Free doesnt pay the bills, and nowhere is that more evident than on the balance sheets of Internet portals.
After years of raking in millions of dollars from advertisers looking to put banners in front of Internet surfers drawn to the free content aggregation sites, portals — at least as online users know them today — are an endangered species, according to U.K. research firm Ovum.
As evidence, Ovum points to former highfliers such as Yahoo!, which earlier this month said that declining revenue could force it to make additional layoffs beyond the 400 employees, or 12 percent of its work force, who were let go in April.
Ovums advice is to begin thinking about ways to diversify revenue models beyond advertising, and to make content and services "multiaccess," including offering subscription-based and pay-per-view content.
"Since the free model didnt hold up economically, there will not be content available unless people begin to pay for it," says Mary Ann OLoughlin, an Ovum analyst. "By 2006, we believe that if you dont have a multiaccess portal, you wont survive."
According to Ovum, the new breed of portals provides access to the same consumer-focused services through two or more delivery networks or devices, such as a PC, a mobile handset, a personal digital assistant, a television or a telephone.
Portals need to invest in personalization technology that will allow them to deliver not only information to whatever device users choose, but also the information that users find the most relevant.
"It used to be that content was king. Now its context thats king," OLoughlin says. "Consumers want services that can deliver information in the context of where you are and what you are doing, and we believe that they will be willing to pay for something that is context-sensitive."
By 2006, portal revenue from premium content is expected to grow to $13.8 billion from the $89 million consumers will spend on content this year, Ovum says. While advertising accounts for the bulk of portal revenue today — $6.8 billion of the $7.4 billion portals will earn in 2001 is expected to be derived from advertising — Ovum sees that revenue mix changing in the next five years. By 2006, advertising will account for just 36.5 percent, or $25.6 billion, of the estimated $70 billion in total portal revenue.
Portals are getting the picture. When Yahoo! announced its third-quarter financial results, it noted that its nonadvertising revenue grew to 20 percent of its overall revenue, up from 18 percent last quarter. That nonadvertising revenue comes from Yahoo!s enterprise software sales, corporate broadcast services and paid premium services. Susan Decker, Yahoo!s chief financial officer, also notes that total nonadvertising revenue for the quarter increased 30 percent year over year.