Whither The Euro Portal

In the aftermath of the disasterous Lastminute.com, World Online and Lycos Europe IPOs, and with softening expectations for T-Online’s mid-April IPO, web insiders are taking a fresh look at the European portal business. To industry experts, the “bigger is better” American portal model just doesn’t work over here.

Instead, new home-bred ‘affinity portals’ are rapidly increasing their traffic, focusing content to narrow ranges of interest, building loyal online communities, expanding across borders and cultures and attracting investment. In this market, analysts and experts say, focused is beautiful, and general portals are out.

Consider comdirect.de, a German financial portal whose 1999 profits were up 600%, and which last month brought in more traffic than the German versions of T-Online, AOL and MSN combined.

Or Dooyoo.com, a Berlin-based comparitive shopping portal that has successfully expanded into several European countries. “It’s essential for commerce players to have that kind of pan-European approach, and this multi-national focus is key,” said Noah Yasskin, Europe anaylst at Jupiter Communications, “We’ve yet to see a clear leader emerge in that sector and there are still opportunities to lock this market.”

Dooyoo, and its German rival Ciao.com, have several advantages over the US competition beginning to move into Europe, including knowledge of local markets, and the ability to spend, while US shareholders are currently a bit squeamish about investing in Europe.

This trend is good news for the dozens of young, ambitious European start-ups that are on the scene today. And it’s good news for their investors.

It Was Always Over Over Here
The American portal model is to make a homepage on which users feel comfortable to begin each web session – an all-encompassing, broad-based link farm and search engine which tries to allow users to find whatever it is they’re looking for on the web from a single starting point. The model holds that the more users there are online in a given market, the more the portal is worth to advertisers, who pay fixed amounts per thousand views of their ad.

But therein lies the problem with the model in Europe. The American portal model is based on a culturally and linguistically homogeneous online society. Europe, as some have noted, does not share this homogeneity.

Fragmentation In A Model Built on Unity
In other words, what plays well in Peoria doesn’t necessarily play well in Passau or Paris. It’s simple math: if every Belgian came online, you’d have a grand total of 10.1 million potential customers (in any case, only about 10% are online). And sure, Germany’s a big market with 82 million people, and 20% of them are online.

But Germans speak German.

T-Online, Europe’s largest German-language portal, has that portal market (along with Austria’s and German-speaking Switzerland’s) sewn up quite nicely, with over 7 million subscribers and 115 million monthly page views, and their upcoming IPO is highly anticipated, offering 108 million shares at a range set between Eur 25 and 30.

T-Online’s competitors in Germany have less robust numbers, and market share is being sucked up quickly. Traditional portals like MSN and Fireball.de come in routinely with under 30 million page views a month; Yahoo.de gets about half T-Online’s page views, as does the portal/ISP combination AOL, with 3.4 million users. T-Online would seem to be unstoppable.

Not quite. Right next door in France, T-Online holds about as much market sway as you’d predict, not even denting the already saturated French-language portal market. There, Yahoo.fr and Viola.fr are the belles of the ball, with over 70 million monthly page views each, and competition is heating up from rivals AOL.fr, MSN.fr and others. The large portal situation is the same in all European countries: fragmentation in a model built on unity.

As early as October 1999, a Jupiter Communications report proclaimed the European Portal market saturated: “The window of opportunity for European portals is closed,” it said, “Europe’s existing portals will consolidate into a few multinational portals capable of aggregating audiences across several markets.”

Jupiter’s Yasskin states: “Online content is available globally but only relevant locally, so content ventures must achieve scale and value through localized and branded category-leading sites, not portal plays.”

Making A Bad Situation Worse
Nonetheless, with fierce competition for eyeballs, Europe’s large portals have been forced to add heaps of free services such as free internet access, free email and other perks. National telecoms and their competitors got in on the action as well, and now attempt to create enough offline brand name recognition to pre-win online brand loyalty.

“The trend seems to point to portal services trying to attract not ‘millions of users’ “, said Bank Julius Bär analyst Joeri Sels, “but rather ‘dozens of millions of subscribers’, which will be necessary for profitable operations.”

The market for those monstrous “Über-Euro-Portals” may be flooded, but thereE’s still plenty of room to move with such smaller ‘affinity’ sites.

The Field
Today’s “portal” has expanded to include places where users decide to start particular activities or searches on the web – so an investor would begin her search for new high-tech European investment opportunities at tornado-insider.com; a travel writer at one of a multitude of ticket sites including ebookers.com, or otctravel.co.uk; a researcher in Cambridge at altavista.co.uk; a shopper in Milan or Berlin at dooyoo.com or ciao.com. All these are sites containing links to everything about a particular subject.

Look at comdirect.de, whose 330,000 customers have Eur 6.75 billion on deposit, and made over 5.1 million transactions last year. Comdirect appeals to the mass-market online investor by offering links to market news from around Europe, and attracting loyal users through an innovative game called “broker poker”. With broker poker, customers create pretend virtual portfolios and compete against one another in a giant pool, the winner taking a prize of Eur100,000.

Can this work in France and the UK as well?

“Absolutely,” said Suzan Nolan, President and lead marketing analyst for Paris-based Blue Sky International Marketing, “this is a great tool for teaching investors how to invest online, and it’s also a very nice way to let experienced investors run multiple portfolios, test what they’re thinking and expand their knowledge.”

That seems likely. With 388,000 users (63,000 new customers within March 2000 alone), and 335,000 direct brokerage customers, and after-tax profits up 600% last year to Euro 13.7 million, Comdirect plans its IPO on the Neuer Markt for later this quarter.

That’s what works: “build locally, cross the nearest border and do it again” might be a rallying cry for the new breed of specialized Euro-portals. And do it fast. While big guns attempt to develop an all-round pan-European strategy, smaller and more daring internet start-ups are taking ideas and charging with them, learning from their mistakes.

Or put another way, “Load…fire…aim,” the core strategy of feisty comparison shopping portal Dooyoo.com, which now has hard-hitting and successful practical-information shopping sites in Germany, Spain, Italy and France, and plans to launch in the near future in the UK and Scandinavia.

The site’s draw is consumer commentary on products from toasters to blenders to computers; ratings of products by consumers help others make purchasing decisions about specific products like laptops, or children’s books.

Dooyoo’s 43,000 members (and current 49,000 product listings) think this is so ducky that the site got six million page views in February. Perhaps more important, last month dooyoo secured its second round of funding (in the “double digit millions of dollars”) and solidified plans to go public on the Neuer Markt later this year.

“Compared to the fuss over general portals these kinds of companies might not appear very distinguished,” said Christian Junk, Senior Software Analyst at Commerzbank, “but it would seem they have a very good opportunity to contribute highly specialized content offerings and grow into affinity portals.”

Bank Julius Bär’s analyst Joeri Sels pointed at a Dooyoo rival, Ciao.com, which bills itself a ‘horizontal one-click shopping portal’, and which is also moving fast, with sites in Spain, Italy, France, UK, Austria and Germany. Ciao recently merged with another similar German start-up, Amiro.com. “The first step is lots about building a feeling of community,” said Frederick Paul, CiaoE’s founder and director. Ciao started with US$5MM from Wellington Partners and media house Burda, and they’re about to close their second round of about 20MM; the new company is presently valued, they say, at about $75MM, and say they’ll go to an IPO at the end of 2000 at the latest.

The Near Future
The big-is-beautiful crowd isn’t going away overnight, and the “gaggle” factor of European web investing will still follow these major players into the market. There will be more portal IPOs in the coming months, and as the numbers increase there’ll be even more consolidation. The huge players will be elbowing one another to grab the remaining sections of the general portal market.

And don’t forget the portals run by the incumbent national telecoms, which provide both huge amounts of national traffic as well as juicy, content-rich merger target grist for the ever-expanding large portal mill.

Over 12 months, as investors and especially web users become more sophisticated, the organic attractiveness of such offerings will wane. Sure, they work in the USA, with its large, culturally and linguistically homogeneous market.

Whither The Über-Euro-Portal? This trend doesn’t by any means signal the death of the giants. By incorporating local content through mergers and alliances, and working to leverage the potential of e-commerce, m-commerce and wireless-mobile services, there’s still plenty of opportunities to grow for the big guys.

As T-Online, Yahoo!, AOL, MSN as well as banks and equipment makers move in, the European portals will continue to be enthralling places to watch for both investors as well as growing numbers of European internet users.