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Wireless portals: black holes or churn-busters?

As its wired cousin implodes, industry players ponder the role of the portal in the wireless Internet galaxy.

by john edwards
May/June 2001

With Internet portals dropping into the vortex of bankruptcy, the fate of the wireless version is a logical and pressing question. The wired model, in which advertising revenues play a vital role, is faltering along with dot-com companies. That’s not yet the case for wireless portals, although it’s inaccurate to directly compare the two.

"Portals are much more important in the mobile environment, where people have less patience for browsing and entering data," says Cynthia Hswe, a senior analyst at the Strategis Group, a Washington-based technology research firm. "It’s easy to think of wireless portals as just a variation of the Internet portal, but that would be oversimplifying the situation."

Hoping to attract the eyes and loyalties of wireless users, carriers, content providers, financial institutions, marketers and pure-play Internet portal operators all are scrambling to launch wireless portals. "There’s a lot at stake," says Nitesh Patel, a wireless industry analyst with Strategy Analytics, a Boston-based technology research firm. The wireless portals market will be worth more than $3 billion in 2005, he says. Likewise, the Strategis Group projects the number of wireless portal users will skyrocket from 5.1 million in 2001 to 151.6 million in 2007.

Yet while these projections point toward astronomical success, it’s still unknown what type of portal will ultimately catch on with users. "Right now, the carrier-operated portals control the show, since they sit at the main point of entry," Hswe says. But as the market matures and users begin exploring other options, it’s likely that other types of portals will gain momentum.

The biggest unanswered question, however, is how portals will help operators make money. "No one has the definitive answer yet," Hswe says. "But in the long run it’s the only question that really matters."

Path to profitability

As the dot-com shakeout illustrates, there’s no such thing as a "new economy." Any company that operates an Internet-based venture - wired or wireless - must be able to show positive financial return.

But like their wired counterparts, wireless portal operators most likely will find profits elusive in the near term. "At this stage, I believe none of them is near profitability," says Patel, who notes that no wireless portal venture is likely to break even before the end of 2003.

"It will be very difficult to make money from portals unless there’s a move to either advertising or subscription-based revenue models." Patel forecasts the advertising model will win in the end and generate ad revenues of $1.8 billion in 2005.

Hswe isn’t so sure advertising is the path to wireless portal profitability. She notes that only a few wired Internet portals have generated sufficient ad dollars to spin a profit, and that wireless devices’ restricted screen space doesn’t lend itself to marketing pitches. Patel maintains, however, that improved display technologies will gradually allow wireless portal ads to more closely resemble their wired counterparts.

Hswe doesn’t see a future in subscription-based models either. "Getting people to pay for any type of Internet content-oriented service has been difficult," she notes. "It’s hard to be optimistic about this model.” But Strategy Analytics predicts that subscription fees will reach $223 million in 2005, driven mostly by established Internet portal players, such as America Online, that will charge users a monthly fee for wireless access on top of their fixed service.

Advertising and subscription models aside, some portal operators - particularly carriers - are beginning to eke out some bucks by selling portal slots to content providers, merchants and other wireless Internet players. "These companies realize that unless they have one of the top positions on the screen, users will have to scroll down to find them," Hswe says. "Companies are beginning to pay a premium for one of the top five positions on a carrier’s portal."

Getting sticky with it

While wireless portals may not immediately bring in a profit, they do provide operators with an important intangible benefit: stickiness. By helping to retain customers, a portal can contribute indirectly to its operator’s bottom line.

Although difficult to quantify, the perception among portal operators is that a well-designed portal can significantly slash churn rates. "Financial institutions understand that if they can provide easy access to rate quotes and other important information, they can promote customer loyalty," says John Shepley, vice president of wireless financial services for mobile software developer Aether Systems Inc.

Stickiness is crucial for highly competitive wireless carriers, whose portals are designed to function as pain-free customer gateways to the wireless Internet. "If we provide these great, valuable services, people won’t want to go elsewhere," says Thomas Trinneer, vice president of portal development for Redmond, Wash.-based AT&T Wireless. Wireless carriers are betting that slick portal technology, combined with user laziness, will translate into loyalty.

Personalization also can help portal operators boost loyalty. "If a user can customize a portal to match his or her unique interests, it’s unlikely that the individual will want to switch" to another, Trinneer says.

The step beyond basic personalization is location-based services, which allow operators to provide customized portal selections based on a user’s whereabouts. Redwood City, Calif.-based Excite@Home, for example, integrated go2 System’s location-based services directory into its Excite Mobile wireless portal, allowing users to find nearby stores, restaurants and hotels.

Before a portal can begin slowing churn, potential users must be made aware of the site’s existence. Carriers have an edge here since they can snare users at the point of entry. To overcome this disadvantage, other portal operators need to rely on branding and other profile-raising marketing efforts to boost awareness. "What your brand name means in this space is critical," says Christopher Wu, mobile commerce senior producer for Yahoo! Everywhere.

Wu notes that companies that have developed a strong brand on the wired Internet are usually able to transfer that identity to the wireless Internet. "Thirty percent of mobile Web users have at one time or another typed in www.yahoo.com," Wu says. "That’s an awareness level worth having."

In or out?

The biggest choice facing wireless portal operators is whether to develop their service in-house or turn to a third-party operator, such as Excite or Yahoo!, that develops customized portals based on its clients’ needs.

Companies that outsource some or all of their portal operations can save themselves significant amounts of money and frustration, says Strategis Group’s Hswe. She notes that unless a company is specifically in the portal business, it’s not a good idea to develop a portal in-house. "A company should go with its strengths," she says.

Rob Hyatt, executive director of data services marketing for Cingular Wireless, says the need to quickly develop a high-quality portal targeted at Hispanic users was the reason Cingular decided to team with InfoSpace Inc. "If we had waited until we had built our own portal team, we would have missed out on a great opportunity."

But not everyone is convinced that portal outsourcing is a good idea. "Nurturing your own brand can give you a strategic advantage over your competitors," says Steve Nathan, general manager of communications services and portal products for iPlanet, a Sun Microsystems/America Online alliance. "Using a third-party portal really limits your ability to add services."

An alternative is to use a hosting service such as OracleMobile, which allows portal operators to retain control over branding and content yet shed most implementation and management headaches.

The choices that must be made are countless, yet the decision to launch a wireless portal seems a given for many operators. For now, the future looks rosy, although a number of unknowns still lurk - most notably, the pall cast upon the wireless portal by its sinking wired cousin.