Retailers rethink portals: Forrester

High customer acquisition costs are causing online retailers to rethink their strategies and turn to vertical sites and networks instead of portals.

According to a new Forrester report, The parting of the portal seas, the vertical and niche sites will win 57 per cent of advertising dollars by 2004.

In the US report published in December, Forrester analyst Charlene Li claims that advertising dollars are following the heavy traffic of the top nine portals. But retailers plan to spend more on vertical portals and affiliate networks because they deliver more customers and qualified leads. `Thirty three per cent of all portal deals have a measurement of performance built into them,' Li said.

Traffic generated by portals but is it good for retailers?

In compiling the report, Forrester asked 50 retailers about their distribution deals to find out where marketing dollars are best spent online. It defines a distribution deal as a long-term relationship that involves not just the purchase of advertising banners but some preferred treatment on the content or portal site; a permanent link, for example, or sponsored content.

Retailers acknowledged that broad-based consumer portals, like AOL, Yahoo! and MSN, drive high volumes of traffic. While only 57 per cent of retailers said that portal deals are worth the price, 69 per cent said that they plan to renew their contracts. This is due not only to the heavy traffic, but also for non-financial reasons like competitive blocking or public relations. The report quotes one traditional retailer as saying `Portal deals are a quick solution for a complicated environment because they provide a single point of contact for both content and commerce. We've increased our traffic by 10 per cent with just one portal deal.'

And a .com retailer claimed: `Our portal deal drives traffic, is great PR, and builds mindshare with other partners and on Wall Street.'

The report included that while admitting that portals deliver traffic, the retailers surveyed said that ver- tical sites and affiliate sites are more efficient at delivering qualified leads and customers.

It quoted a traditional retailer as saying that customer acquisition costs for portals is $55 in a good month. With a non-portal site it's $12, and through affiliates it's $17 and going down. `Guess where I'm going to be spending my marketing dollars?'

And from the .com retailer: `While portal deals are efficient for an overall brand campaign, they don't address our target market. There are so many niche and affiliate markets that will serve us better, even though they may be more expensive.'

Overall, Forrester reports, retailers say that affiliate networks - the practice of placing links on other sites to sell products - are most efficient in generating actual sales.