E-commerce sites aren't getting the bang for their buck out of portal deals, according to a new study from US analyst firm Jupiter Communications.
The study, presented at the research firm's Shopping Forum here, found that less than 5 percent of merchants surveyed would be "highly likely" to renew their tenancy deals when they expire.
Merchants typically sign multi-year agreements with portal sites, agreeing to pay for premium placement. The expectation: the large volume of users on portal sites will drive revenues back to the merchant site. But the revenues actually produced have not been overwhelming, according to Jupiter. More than 60 percent of the executives surveyed in the study said that such deals typically account for less than one-third of total online sales.
By 2002, according to the study, online commerce driven directly by the primary portals will grow only slightly, from 18 percent in 1999 to 20 percent by 2002. The reason for the disappointing commerce numbers, according to the market researcher, are often overly ambitious deals that have little chance to be realised. As a result, Jupiter analysts advised merchants "to diversify their marketing strategies as a way to reach the rapidly growing audience of online buyers." They should also be more aggressive in driving beneficial deals with their portal partners, establishing performance-based agreements to reach their sales and customer goals.
The declining value of the deals has prompted some of the portals to get into the commerce business themselves. Lycos Inc.'s recently announced plans to merge with USA Networks Inc. will allow it to tap into that company's extensive television shopping experience. The portal deals won't necessarily disappear, however. "It's tough to measure the bang for your buck in these deals because the benefit you get from branding is so hard to measure," ssaid Mark Wattles, CEO of Hollywood Entertainment, which owns online movie site Reel.com. "As long as new Internet users go the portals first, those deals will be around.
The revenues weren't the only aspects of portal deals that came under criticism at the show. In a panel discussion, executives soundly rejected the idea that they would want to participate in a site-wide electronic "wallet." Site wallets would allow consumers to make purchases from multiple participating merchants at one time. Several portal sites have rolled out programs. "The wallet programs don't excite me at all, because why do I want to turn them on to what could be a competitive brand," said Mark Wattles, CEO of Hollywood entertainment, which own the Reel.com online movie site.
And while the wallet programs allow the portals to build loyalty to their brand, merchants said they have a negative impact on their branding efforts. "The idea of appearing in somebody's else's storefront is just not appealing to us," said Jason Olim, CEO of CDNow.