By the year 2000 portals had evolved from directories and search engines that helped people find places on the Internet to sites that offered their own content and services. They were attracting large numbers of visitors, which made them attractive to advertisers and to merchants seeking to sell online. Media Metrix reported 47 million unique visitors to Yahoo!, 39 million to MSN, and 31 million to America Online in June 2000. In terms of online shopping, the top portal shopping site in June 2000 was Yahoo! Shopping, with 5.8 million unique home-based visitors, according to Nielsen/NetRatings. AOL's Shopping Channel drew more than 3.4 million unique visitors, slightly more than 4 percent of all Internet users. Other popular shopping portals in mid-2000 included AltaVista, with 2.6 million unique visitors, and The Microsoft Network's (MSN's) shopping section, with 1.2 million unique visitors. Portal features such as specialized search engines and the ability to comparison shop were cited as reasons for attracting online shoppers.
Large online retailers were able to gain access to portals' audiences through banner ads, affiliate programs that linked to their sites, and storefronts set up within the portals' boundaries. Some e-tailers were spending as much as $20 million in six months to advertise on the major Internet portals. Others paid large sums to become preferred vendors at the larger portals.
Smaller retailers could also participate through storefront business models made popular by Yahoo! Shopping, which attracted small business e-tailers. These models made it possible for small businesses to establish a retail presence on the Web. Other sites offering online storefronts to smaller merchants included Amazon.com, with its Z-shops, and the now-defunct Excite's Freetailer storefront service.
The dot-com shakeout of 2000 caused many e-tailers and portals to terminate or renegotiate their arrangements. With statistics showing that non-portal referrals accounted for a much higher percentage of merchant sales than referrals from America Online, Yahoo!, and other portals, the major portals began upgrading their shopping destinations in mid-2000. Yahoo! added a My Shopping personalization feature; MSN redesigned and relaunched its eShops destination; and AOL added a Quick Checkout feature.
Reports of online shopping during the 2000 holiday season indicated that portals and online shopping malls posted higher growth rates than individual e-tailers. AOL reported an 84 percent increase to $2.5 billion in holiday sales over the previous year, while Yahoo! and Lycos said their sales doubled. Individual e-tailers, on the other hand, had an average growth rate of 40 percent, according to the Yankee Group.
The Yankee Group also found that 57 percent of online consumers begin their online shopping trips at a portal or a portal-based mall. To reinforce their image as the place to begin online shopping, portals were developing a critical mass of goods and services. To be successful in the long run, portals needed to attract well-known brand e-tailers. At the time it was recognized that specialty brand name e-tailers as a group were generating more sales online than portals.
While a February 2001 study based on 2000 data by Booz-Allen & Hamilton found that nearly 98 percent of all U.S. Internet users had visited a portal, they only spent 2 percent of their time at a portal engaged in shopping. In terms of time spent at portals, users spent an average of one hour and thirty-one minutes per month engaged in shopping activities at portals, compared to four hours and forty-one minutes searching at portals.
PORTALS FACED CHALLENGES
In 2001 portals, like other Internet sites, were facing steep drops in advertising revenue. A March 2001 study by Consumer Reports Online suggested that portals were not efficiently transforming Web surfers into shoppers. The study rated Yahoo! above average but found that other portals, including AltaVista, [email protected], and [email protected]'s Shopping, were too confusing and poorly organized. The Consumer Reports findings were backed up by another study from Forrester Research, which found that online shoppers rarely went to intermediary sites to help them find what they wanted. As a result, Forrester predicted that there would be a shakeout among shopping intermediaries. The research firm forecast that portals would evolve into e-commerce brokers by 2005, offering retailers a selling platform that would enable merchants to reach, convert, and provide services to more customers.
Portals were seen as being less effective, too, as Internet users became more sophisticated and savvy. Many Internet brands were becoming well-known household names, making it easier for online shoppers to bypass search engines and portals. Still, consultants were recommending that online merchants incorporate portals into their marketing strategy. AOL and MSN were still effectively driving millions of Internet users to e-commerce sites. Portals were especially effective in the case of first-time Internet buyers, whose numbers were growing.
Retailers hoping to profit from affiliating with portals were advised to select partners that had the scale, service, and speed required to offer innovations for consumers. That meant affiliating with major portals such as AOL, MSN, and Yahoo! rather than with comparison shopping sites, product review sites, and smaller portals. The ability of major portals to attract traffic was supported by a mid-2001 study by Jupiter Media Metrix, which found that four Web sites—AOL, Yahoo!, MSN, and Napster—accounted for more than half of all time spent online by U.S. Internet users. A similar study by Nielsen/NetRatings found that one in three Americans visited a portal site every day, giving portals an audience reach of more than 92 percent.
During the 2001 shopping season, it appeared that portals and Internet shopping malls were attracting a larger share of online shoppers than major e-tailers. Nielsen/NetRatings reported that shopping sites at portals attracted 36 million visitors in one week during the holiday shopping season, compared to 35 million attracted to individual online retailers. While portals often forwarded traffic to independent retailers, they also offered shoppers the chance to compare prices and selections from different merchants. They also offered access to many smaller retailers that otherwise would not have been able to maintain a presence on the Web.
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