It wasn't long ago that the Web was mainly about e-mail, searches and e-commerce. But these days the online experience has morphed into a lot more: Everything from dating, trip planning and games to live streaming video.
Not surprising, the industry's largest players -- eBay Inc., Google Inc., Microsoft Corp., America Online Inc. and Yahoo! Inc. -- are starting to use their powerful brands and financial muscle to become all things to all people.
The ultimate goal is traffic -- the more users a Web site can attract, the more revenue it can get from advertising, e-commerce and other fee-based services. One of the reasons eBay, for example, agreed recently to pay as much as US$4.1-billion for Skype Technologies Inc. is Skype's 54 million registered users, who now can be pitched directly to use eBay's popular online auction service.
Often referred to as "Web 2.0" -- a term that rankles people who believe it fails to capture a complex and fast-moving trend -- the proliferation of online services is about to enter a stage expected to be more significant than the dot-com era, during which ideas written on napkins were financed at the drop of a hat and stocks soared on prospects rather than profits.
Ed Sim, managing director with New York-based Dawntreader Ventures, said the rapid emergence of Web-based services is best illustrated by the amount of time he now spends on a Web browser rather than Windows-based software.
"I think about how much time I used to spend in Windows, launching applications," he said. "Now, you turn on your browser and use Skype and [instant messaging] to reach people; you go to a meeting with virtual meeting and on the consumer side, you can buy tons of things and trade. If you think about all the time you spend on your browser, it's quite fascinating and amazing."
How is this different from the dot-com era? Perhaps the biggest change is the rock-solid financial pillars in place. In particular, the pay-per-click advertising model, embraced by Google and Yahoo!, has fundamentally changed the Web's economics. eMarketer.com expects the online advertising market to nearly double to US$22-billion by 2009 from US$12-billion in 2005. At the same time, e-commerce continues to grow, fuelled by such consumer sites as Amazon.com and eBay, as well as business-to-business services.
One way the online advertising market is being fuelled is by offering such free services as voice, which draws more traffic to Web sites, while taking business away from traditional telephone carriers. What was once a telephone company's core business is now being offered as a loss leader online to support online firms' core business model -- advertising.
Underlying this foundation is the growing ubiquity of high-speed networks, which make it increasingly easy to buy, sell and download products and services from anywhere in the world. For anyone who suffered through the pain of slow-as-molasses dial-up services when the Web moved into the mainstream in the mid-1990s, high-speed service has become a must-have offering.
"If you look at the traditional desktop-centric applications, you're really limited to your [computer]," said Brad Friesen, vice-president of corporate development at Qnext Corp. "With the whole concept of Web services pushed through broadband, the majority of people have access to what they need."
The combination of profitable business models and high-speed networks -- along with the many lessons learned from the dot-com boom and bust -- has set the stage for the Web's emergence as a powerful, lucrative and efficient way to deliver services to anyone at any time anywhere in the world.
Anyone who doubts how services have been thrust into the spotlight only has to look at BitTorrent -- file-sharing technology that makes it easy to distribute music and video by breaking files into small pieces and distributing among individual computers.
A year ago, BitTorrent's creator, Bram Cohen, was looking for small donations from users who liked the technology, while also drawing criticism from the music and movie industries that believed he had built another Napster to let people steal content on the Web.
But with the growing focus on Web-based services and their delivery, BitTorrent recently pulled in US$8.75-million of venture capital. It didn't hurt BitTorrent's fund-raising efforts that the Public Broadcasting Service in the United States and Italy's Telestreet have decided to adopt BitTorrent as a way to deliver video.
Rick Segal, a principal with J.L. Albright Partners in Toronto, said the growth of the online services industry will only gain more momentum as the Web becomes more widely available.
"All you have to do is take a look at the sheer number of broadband connections in the home, WiFi accessibility points and the always-on, always connected capability."
Web portfolio: Gmail (e-mail), Blogger (blogs), Okrut (social networking), Froogle (comparison shopping), Maps, News, Google Talk (VoIP), Picasa (photo-editing).
With its cash-cow pay-per-click advertising model humming along, Google has the luxury of developing and testing Web-based services without having to worry about whether they succeed. Of course, it helps to have an army of PhDs to keep the R&D machine rolling. While Google attracted attention recently when it moved into the VoIP market with Google Talk, its most popular non-search service is Blogger, a world-leading blog publishing tool.
A good indication of Google's experimental approach is a partnership it unveiled this week with Sun Microsystems Inc. It will see the two firms work on Sun's software, while Sun will start bundling the Google Toolbar with its Java software. While the announcement fell short of what many had expected -- the betting was on an online application to take on Microsoft's dominant Office software suite -- it suggests Google is willing to expand into new markets.
Future: With $7-billion in cash -- after apparently declining the opportunity to bid for Skype -- Google has the financial flexibility to make a major move. There are rumours Google may bid for AOL, which accounts for about 12% of Google's revenue from Google's search engine on AOL's site. Another M&A option for Google is Amazon.com, which has a market cap of US$18.2-billion.
AOL is just getting through a major strategic transition from being a dial-up Internet access provider to an online content player that generates most of its sales and profits from advertising -- a move AOL vice-chairman Ted Leonsis now says should have happened much earlier. While AOL is still a dominant ISP with 20.8 million subscribers, its online operations attract more than 110 million unique visitors a month in the United States, ranking AOL just behind Yahoo.
Future: AOL's future is unclear because strategic signals have been mixed. On one hand, there are rumours of a deal with Microsoft, which walked away from a chance to buy AOL in the early-1990s. Meanwhile, Time-Warner CEO Richard Parsons is dealing with pressure from Carl Icahn, who, with a group of investment firms, wanted Time-Warner to bolster its stock price by spinning off the cable business and buying back US$20-billion in stock. But Mr. Parsons believes the stock can be jump-started by pushing AOL's transition to an advertising vehicle. "The major source of undervaluation is neither of those things," he told Newsday recently. "The real driver of valuation is going to be AOL in the short term and in the long term."
Web portfolio: Yahoo.com (portal), Yahoo Mail (e-mail), HotJobs (job search), Yahoo Messenger (instant messaging), Yahoo Personals (online dating), Flickr.com (photo blogs).
Since Yahoo was created in 1994 it has not been afraid to grow by acquisition. Internet consultant Tom O'Keefe estimates it has made 29 deals compared with five for Google. The highlights include US$5.7-billion for Broadcast.com, US$1.63-billion for Overture Inc. (which instantly made Yahoo a leading player in the pay-per-click market) and US$439-million for HotJobs.com. This year, Yahoo has focused on small deals, including Vancouver-based Flickr.com, Blo.gs.com and Upcoming.org.
Future: Yahoo is driving in a number of different directions. Its online advertising and premium service businesses are both enjoying strong growth. At the same time, it is also moving into the content world by hiring reporters.
With a war chest of US$39-billion, Microsoft can do pretty much anything it wants -- maybe even buy Google if one wants to think of sky-high possibilities. A more realistic deal could be buying part or all of AOL, which would give Microsoft popular and lucrative Web sites to establish a stronger online presence. Meantime, Microsoft is trying to convince telephone carriers to adopt its IP-TV technology. While Microsoft signed a 10-year, US$400-million contract with SBC Communications Inc. last year, technical problems have yet to let any carrier launch IP-TV.
Future: Depending on how bold it wants to be and its desire to become a bigger Internet play -- as opposed to generating most of its revenue from selling Windows and Office software -- Microsoft could follow many strategic routes. A deal with AOL seems plausible because it would give Microsoft more content and provide Microsoft CEO Bill Gates with an opportunity to acquire a company that rebuffed his advances in the early-1990s.
After spending $2.6-billion for Skype (and another US$1.5-billion if Skype meets some performance benchmarks), eBay probably has enough on its plate for now. The biggest challenge facing its management is execution. In particular, eBay nust integrate Skype's technology into its popular online auction service. After the deal was announced, eBay CEO Meg Whitman focused on how Skype will help reduce "friction" between buyers and sellers by making it easier for them to communicate.
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