IDC Sees a Bleak Future for Asia’s Portals

NORTH SYDNEY – MARCH 23, 2001 – Portal consolidation will begin this year and will continue through 2002, according to a recent report by IDC entitled "Asia's Internet Portals: Survival, Viability, and Extinction". IDC expects the survival of at most 3-5 major horizontal portals in each country, with key markets like Australia, Korea and Taiwan supporting a few more. The market downturn has turned general sentiment against the portal concept and there is real concern about the ability of portals to generate revenue. Most are bleeding cash and are nowhere near profitability. eCommerce revenues have yet to materialize and advertising revenues are dwindling. The outlook is not good for most players as they struggle to survive.

 

"As cash supplies dwindle, it is going to get ugly out there, and there is no cheaper cologne than desperation. There is going to be a serious consolidation in 2001, and most portals should not count on a savior coming to the rescue, no matter how sweet they smell," notes Douglas A. Jaffe, a Singapore based Internet Analyst with IDC. To the chagrin of investment bankers, the expected mergers and acquisitions may not take off, as many cash rich firms will wait to sift through the discounted remains, and reassess business models. Cash will become a necessary component of M&A deals and this will make buyers cautious, as cash inspires more selectivity than straight equity purchases. Investors are more closely scrutinizing balance sheets and it is unlikely they will continue sinking funds into loss-making ventures. To be fair, there are some shining stars out there, but these are few and far between. With this in mind, IDC offers a few suggestions for portals hoping to survive the shakeout.

** Communities – User groupings will be crucial for getting users to part with their cash.

** Advertising – The days of charging per impression are fading away. Portals will have to find ways to get better results, and the use of performance-based pricing will spread.

** Cultural Icons – Portals will have to become cultural icons and this will require subtle marketing and clever positioning.

** Finances – No crazy spending. Fiscal prudence, revenues, and book value will be key determinants.

** Alternative Revenue Streams – Most portals cannot live on advertising alone. Investors want to see other sustainable revenue streams and a WAP angle alone is not going to cut it.

Horizontal portals such as Yahoo! will remain the gateway of choice for the uninitiated but few will manage to earn user loyalty. Internet users are increasing rapidly and these new users will require an intermediary. They will utilize portals, but the question is whether or not the time is ripe for them to become consumers. It will take years before living standards and corporate maturity reaches a point where revenue streams, apart from advertising, will make sense. Some markets such as Australia, where the leading portals have launched initiatives aimed at converting more users into valuable consumers by encouraging them to buy at the sites of partner merchants, will be ready sooner, but as a whole, Asia/Pacific will need time to develop. The challenge for portals will be to survive until such time when their business models begin to make sense in the context of the economic environment.

To purchase the "Asia’s Internet Portals: Survival, Viability, and Extinction" report, please contact Zein Bagdhadi at +61-2-9925-2258 or zbagdhadi@idc.com

About IDC

IDC is the foremost global market intelligence and advisory firm helping clients gain insight into technology and eBusiness trends to develop sound business strategies. Using a combination of rigorous primary research, in-depth analysis, and client interaction, IDC forecasts worldwide markets and trends to deliver dependable service and client advice. More than 700 analysts in 43 countries provide global research with local content. IDC's customers comprise the world’s leading IT suppliers, IT organizations, eBusiness companies, and the financial community. Additional information can be found at www.idc.com.au