Groupon says its focus is on the bottom line, rather than top-line growth.
When executives at Cooking.com began to talk last year about how they would draw consumers to their new Web store-a comprehensive shop aimed at people who love spending time in the kitchen-they settled on a well-worn marketing path: striking deals with portals to advertise the site.
Partnering with Yahoo! Inc., America Online Inc., Infoseek Corp. and other top portals was the company’s first marketing mission. The idea was to get Cooking.com listed on the portals, where millions of potential customers would be just a click away from visiting the site.
But unlike start-up firms of a few years ago, many of which leaped at the chance to partner with portals without demanding concrete and measurable results in return, Santa Monica, Calif.-based Cooking.com carefully scrutinized each deal. The company focused on strong return on investment opportunities, or a good ratio of cost per acquired sale, and tried to stick with deals that placed it specifically in portals’ shopping areas for the categories it covers.
That kind of take-charge attitude is what retailers need when they negotiate with portals today, consultants say. New research shows that portals, which drive less than a fifth of overall Internet sales, aren’t the be-all, end-all advertising medium retailers once believed. Merchants have to be careful about what they sign on for, realistic about what they expect from such arrangements, and savvy enough to invest in a wide range of marketing initiatives that include portal deals rather than depend on them.
“We went into this wanting to sign good deals that put us in very qualified areas,” says Tracy Randall, general manager and vice president of commerce at Cooking.com. “Most new companies go to the portals and pay too much for too little.”
At the same time that merchants are getting smarter about these deals, portal companies are working to secure their relevance in the e-commerce world. Portal companies are redesigning and improving their shopping channels and offering retailers new opportunities for featured spaces.
Keeping the eyeballs
Several portals also have partnered with or been acquired by larger communications and entertainment firms, which has put further emphasis on e-commerce. The Walt Disney Co., for example, recently purchased more than 40% of Infoseek, and Excite Inc. is slated to merge with @Home Network, a company that offers cable access to the Internet.
As portals go forward, they will have to keep the needs of both consumers and merchants in mind. “Portals right now are in the forefront,” says Harry Wolhandler, vice president of research at ActivMedia Inc., a Peterborough, N.H.-based consulting company. “They have the eyeballs, but that’s not guaranteed for tomorrow.”
All portal companies structure deals differently, so deals with portals vary greatly. They can include banner advertising; area sponsorship, whereby an online drugstore may sponsor a portal’s health section, for example; tenancy or featured merchant status; ad placement within news stories; and inclusion of the retailers’ products in the portal’s own stores.
Cooking.com went into negotiations knowing it wanted to buy space in portals’ shopping areas to get its name-a brand new company-in front of consumers when they were ready to buy. But some portal companies required the retailer to package shopping section deals with banner ads in other areas, Randall says. Cooking.com agreed to test banner ads by buying certain words, such as a brand name of cookware. The ads then appear when a consumer searches for that word.
Cooking.com tracked the ads to see how many people clicked through to its site. The results varied, but several campaigns proved worthwhile. On some Yahoo! banner ads, 20% of the people who saw the ad clicked onto Cooking.com. Yet while the ads have turned out to be good traffic drivers, they have not led to a large number of sales, she adds.
Apparel retailer Eddie Bauer also tests campaigns and makes portals prove their worth. The company, which began selling clothes online more than four years ago, always has invested in portal relationships. Today its portal buys include tenancy deals-where Eddie Bauer is a featured merchant-on AOL and Microsoft Network. The company also runs banner advertisements on AltaVista, Excite, Netscape Netcenter, Lycos Inc. and other premier players.
The tenancy deals have at least six-month contracts, while other arrangements are mostly month-to-month. “That gives us a lot of flexibility to change things,” says Judy Z. Neuman, division vice president of interactive media for Eddie Bauer, Redmond, Wash. When a portal doesn’t meet expectations, it’s dropped from the mix, Neuman says.
The company’s expectations, however, have changed dramatically over time. A majority of its online customers used to funnel through from portals, but today most people come directly to EddieBauer.com. Less than 15% of revenues are generated via portals, Neuman says.
Even so, the retailer continues to use portals to lure new customers. “Once they are on that high-traffic portal and they are in shopping mode, we’ve got a much better chance of converting them into a customer,” Neuman adds.
A balancing act
Experts agree that portal partnerships are one of the best ways to bolster brand identity and drive traffic through a Web store. But with wide, untargeted audiences, portals are not always good at producing actual sales for retailers, says Fiona Swerdlow, an analyst at New York-based Jupiter Communications. Two-thirds of the 36 companies polled by Jupiter said portals drove 30% or less of their sales.
However, America Online recently reported that its members spent more than $1.8 billion while shopping through the portal in the quarter ended March 31. The company earned $210 million in advertising and electronic commerce revenues for the quarter, which means for every $1 merchants spent on deals with AOL, they got $9 of revenues in return.