Across Europe, Web traffic will evolve in a progression that favors a few top portals and chokes off the rest, according to a recent Report from Forrester Research B.V. (Nasdaq: FORR). But even the winning portals will lose their relevance to marketers as specialist sites, marketing services providers, and new platforms compete for the same budget, the Report asserts.
“In Europe, a mix of US invaders like AOL and Yahoo!, plus national telco-linked portals like Terra will win the portal shakeout,” said Forrester analyst Hellen K. Omwando. “The next 10 portals by traffic, like World Online and AltaVista, will fight for top spots but will suffer from undifferentiated offerings and lack first-mover advantages.”
European markets like France and Germany are moving toward the current situation in the UK, where the top three portals grab 14% of traffic — nearly three times the next 10 portals combined — and 39% of online advertising revenue.
European winners like AOL will benefit strongly from an ISP play that draws automatic traffic, and Yahoo!’s household name and partnership network ensure its success. Only three of the dominant national portals backed by deep-pocketed telcos will triumph on a Pan-European level. Terra already dominates in Southern Europe and will use its recent acquisition of Lycos to reach consumers in Northern Europe. Wanadoo will thrive because of the momentum it will gain from cross-promoting access and content from Pan-European sister portals like Voila. Lastly, T-Online — Europe’s largest ISP — has the money to penetrate new markets through acquisition.
“As Dot Com venture capital funding dries up, marketers will tighten their belts and slash spending at second-tier portals,” Omwando added. “Plus, brick-and-mortar companies that move their advertising online will prefer top-tier portals because they guarantee the most visitors. This will result in second-tier players either courting top tiers for acquisition or refocusing their business models on access, consolidating with peers, or simply folding.”
By 2002, the portals that survive the shakeout will enjoy momentary victories — but their unchallenged dominance of online marketing spend will soon erode. Although portals will remain a key piece of the marketing mix, marketers will increasingly divert budgets to three alternative avenues — specialist sites, marketing services providers, and new distribution platforms. As European firms diversify their online marketing strategies, they will divert budgets from portals to specialist sites that offer targeted audiences, repeat exposure, and commerce tie-ins. As marketers strive to attract and retain specific target groups of consumers across multiple sites on a Pan-European level, they will increasingly entrust budgets to ad networks, email service bureaus, and affiliate networks.
“Forrester forecasts that by 2005 more consumers will spend time on their mobile phones and iDTVs than using the PC Internet where today’s portals thrive,” Omwando continued. “Platform operators are already positioning themselves as iDTV portals and have built walled-garden services where they control all access to content through their set-top boxes. They will use their first-mover position to lock up the best content providers wherever they operate — keeping competitors at a permanent disadvantage even when walled gardens open up. But the mobile Internet will not drive revenue for two reasons — first, few ads will be served and second, mobile retail revenues will amount to only [EURO]5 billion in 2005, yielding meager sales commissions.”
For the Report “Europe’s Portal Squeeze,” Forrester spoke with 40 marketing executives at European firms that have at least one portal deal: 19 retailers, five financial institutions, eight brand advertisers, and eight content, community, and/or auction sites.