In its second-largest acquisition, Amazon buys the company for $970 million.
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Portals are simply looking for new ways to generate revenues, says Andrew B. Whinston, director of the Center for Research in Electronic Commerce, University of Texas at Austin. By offering to be a “mall” and offering other e-commerce products, he adds, portals can get into new areas such as providing banking transaction services to mall members, thus beefing up their revenues. “Portals have to grow their business model, and that’s what they are doing,” Whinston says.
Portals’ revenue stream from merchants in all of its various forms won’t end anytime soon, Jupiter’s Swerdlow says. Almost two-thirds of retailers polled by Jupiter said they would consider renewing portal deals. And while just 5% of respondents said they were “highly likely” to renew, portals are confident they will continue to win a portion of merchants’ advertising budgets.
Even if mature retailers such as Amazon.com or Cyberian Outpost begin to scale back their portal relationships, new e-commerce players are always coming up, and they may be willing to pay even more to get their name out there. “Companies are clamoring for the space,” says Infoseek’s Goel.
Yet while it is clear merchants want to be a part of portals, the relationships have to be of some measurable value. “When retailers do advertising deals with us, they are doing it to build their brand,” says Excite’s Zeitlin. “But they are also doing it to sell products. So it’s pretty important that we have a convincing way of merchandising and of turning surfers into shoppers.”
MargaretAnn Cross is a business writer in Allentown, Pa.
Here’s the Deal: Smarten Up
Merchants have to get smart when it comes to negotiating deals with portals, says Fiona Swerdlow, an analyst at Jupiter Communications. She offers these tips:
Review contracts carefully. Understand what such things as “exclusivity” really means. For example, America Online has “exclusive” relationships with Barnesandnoble.com and Amazon.com in different areas of its service, Swerdlow says.
Have a clear objective. Your goal may be to build your brand, for example, or to drive sales. Determining whether a portal deal is cost-effective will be based on what you are trying to achieve.
Get quantifiable measurements. When portals promise to build your brand, do tests, such as pre- and post-campaign recall tests.
Do cost/benefit analyses. Track how many customers are coming from the portal and how many of them buy something. Then, compare the cost per customer to what it costs to acquire a customer through traditional marketing efforts.