Issue 6, 01 June 2002

Creating a powerful advertising and e-commerce platform is not as easy as offering a connection to the net. In particular, content creation, presentation and marketing skills are not typically the strong suit of telephone companies

Visited any good portals lately? You know, the first place your browser sends you after you log onto the internet. These places are typically crammed with information, scrolling offers, pop-up advertisements and any number of things that the portal operator hopes will capture your fancy and hold you in his space.

A lot of us find "portal content" rather intrusive and re-programme our home page. Presto! The un-wanted info and service-rich environment is gone. This kind of behaviour hasn't helped the portal business model.

For the internet service provider (ISP), the more attractive - or to use industry parlance, the stickier - their portal is, the better: the more visitors, the more advertisers and the more potential e-commerce purchases.

Today, access fees reaped from providing connections to the net still provide the biggest chunk of revenue for most of Europe's biggest ISPs, but the downward pressure on access prices from deregulation and competing providers means that the future of the ISP must be built elsewhere. Cable companies also have launched portals, but the offerings of the likes of Telewest's Blueyonder and NTL's NTL World are pretty thin.

What is needed is the concentrated creation of broadband content, says Stephen Carter, COO of NTL. But what is broadband content? Websites at faster speeds? Music downloads? Videos streamed to your PC? Carter says that a survey of NTL's customers suggested 60% would pay for general content and 50% would pay to download films. Interestingly, Carter says that broadband content building should be a core focus of the BBC and a good way to put licence fee money to work. Too bad for all those folks who pay the licence fee but aren't yet on broadband. But maybe Carter is right: it's a virtuous circle and the more good content, the higher the penetration of broadband and eventually you have all or most licence fee payers upgraded to broadband.

The question is what will they have to pay for this broadband privilege?

Creating a powerful advertising and e-commerce platform is not as easy as offering a connection to the net. In particular, content creation, presentation and marketing skills are not typically the strong suit of telephone companies. "Running networks is embedded in the corporate DNA of telcos," says Martin Heath, a KPMG analyst. "A telco like BT will have a hard time doing all three well. In this financial climate and time of change, there just isn't enough 'management bandwidth'."

Or money, it seems. Not only does providing content take new skills, such as negotiating intellectual copyright arrangements, but making it pay has been really tough. From June, the retail unit of BT began selling a 'no-frills' net connection service at £2 per month less than Openworld's content and service-laden site. It's not clear what this move means for Openworld's future, but one thing is clear: BT is hedging its bets as the industry continues to sort out what customers really, really will pay for on the internet.

"We have a targeted and focused strategy, not a broad, me-too strategy," says Openworld CEO Alison Ritchie. "Where there are services that people will use and subscribe to that can be profitable, we will focus on that," Openworld has already purchased a net games and a net music company and hosts some betting. For the moment, porn, regardless of its 'stickiness', is still a step too far.

Access revenues account for the bulk of Germany's T-Online's business. At Italy's Tiscali, access revenues accounted for 70% of the total in 2002's first quarter. Wanadoo of France had five times more revenue from access than content services last year. This heavy reliance on access fees is something that T-Online and other portals would like to change.

An editorial makeover has helped T-Online to boost the use of portal services.

Non-access revenues accounted for 19% of the total in the first quarter of 2002, compared with 13.7% for the same quarter a year earlier. T-Online's goal is to grow non-access revenues to 30% of its total turnover by 2004.

Meanwhile, NTL's Carter is also hedging his bets. In May, NTL signed a deal that allows Freeserve to deliver its service and its portal to NTL's cable customers. Carter says he realises that Freeserve's portal could supplant his own, not to mention his access service, but he is still earning money from hosting the UK's leading ISP portal on his cable network.