The Hindu Business Line : Portals, fanciest real estate on Web

THE emerging services battle is all the more fascinating as none of these players enjoys a significant competitive advantage over the other. Google has been sniping at Microsoft's heels with its unending flurry of beta releases across different segments such as Froogle (for comparison shopping), Maps (for satellite imagery) Google Video (for TV programs and videos), but its business model to leverage the potential of these services is as yet unclear. eBay has snapped the Voice over Internet Telephony company, Skype, for an eye-popping $2.5-4 billion.

However, its ability to translate this into meaningful gains remains to be seen. Yahoo is perceived as a media company, despite its strong presence in the Web portal business.

Though it makes crystal-gazing on the outcome of the services battle that much more hazardous, in our view, the broad contours of the battle will flow across two key interlinked strands (and mind you, this battle will play out over several years, with numerous mid-course corrections by all these players):

Clash of the web portals

The pioneering efforts of the dotcom era failed largely on account of lack of compelling applications and content that could drive users towards a Web portal in the late nineties. That era was also distracted by the fixation to upstage the brick and mortar giants in different fields such as financial services, travel or manufacturing.

In contrast, this time around, the Web portals — the primary gateway to the Internet — are hooking the users with a richer array of basic services starting with search, e-mail, news and instant messaging. Built on top of this layer are a range of customised applications that work across four channels: information, shopping, communication and entertainment.

Research shows that the Web portals are turning out be the fanciest real estate to grab on the Internet. In the world of Web portals, Yahoo, MSN (from Microsoft prior to live.com), Google and AOL (America Online) are the prime contenders in the race.

These players think that as the Web matures and moves past the savvy early adopters, for the vast majority of Net users, usage habits (like reading newspapers or buying consumer durable brands) will also dictate choice of portals. As these habits get entrenched, there is a better chance of locking in a user within any of these portals.

At the moment, while each of these players enjoy some advantages such as Google in search, Yahoo in e-mail or AOL in instant messaging, none of these players enjoys a decisive advantage in any area. The slugfest for user attention will be focussed on three aspects:

Online advertising: The success of online advertising demonstrated by the pay-per-click model of Google has become the de-facto standard for access to Internet applications. The online advertising market that stands at over $4 billion is expected to grow comfortably by 20-30 per cent for the next few years.

Some optimistic estimates put the online advertising market at over $10 billion by 2010.

As less than 5 per cent of the advertising budget of large companies is spent on the Internet, the potential for growth is fairly sizeable.

While Google and Yahoo are already leveraging online advertising revenues to a large extent, Microsoft also plans to play in this market in a big way. Since online advertising is linked to the distinct users, Microsoft's bid for AOL, countered by Google-Comcast and Yahoo appear to make a lot of sense.

Strategic alliances: As software emerges as a service, strategic alliances and partnerships with key players across the technology landscape ranging from broadband service providers, technology and content providers will play a crucial role.

Obviously, the player with the biggest user base will enjoy the benefit of the best alliances in the sector.

In India, for instance, in the offshoring arena, in specific areas such as enterprise applications or data warehousing, players with the largest practice have struck the best alliances, with the best possible terms.

Across communication devices: Internet access will soon spread across different communication devices straddling smartphones (such as Blackberry), other hand-held devices (such as Palm Treo or HP's iPAQ) or other wireless information appliances.

The stunning success of Apple's iPod has led to several creative uses for this portable gadget.

In academic courses, iPod is slowly being experimented for classroom recording and study support, apart from using it to listen to music.

As this trend proliferates, users will prefer working on the same platform that they have used with the desktop.

Obviously, once the portal with the highest number of users offers similar services across these devices, the virtuous cycle of growth (called network effects in tech lingo) comes into play.

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