MSN Piques the Fancy of the Water Cooler People

Ever have one of those spontaneous email conversations that breaks out
amongst four or five people and creates all kinds of random cross-insights?
Given that many of us have no "real" water cooler to swap stories around, the
virtual one can be a nice substitute. (Or maybe I should just get out more. On
that note, I hope I'll see a few of you in San Jose in August at the Search
Engine Strategies conference.) The participants in this recent
email conversation about the latest happenings with the major portals were
all savvy folks from midwestern places far from the tech hotbeds of Seattle
and San Francisco, so you get the feeling these people have a detached
observer's perspective on tech trends. All work for either major
communications companies or Traffick.com, so we're talking about major
brain-power here! One wrote from within the heart of the beast (or more like one
of the beast's tentacles perhaps), the beast of course being a large company
which begins with "M". So what did this motley group think of the Current Portal
Scene?

The really ferocious competition, at least in the minds
of this group, is between MSN and AOL. I don't know what it is, but it's as
if its competitors like Yahoo so much (like that smart younger brother
who always did well in school) that they don't see them
as a foe to be crushed, but rather an interesting third player who they hope can finally
get things right and really flourish. (Some loyal Yahoo users, on the other hand, are
acting more like jilted lovers now that Yahoo's forcing them to pay for stuff, and
changing their privacy preferences without permission.) As for AOL vs. MSN, it's safe to say
that it's all-out war. The more any of us looks at the situation, the more it looks to
us like MSN has much more ammo that it can bring to this fight, and I don't
mean money. They've got technology and of course Strategy. With the two giants pounding
each other with competition for the almighty "ISP consumer" and related web
services, this seems to give Yahoo an advantage. No one is ruthlessly trying
to put Yahoo out of business. Maybe they're waiting until Yahoo is part of a
much larger company. In any case, this buys Yahoo time.

Some of us remain a bit puzzled at how the major
ISP's can go on charging so much for dial-up and offering such weak services.
Those who receive free home dialup from their employer, on the other hand, think free is
just excellent, and are happy enough to tolerate the slow speed. Yahoo is now coming on
strong with its SBC partnership, running radio ads offering enhanced Yahoo
services along with its dialup ISP service. Why hasn't there been faster
adoption of broadband? Wasn't all this dialup competition supposed to be an
anachronism by now? Anyway, with this initiative, Yahoo seems to be moving in
the right direction towards getting a more locked-in subscriber base, but one
wonders if it's too piecemeal, too incremental.

Some of the hottest competition, most likely, is happening in the most
lucrative "verticals." Some areas, we know, make a lot more money than others.
So the big three, and any independents in those spaces, will be particularly
competitive, and plenty of marketing dollars are going to be spent on them (and
cross-marketing strategies deployed by the big guys). In areas like music and
streaming video, there is no clear sense yet where "all of this is going." We
know generally where AOL Time Warner would like to see it all go -
widespread consumer embrace of for-fee video-on-demand and so
forth, but from a consumer perspective, it's still a patchwork. We know we're
going to have cool Internet services in our cars at some point, but the question
remains when will this be widespread, who will offer it, and again, will it be
piecemeal so that we need to keep track of a bunch of different services?
In verticals like auctions, none of the big three are the leader; rather eBay,
the independent, has won that category. In spite of that, it would be a mistake
to assume that the "big portals" are "too horizontal" or "too general." They are
competing like crazy in any of the vertical areas that are known moneymakers.
Stuff like sports is huge because of its advertiser-friendly demographic, and
yes (even if at a couple of removes), the associated gambling component.

The water cooler talk, then, probably isn't most insightful when it says
"what do you think of Yahoo's new look?" Instead, we should be looking beneath
the surface at the powerful strategic advantages possessed by the major portals,
and assessing the degree of threat these advantages pose to their competitors.
Looks aren't everything. Maybe I'm jaded, but I can't help but shrug when
someone asks me how I feel about the new layout of the Yahoo home page. I use a
personalized Yahoo page anyway, and I don't see a lot of changes (or thrilling
new developments) in that area, especially since I'm from Canada, where hardly
any Yahoos work anymore.

The safest conclusion is that it's mainstream consumer
entertainment that will continue to capture the lion's share of these companies'
attention. It's also safe to say, in spite of
their passion for growing their subscriber bases, none of these companies are scaling
back their ambitions for ad revenues. AOL has always seemed like the grandaddy
in the space. But in the long run, if entertainment is married with
superior functionality, as it seems to be with MSN and their
deep-pocketed parent, you have the portal to end all portals. Only one of the three big
companies has any shot at offering clearly superior functionality. They can do
so, as they've done in the past, by setting up de facto industry standards that
everyone has to conform to. (I'm talking about M------, of course.)

Since the portal wars began (and the connotations of the word "portal"
perhaps build in this assumption), the debate has not just been about whether
AOL's email was "as good as" Outlook Express, or whether Internet Explorer was
"better than" Netscape, or whether Yahoo's directory was "the best." In many
cases, the outcome has been decided in terms of who figured out how to be most
monopolistic, not "better." Consumers are often clear losers in such a
scenario, but even on these terms of limited, oligopolistic competition amongst
three or four big players, if the disparity in functionality is great enough,
the stuff that works best is likely to take market share away from the stuff
that doesn't. (That's been Bill G.'s point all along, whenever a judge or
prosecutor asks him his opinion.)

Are
there any clear conclusions to be drawn from this convoluted reasoning? Well here are a few extremely
random thoughts:

(a) Microsoft/MSN will continue to threaten AOL's market share, especially
globally;

(b) Yahoo is in
third place because it is the smallest of the
three companies, and not as monopolistic as the other
two, and its current incremental approach is likely to keep it there.
It's hard to change over from "free to fee" unless you're a humongous monopolist, and Yahoo
is merely a large company lacking sufficient clout to overcome consumer resistance to its recent heavy-handed revenue
schemes;

(c) be it a big global communications company, or a
tiny, spunky, independent, some of the most hotly-contested areas are going to be in vertical categories.
Choose the right niche and find customers, and there is plenty of profit to be had. Just ask
eBay.

(d) You may have noticed that
I haven't mentioned Terra Lycos, or any of the many international portals.
The global scene is still pretty wide open, and the majors are important but not omnipotent in many markets
outside the US. But when it comes to the English-speaking US market, it's the big three that matter around the water
cooler.

(e)
Most of the people who make it their business
to sit around speculating on this stuff are too busy
to buy and sell stuff on eBay, to chat on ICQ, to
download music, or to bet on World Cup Soccer. But someone's gotta be doing this stuff!
And that's where market research comes in. Now get back to work. But first, send me your
thoughts, even if you don't work for AOL.

Andrew Goodman is Editor of Traffick.com. He usually Yahoos, but can't help but notice that Microsoft, the original platform play, makes most of the other stuff he uses on a daily basis.