In Search of Stability
Their mission has traditionally been to help people find their way around the World Wide Web, but the big Internet search sites are in the midst of a search of their own.
Still hunting for a steady source of profits, Yahoo, Excite, Lycos, Infoseek and others are straying from their navigation roots, creating new types of Web sites that are equipped with features such as stock quotes, horoscopes, personalized news, shopping, chat rooms and even e-mail.
The goal is simple: Instead of merely pointing users to other spots on the Net, Yahoo and its rivals want to keep more of the traffic--and the accompanying advertising dollars--to themselves.
These days, they bristle at the very term “search engine,” preferring to be called “content aggregators,” “navigational hubs,” or, at their boldest, “free online services.”
“It’s not about building the best search engine anymore,” said Joe Kraus, who founded Excite several years ago with four roommates from his Stanford University dorm. “It’s about redefining what it means to be an online service.”
But companies from other corners of Cyberspace--ranging from giants such as Microsoft, America Online and Netscape Communications to upstarts like Globe, Tripod and Geocities--have very similar ambitions. The space will get even more crowded this week as CNet, the technology news service, launches a free online service of its own.
With so many well-heeled players, and predictions that there will be room for just a few to succeed, the intensity of this competition is beginning to eclipse even that of the ballyhooed browser wars.
“This is probably the most competitive arena on the Internet,” said Harry Fenik, vice president of Zona Research in Redwood City, Calif. “They’re all attempting to create your entry point to the universe, the place where you come to find out everything.”
Navigation sites have largely been big money losers so far. But they collect about 20% of online advertising revenue, which market researcher Jupiter Communications expects to soar from $316 million last year to nearly $8 billion by 2002.
One problem for the search companies is that they typically help users get somewhere else. If your business is based on selling ads, you’d rather have people stick around.
Yahoo recognized this earlier than most, and has built one of the most elaborate watering holes on the Web.
News, sports scores, shopping, stock quotes, horoscopes and chat are just part of the package. The company is increasingly focused on getting users to think of themselves as Yahoo subscribers. Those willing to fill out a digital form specifying their occupation, where they live and the kind of information they want get an always updated page of personalized content.
All of which helps Yahoo make money in two important ways. First, more content means more for users to look at, and therefore more places for ads. Second, the categories and customization help Yahoo target users with ads more likely to interest them.
Yahoo charges advertisers between 2 cents and 8 cents for each time their ads are viewed. The more narrowly the ad is targeted, the higher the price.
Tim Koogle, chief executive of Yahoo, compares the company’s expansion to the programming of a television network. And Yahoo is clearly ahead in the ratings.
In July, its site was visited by a remarkable 37% of the people who use the Net, according to Media Metrix. That was twice the penetration of Excite and second only to America Online.
“As you get bigger, you’re more and more a desired place to be for content partners and advertising partners,” Koogle said. “Then you can strike different deals than your competition can.”
Deals are definitely the oxygen in this swirling layer of the Internet atmosphere. The “content aggregators” need content, the providers need exposure, and the money often flows both ways.
Excite, for instance, recently linked up with Intuit to create what it is calling a personal finance “channel” where users can use Intuit software to plot their money plans, from mortgages to mutual funds. As part of the deal, Intuit bought a 19% stake in Excite for $40 million.
The relationships can get complicated. America Online is a big investor in Excite, for example, even though the two companies have chat, e-mail and news services that presumably compete.
Kate Delhagen, an analyst at Forrester Research in Cambridge, Mass., said the flurry of deal-making is not unusual for an emerging market where companies are still trying to figure out what kinds of relationships will pay off.
“There’s a lot of wife-swapping going on right now,” she said. “It’s like ‘Melrose Place’; it’s hard to keep track.”
It’s about to get even more confusing.
Netscape recently launched a content site it says is focused on business users, but it combines many very familiar elements, including news, search and chat. This is despite the fact that Yahoo and Excite continue to pay millions of dollars to advertise on Netscape’s hugely popular home page.
Meanwhile, Microsoft is retooling its msn.com site, whose traffic level lags far behind that of Yahoo or AOL. The company is rumored to be developing a search engine of its own, code-named Yukon.
Robbin Young, editor of the Windows Watcher newsletter, a Redmond, Wash.-based publication that tracks Microsoft, said Yukon is likely to be based on Microsoft’s extensive research in language-processing--technology that could help search engines better understand users’ queries.
Microsoft officials declined to offer any details.
“The speculation has been that we’re trying to put the search guys out of business,” said Laura Jennings, vice president of the Microsoft Network. “But I think people will be surprised about what we’re doing.”
There are also newcomers. CNet is set to launch a new online service today called Snap. It already has a search engine, news summaries, chat and other features you’d expect. Now all it needs is users.
For that, Snap is counting on help from some of the nation’s largest Internet service providers, companies that link millions of people to the Net and then watch them scurry off to others’ Web sites for chat, news and navigation help.
Snap aims to head off that stampede by providing ISPs with an online service they can put in front of users the minute they log on. The company already has deals with AT&T;, Sprint, MCI and Earthlink Network.
Asked to describe the company’s content strategy, Halsey Minor, chief executive of CNet, recites an increasingly familiar refrain: “We are focused on doing what AOL does.”
Sites like the Globe, which was mainly a chat service but is now spreading its wings with the help of $20 million from Alamo Rent A Car founder Michael Egan, and Geocities, which built its name on free home pages, also cite AOL as a model.
AOL is a private network with 9 million paying subscribers, but it has emerged as the model for many of the Web’s so-called free online services. Its formula is almost embarrassingly simple: a basic package of information and communications tools that are easy to understand and use.
Barry Schuler, president of creative development at AOL, said the company is flattered, but not threatened, by all of the imitative attention.
“The search companies and some of the content properties like CNet are in regrouping mode,” Schuler said. “They can only point to one business model that seems to be working, and that’s us.”
Greg Miller (greg.miller@latimes.com) covers Silicon Valley for The Times.
