Companies Losing Equality on Web

The World Wide Web used to be the great equalizer, a place where anyone, big or small, could put up a site and compete on a level playing field for consumer attention and dollars. No more. 'In the last 12 months, the whole myth of `anybody can get up online and sell' has been debunked,' said Nicole Vanderbilt, director of the digital commerce group at Jupiter Communications Inc. in New York. 'It requires very deep pockets.'

The World Wide Web used to be the great equalizer, a place where anyone, big or small, could put up a site and compete on a level playing field for consumer attention and dollars.

No more.

"In the last 12 months, the whole myth of `anybody can get up online and sell' has been debunked," said Nicole Vanderbilt, director of the digital commerce group at Jupiter Communications Inc. in New York. "It requires very deep pockets."

And it isn't just the cost of producing compelling content that is at issue. It is the cost of advertising on or partnering with the Internet's heaviest traffic generators, notably America Online Inc. and major search engines, which wield increasing clout as smaller sites vie to stand out amid the clutter in cyberspace.

"You've got to go where the buyers are," said Phil Polishook, vice president of marketing at EToys Inc. in Santa Monica, California, which launched its Web site in October with a US$3 million America Online deal.

BarnesandNoble.com, for example, will pay $40 million over four years to be the exclusive bookseller on AOL's consumer service. Earlier deals in 1997 involving flower, travel and general online retailers were also in the tens of millions of dollars.

Overall, America Online's revenue from advertising and electronic commerce -- though still only 20 percent of the amount coming in from membership fees -- grew almost 125 percent this past quarter from a year ago. That is much faster than subscriber revenue, which rose about 40 percent.

Top search engines such as Yahoo Inc. and Excite Inc. are also becoming crucial ad buys for many online sites. At Excite, for example, revenue for the third quarter of 1997 was $14.4 million, which exceeded the company's sales for all of 1996.

An estimated 41 percent of all people on the Web check into Yahoo, making it second in consumer popularity after America Online, according to Pamela Smith, president of NPD Group Inc.'s online research division in Port Washington, New York.

Yet only the top 10 sites offer access to at least 10 percent of the surfing public, with the rest of the market offering just slivers of viewership.

Not everyone is happy with the emergence of a few major players that collect and funnel consumers around the Web, although most in the industry are reluctant to openly criticize the top sites. "I think it's a very touchy subject," said Robert Smith, president of the newly formed Internet retailing association Shop.org.

One of the few to publicly part ways with America Online recently was Dow Jones Interactive Publishing, which planned to leave the service Dec. 31 because America Online will no longer pay for business news items. Dow Jones is one of the few Web-based news services that successfully charges subscription fees for its site.

Major online advertising, though considered critical by many online retailers, doesn't work for all sites. The Photo Store LLC initially tried generalized banner ads on a search engine but "found the response to be relatively disappointing," said William Howe, head of a marketing firm and general manager of the site.

Ideally, retailers would like to structure deals where they pay for sales generated, not simply advertising "click-throughs" or consumer "eyeballs," Vanderbilt said. "Unfortunately for the merchants, these `aggregators' wield so much power [they can] demand these up-front deals." But that won't hold true in the long run, she said. Sites are trying to first attract visitors. They will later concentrate more on cementing relationships and closing sales.

And as the Web and surfing habits mature, "it will be harder and potentially more expensive" for newcomers to get established and snare customers online, said Brett Bullington, an executive vice president at Excite. "But I think there will always be opportunities for new sites to do new things that will become hits on their own."

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