April 17, 2000 - from the New York Times
By Bob Tedeschi bio
A Fresh Spin on 'Affinity Portals' to the Internet
wo years ago, with Internet merchants projecting losses well into the foreseeable future, it seemed the only consumer-oriented companies that might actually profit from the World Wide Web were portals like Yahoo and America Online, the popular gateways to the Internet.
Entrepreneurs saw the coming pileup in that market, and quickly migrated to so-called "affinity portals" -- gateways aimed at every imaginable slice of the Internet population. Hobbies, vocations, political parties and sexual orientations all soon had their own portals -- if not several of them.
But those businesses, too, have proven generally unprofitable, given the proliferation of such Web sites and the mammoth marketing budgets required to attract users. Now, with financing for new portals dried up, a fresh spin on the idea is emerging. And analysts said the approach could breathe new life into the "affinity portal" concept.
Rather than spend millions persuading Republicans or union members, for instance, to come to a portal designed for them, companies are now working with associations that already cater to such groups to build portals aimed at their own memberships. In theory, at least, this approach puts a sane ceiling on marketing costs, ensures a loyal user base and promises a free flow of revenue from advertising and commercial transactions.
The company with the most momentum in this area, analysts said, is iBelong, which began operating in 1998. The business was co-founded by Shikhar Ghosh, the chairman of Open Market, a software company, and Howard Kessler, chief executive of Kessler Financial Services, which is a leading marketer of affinity credit cards.
Since November, iBelong has rolled out 41 portals on behalf of organizations that include the AFL-CIO, the National Federation of Republican Women, and the National Association of Underwater Instructors. It is wrapping up agreements with other national organizations with memberships exceeding 100,000 people, Ghosh said.
The AFL-CIO, for example, has opened an umbrella site for the organization and 13 sites for individual labor unions, like the Teamsters and the Communications Workers of America. IBelong serves as the group's Internet provider, selling wholesale Internet access to each organization at about $12 a month a user, which the groups can then price as they wish.
IBelong also builds and maintains a Web portal for each group, at no additional charge. That portal, which becomes the start-up page for subscribers, includes the kinds of features that users would find on other portals, including e-mail, shopping, chat areas, news and financial information, among others. The difference is that the content for each organization is tailored to that group's interests.
Last week's sports news on the Teamsters site (http://teamsters.workingfamilies.com), for example, included information not on scores, but on sports labor disputes, including the story of a $50 million lawsuit brought against ABC by a sportscaster, Donna deVarona. In the shopping area, users find "worker friendly" items sold by manufacturers with unionized work forces. For example, union-friendly shoppers can purchase Callaway golf clubs, which are made by members of the United Steelworkers of America, or Easter candy from See's, whose workers also are unionized.
Ghosh said iBelong pays marketing costs to raise awareness of each group's site among its membership. In return, the groups sign a five-year contract, give iBelong 75 percent of the revenue generated from shopping and advertising on the site, and agree to help iBelong market the site within their organizations. Internal marketing is typically done through newsletters, e-mail and publicity at trade shows, executives said.
According to Leslie Tolf, assistant to the president of the AFL-CIO, the organization's iBelong portals will serve primarily as a communication vehicle, rather than a revenue source. "Ideally, we'd like to get activists interested in a much deeper level of involvement through this," Tolf said. "This would be great for things like organizing, political campaigns and spreading the word about bargaining agreements."
That said, the "worker friendly" shopping areas have been highly successful so far, even though the organization has yet to begin its marketing campaign. Roughly 20 percent of those who visit the shopping area buy something, Tolf said, a so-called conversion rate that dwarfs that of many other online retailers.
Tolf said one of the obstacles to developing acceptance among the AFL-CIO's 13 million members is that just 60 percent of the membership own computers. Of that group, 70 percent have Internet access. To solve this problem, iBelong and the AFL-CIO are negotiating with Gateway and IBM to sell their computers at undisclosed, "but large," discounts to members, she said.
Indeed, analysts said one of the strengths of iBelong's approach is that, by aggregating many users, it can extract bulk discounts from Internet providers, content partners and manufacturers.
"IBelong's whole approach makes a lot of sense," said Charlene Li, analyst with Forrester Research, an Internet consulting firm. Since these affiliated groups already exist, she said, "you don't have to go out and create them."
"The only problem is," she said, "executing is a little harder than these companies expect."
One Web-affinity company, WebGalaxy, suspended operations on March 31, just three weeks after announcing that demand for its United Labor Online affinity portal had "exceeded initial estimates." The company's Web site, and that of United Labor Online, were not operating last week, and WebGalaxy's president, John Irvine, did not return calls for comment.
Other companies, including MyWay.com, MyPersonal.com and the Netscape-Sun Microsystems venture iPlanet, are faring better in this field. MyPersonal.com, which is based in Emeryville, Calif., has rolled out about 20 affinity portals on behalf of college alumni associations. (MyPersonal.com distributes news from The New York Times on the Web, among other material.)
IPlanet, meanwhile, says it is testing its new Portal Server product with more than 40 customers, whose names the company declined to disclose. The iPlanet effort differs from others in that it features a software package that permits groups and businesses to create and maintain their own portals. But like its competitors, iPlanet allows customers to choose from a host of portal features -- including chat and news -- that they can tailor to a specific group or company's interests.
According to John Fanelli, iPlanet's director of product marketing, the software will cost between $50,000 and $180,000, depending on the number of users it is intended to serve. At the lowest price level, the software serves a minimum of 5,000 users, Fanelli said, adding that the commercial version would be introduced in May.
Even with a captive audience to rely on, the affinity portals may have a difficult time retaining a consistent and active user base, said Li, of Forrester. That, in turn, could undermine their long-term revenue hopes.
"The biggest risk of all is that they do all this work and no traffic materializes," she said. "They're betting that users will start and stay with their groups, but my bet is that they'll start there, then develop their own habits."
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