by 2002. But Forrester Research predicts the value of advertising deals with vertical and niche portals will grow more dramatically. Currently representing about 35% of online advertising dollars, these deals are expected to win 57% of online advertising dollars by 2004.
What does that mean? As web merchants become ever more sophisticated in their approach to Internet merchandising, the marketplace is moving away from an earlier, one-size-fits-all solution to one with options to fit different types of retailers and different purposes. Top portals AOL, Yahoo and MSN will remain a force in the marketing mix for those mass market e-retailers that can afford them and that can push through deals that link pay to performance.
For other Internet merchants, opportunities on more narrowly focused affinity or niche portals-ranging all the way from the horse enthusiasts’ Clipclop.com to the female-targeted Women.com-may be a better bet. Though they offer a smaller pool of potential buyers, it’s a qualified group more likely to increase conversion rates. “For example, if you’re a music retailer, aligning yourself with a genre-based music affinity portal makes more sense than aligning yourself with Yahoo” says Dougherty. “It’s a lot more efficient.”
Home furnishings e-retailer GoodHome.com found that out soon after it launched in July 1999. The San Rafael, Calif.-based web merchant initially signed short-term deals with approximately 10 online distribution companies, ranging from mass-market aggregators including AOL and Yahoo to specific search engines such as Excite to lifestyle portals.
Today, it’s scaled back on the number and depth of those relationships, finding that in a home furnishings market where 80% of purchasing decisions are made by women, affinity portals including Women.com drive its highest conversion rates.
“We found that to get value from someone like an AOL, we have to be in very specific areas of the portal,” says Doug Mack, CEO.” We couldn’t be run of site, we had to be in home and garden or home shopping to generate paying customers. Women.com matched our customer demographic. We found we could be in almost any area of the site and get valuable visitors and customers.” Today, he adds, Women.com consistently ranks first or second among GoodHome’s portal relationships each quarter in its ability to drive sales.
Industry-watchers predict that as time goes on, the affinity and niche portals stand to change the dynamics of online marketing just as pay-to-surf sites gave rise to performance marketing, Labatt says. “Obviously, lower customer acquisition costs are better,” he says. “And if the niche portals can deliver repeat purchasers at a lower cost than the major portals, they’ll do well. It all comes down to the numbers.”