More NewsThe Changing Face of Portal Deals

The Changing Face of Portal Deals

Are portal deals dead? You might think so, to read the descriptions of these popular marketingagreements in trade and financial publications in recent weeks.

Are portal deals dead? You might think so, to read the descriptions of these popular marketing agreements in trade and financial publications in recent weeks.

They’ve been called a “cash-draining curse,” “stupid,” and “ridiculous.”

These types of agreements — in which a company pays a big traffic generator like Yahoo Inc. , America Online Inc. , or MSN for long-term placement — have come into sharp focus as of late because of the gyrations of the stock market. These deals have been accused of sinking (or nearly sinking) players like , N2K, and even that company’s acquirer, Cdnow .

In these tough financial times, when dot-com companies, especially, need to reduce their burn rate, the big bucks usually spent for this high-profile partnership are the most visible targets for cost cuts.

“Any smart businessperson, any smart marketing person, any smart financial person, anyone with half a brain that did a back-of-the-envelope calculation would realize that these deals wouldn’t pay for themselves in a million years,” said Sascha Mornell, vice president of sales and marketing at domain name registrar .

Apparently, no one told (which didn’t return calls for this article) about the death of portal deals. The company plunked down a hefty $200 million earlier this month for a five-year deal with America Online. And Network Solutions recently committed to AOL for a “multi-year, multi-million dollar” alliance. Yahoo, for its part, rounded up cooking supplies e-tailer Tavolo for a multimedia deal, the financial details of which were not disclosed.

But there’s no question that the portal deal is changing. Big players like AOL, Yahoo, and Microsoft Corp. don’t hold all the cards anymore. There are very viable vertical alternatives. Companies seeking portal partnerships bring more to the table. Hybrid deals — where both parties share the risk — are becoming more standard. And, in many cases, the deals don’t last as long as they once did.

The deals still offer benefits, according to Sarah Jellen, strategic partnership manager at Avenue A , an Internet media-buying firm. If a company is young, needs to raise its visibility, needs to keep competitors from grabbing the portal space, and needs to generate a high volume of sales or traffic, Jellen said a deal with one of the big portals makes sense.

“These kinds of deals tend to work best for clients that are in early life-cycle stages. You won’t see Century 21 doing that kind of deal, because they’re very well branded; they’re very well known,” she said.

But these benefits don’t come without a cost — a big cost. Jellen advises her clients to expect to pay three times their usual cost-per-sale with this customer acquisition technique. If the client usually pays $20 to acquire a customer, a portal deal will cost it $60. So, it’s up to the client to decide whether the side effects — a “halo effect” from being associated with the big player, possible press attention, and brand building — are worth the extra expenditure.

Because of these concerns, second-tier portals and vertical sites are becoming the partners of choice for many companies., for example, has struck agreements with , Ask Jeeves , and Excite . The company also has relationships with 350 ISPs, and — partners which, it feels, will bring more of the right type of people, rather than just masses of people, to its door.

“Vertical plays are just more economically feasible,” said’s Mornell.

Vertical players like,, , , and are benefiting from this trend.

“Verticals have always been important, and dot-coms should have been doing these kinds of deals a year ago,” said Jellen. “It’s been way too lopsided toward portals.”

Portals, though, won’t likely miss the business.

“We’re going to continue to do big deals, there’s no question about that,” said Murray Gaylord, director of Yahoo’s fusion marketing program. “I think that virtually any company or product could work with Yahoo to find a marketing program that fits their needs.”

The types of companies coming to the likes of Yahoo are changing, making the portal deal a different beast than ever before. Bricks-and-mortar companies — traditional advertisers with huge marketing budgets — are waking up to the potential of Internet marketing, and they’re turning to the portals to show them the way.

“It’s very much like television was in the fifties,” said Gaylord. “It’s just beginning. People are just starting to understand it. It took a little bit of time for advertisers to see the potential.”

But the types of deals these traditional companies are striking with portals are different, because they bring assets to the table that a dot-com player doesn’t possess — distribution channels and retail outlets. Yahoo wrapped up a deal whereby it’s helping Pepsi develop a Web site and promotion. Yahoo gets its logo on Pepsi cans. AOL answered with an agreement with Coca-Cola. Yahoo has Kmart, AOL has Wal-Mart. These companies probably can get better terms on a portal agreement, because they’re able to offer the portals a real-world presence.

Even dot-coms are striking different types of deals, nowadays, than they did back in 1997 and 1998. Portals started out charging flat fees, and then the pendulum swung to a pay-for-performance model. Now, a compromise — a hybrid deal — is becoming standard.

“Portals want to just charge a big old flat fee, and marketers want pay-for-performance,” said Arielle Dorros, vice president of strategic planning for‘s i-traffic division. “These deals are risky, and both parties involved need to share in that risk”

Agency execs say the deals are getting shorter, too. Advertisers are less likely to risk making a multi-year commitment, and are more sophisticated about giving themselves an out. The measurement and tweaking that goes on after a deal is signed, is also becoming increasingly important, and it can go a long way in making the deal cost-effective.

“The devil is in the execution,” said Dorros.

Where are portal deals going in the future? To the desktop, and to the point-of-purchase, predicts Dorros.

“In 1997 and 1998, you saw big land grabs in certain categories,” said Dorros. “There’s always going to be a new waterfront property of the interactive space.”

Deals like eMachines‘ pact with, in which eMachines has agreed to give the company a “Surf” key on its machine’s keyboards, are one example. Start-up RocketBoard, which was founded by i-traffic founder Scott Heiferman, is basing its business on the idea of being a keyboard portal. The company has won at least one big convert to its idea — AOL — which has signed on as an investor, and as an advertiser.

Point of purchase is another hot area, Dorros believes. Where better to capture a customer for your online sock store, for example, than the check-out page of an online shoe store? “It’s important to be at virtual eye level.”

Meanwhile, traditional portals like Yahoo are staking out new media like wireless and broadband, so they can strike cross-media deals with the companies that come to them.

“We’re out there,” said Gaylord, “with all kinds of things going on.”

The death of the portal? Well, apparently, the reports have been greatly exaggerated.

“Would you say the big three networks are dead?” said Dorros. “The portal is sort of the Super Bowl of the online marketplace. It’s a staple in the media diet of most large advertisers online, and it’s a good traffic driver.”

Surely, the portal deal is changing, and the players on each side of the equation are becoming more numerous and varied, but not even a roller-coaster stock market can halt the swift pace of development of this online marketing fundamental.

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