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Net Prophet - by Dylan Tweney

February 9, 1998

The next big retail opportunity: Internet online services


The era of the online service came to a definitive end with the completion of the WorldCom-CompuServe merger on January 31. With that merger, CompuServe -- once the largest of the commercial online services -- was divided in two, WorldCom taking the underlying network, and AOL getting the customers. No longer will consumers turn to a single provider for network access, the network's interface, and aggregated content.

Or will they? At the same time as CompuServe dissolves, Prodigy founders, and AOL continues to struggle for profits, the business model of these old online services is reappearing on the Web.

Why should you care? Because these online services were aggregators not only of content, but of customers. Long before anyone was talking about Internet commerce, AOL and Prodigy were moving goods online. After all, having access to a captive audience simplifies marketing and merchandising.

Collecting eyeballs

Before the Internet became ubiquitous in the mid-Nineties, the primary route online for most people was through an online service such as CompuServe or Prodigy. These services provided connectivity, an interface for browsing content, and the content itself. They also provided a space for communities to form.

Now, connectivity is provided primarily by Internet Service Providers. The interface is provided by Netscape's or Microsoft's browsers. And the content is provided by anyone who cares to put up a Web page or post a Usenet message.

The problem, of course, is that this content is scattered all over the place, which is why content aggregators -- who collect content, index it, and make it easy to find -- are increasingly valuable properties on the Internet.

That's made search engines like Yahoo and Alta Vista the most popular Web sites on the Net, with millions of people turning to them every day. From the point of view of content providers and online retailers, attention is the most valuable commodity of all -- and online merchants are willing to pay content aggregators plenty of money for the privilege of cornering some of that attention.

Captivating audiences

But a search engine, even with all its traffic, is a disappointing venue in which to hawk one's wares. A search engine is like a train station -- lots of people are passing through, but they're all on their way somewhere else.

To attract retailers, content aggregators need to be less like train stations and more like malls. They need to be destinations worth visiting in their own right. They need to offer advertisers and retailers a truly captive audience.

To do so, many content aggregators are adopting features that make them look more and more like the online services of the late 80's and early 90's. They're offering free email, forums, chat, communities, and customizable, real-time information services.

For example, Yahoo started out as a pure content aggregator. But now, Yahoo has added My Yahoo, a personalized news, weather, and stock information page; acquired free email and Internet directory vendor Four11; added discussion forums and a Java-based real-time chat service; and begun to build a variety of communities.

Similarly, Excite offers free email; online service-like "Channels" of selected information; and even a Shopping Channel, which provides advanced shopping and product-searching capabilities.

Even Lycos is getting into the game, with last week's acquisition of Tripod, a community site that offers its predominantly twenty-something members free Web pages and lots of information channeled to their interests. Working in a similar vein is Cnet, with its Snap! service, which aims to be a content aggregator, cyberspace guide, community, and connectivity provider.

Marketing to the masses

What's next? Expect these incipient online services to partner with (or acquire) ISPs. Connectivity is the one thing for which all online consumers are demonstrably willing to pay monthly fees. And the companies that control connectivity have the ultimate captive audience.

Look for Yahoo, Excite, and Lycos to build transaction infrastructures that will obviate the need for their merchants to provide their own order-taking tools. Such infrastructures should include shopping carts, payment processing services, and guarantees against fraud.

For consumers, these online services of the future will make it easier to find content, community, and commerce. They also will tend to marginalize unaffiliated, un-aggregated Web sites, and as a result they may have the adverse side effect of reducing the Web's currently unfettered diversity -- or at least making that diversity a bit harder to find.

But for online merchants, these expanding communities represent an unmatched online marketing and retail opportunity. If you're in business online, pay attention to what these sites are doing over the next year or two. As their audiences grow to mass-market size, the new online services will be critical to the future of Internet commerce.


Dylan Tweney is the editor of InfoWorld's Focus on I-Commerce section. He welcomes your comments at dylan@infoworld.com.


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