February 01, 2001

Consumers have fundamentally changed how they use portals, treating them as destinations, rather than as gateways to other sites, according to a new study from Booz·Allen & Hamilton. As a result, the study, undertaken by Booz·Allen's Digital Customer Project, also indicates that leading portals need to adopt new business models to remain financially viable.

The study, The Great Portal Payoff: Matching Internet Marketing to Consumer Behavior, analyzes Internet usage data from NetRatings, the Internet audience measurement and analysis firm, to conclude that marketers must adapt to the new reality of Internet portals - like Yahoo!, AOL and MSN - as destinations, and abandon direct marketing and banner ads in favor of brand building through sponsorships, new service offerings and co-branded ventures, among other methods. At the same time, the portals themselves must redesign their revenue models.

Portals remain enormously popular. Sixty percent of Internet user sessions include a visit to a portal; by contrast, consumers go to entertainment sites only 22% of the time they access the Web. News and information sites are visited in 20% of user sessions, while shopping sites show up in 17%, and sports sites in only 5%. Users spend far more time at portals than anywhere else - an average of 4½ hours per month, three times more than they spend at shopping or entertainment sites. Virtually all users - 98% - have visited a portal at some point, compared with the 80% who have visited entertainment or information sites, and the 43% who have tried financial sites.

Booz·Allen believes the best way for marketers to capture these "eyeballs" is to treat portals as brand development venues, paying them for the total numbers of impressions they deliver. In addition, companies should consider sponsorships - attaching their names and messages to appropriate parts of a portal site, or creating altogether new sections. For example, Quicken.com sponsors the Money & Investing section of Excite, complete with chat links to Quicken loan consultants. Pepsi and Yahoo teamed up for a Fall promotion in which Yahoo built Pepsistuff.com, a site where consumers redeemed points online for Pepsi merchandise.

Despite this dramatic change, the study found, many portals still cling to an outdated revenue model that relies on advertising payments based in part on click-through rates. Banner ads accounted for half of all Internet advertising in the second quarter of 2000, according to the Internet Advertising Bureau, although click-through rates for banner ads fell more than 40% between October 1999 and October 2000. For example, today only approximately 0.1% of portal visitors click on banner ads, yet Yahoo currently receives 90% of its revenue from ads. Only AOL, which gets 64% of its revenues by selling access to the Internet, does not rely heavily on income from click-through ads.

Study co-author and Booz·Allen & Hamilton Vice President Horacio Rozanski said, "Portals are no longer mere gateways to the Internet, but destinations in and of themselves. Our study found that although 60% of Internet user sessions include a visit to a portal, only 6% of Web sites are accessed through a portal's search engine. Marketers must start thinking of portals in the same way they think of mass-circulation magazines and television networks - as major centers of commerce and content that draw huge audiences."

Expanded service offerings also hold great promise. Yahoo Finance and MSN's MoneyCentral, for example, now offer account aggregation, a service that pulls together all of a user's financial accounts so they can be seen on a single page. Aggregation sites get a deep view into users' financial lives, and can cross-sell services tailored to individuals. Banks, brokers, and others are likely to invest heavily to get their brands in front of these affluent users with known financial needs. (Booz·Allen recently issued a report on online account aggregation that showed that
one-third of aggregation customers have selected Internet portals not tied to major financial institutions over the offerings of banks, brokerages and other traditional financial institutions.)

Said Gerry Bollman, Booz·Allen Senior Associate and co-author of the portals study, "Clearly, a revenue strategy centered around banner ads promises little return, and threatens the future financial viability of the portals. But no one should question the potential of portals as an online marketing venue. This research and analysis suggests that by employing alternative strategies, businesses can maximize the yield of their marketing dollars, even reap order-of-magnitude improvements."

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