Portals searching for profitable strategies

Poland's four largest Internet portals will stick to their main strategies of providing general information content during the next two years despite their ongoing struggles for profitability, officials at the companies and industry analysts said last week. The four largest and most popular horizontal portals - Onet, Wirtualna Polska, Interia and Gazeta.pl - will continue to provide heavy content and online shopping on their sites but add new services to try to generate additional income. The four now dominate the Polish Internet scene that includes a few other minor players. Poland's horizontal, or general information, portals are heavily dependent on selling advertising space on their Web pages to make money but have not yet been able to break even due to limited income from ad sales and huge operational costs. Gazeta.pl, for example, expects that the sale of online ads and related products will provide about 75% of its revenue during the next one to two years. Polish cyberspace underwent consolidation last year when several minor players with big aspirations went bankrupt due to insufficient ad revenue, their main income driver. Internet ad spending last year amounted to zł. 24 million ($5.7 million) - the bulk of which was carved up among the four major players. Ad.net, a Warsaw-based Internet advertising network, forecast spending at zł. 30 million ($7.1 million) this year.

Searching for profits While the major portals continue to draw a limited amount of income from selling online ads and from commissions or fees from their business-to-consumer (B2C) e-commerce services, they are continuing to look for new fee-based services to boost revenue. A few months ago, Interia started offering fee-based interactive services for cellular phone users who want to download ring tones and logos for their mobile phones. "It's logical we want an additional type of income from the portal side because advertising can't cover the costs of the portal," said Grzegorz Wójcik, Interia's vice president.

Wirtualna Polska offers a similar service. In addition, the portal intends to provide Internet access via mobile phones and interactive television services, according to Marcin Strzałkowski, the firm's director of communications. Gazeta.pl, which charges fees for access to the Internet archives of the Gazeta Wyborcza newspaper, may experiment with fee-based premium content services, according to Maciej Wicha, the portal's director of business development. But analysts said that revenue from commissions or fees for Internet transactions would not generate significant cash flow, likely leaving the portals straining for profits in the next few years and compelling their strategic investors to pump more cash into their money-burning operations. All four major players are backed by big domestic strategic investors: Onet by media group ITI, Wirtualna Polska by national telecom Telekomunikacja Polska (TPSA), Interia by software house ComArch and RMF FM, and Gazeta.pl by media giant Agora. Interia expects to become profitable in the last quarter of 2003, although analysts said it would likely need a cash injection by the end of this year or the beginning of 2003. Grupa Onet, which operates the Onet portal, has had to rely heavily on bank credits to finance the portal's operations, whose consolidated net loss totaled zł. 46 million ($10.95 million) last year.

"Don't expect any profits in the short term because they are cash-burn negative and need money," said Paweł Małyski, an Internet and IT analyst at Bank Gospodarki Żywnościowej (BGŻ) brokerage. Furthermore, the portal companies that are listed on the Warsaw Stock Exchange - Grupa Onet and Interia - may not be able to rely on capital markets to raise more money through additional share offerings, analysts said. "Polish investors and others realize it's difficult to make profits from Internet ads and B2C (sales)," Małyski said. "Portals are a very different business especially with the economic slowdowns this year and last year. It's too risky to put a great amount of money (into them) with no prospects in the near future." Bit players to consolidate Despite last year's consolidation of the Internet market, further consolidation of the minor players will continue this year as others are bought by larger firms, go belly up or abandon their horizontal portal operations, analysts said. Hoga announced last week that it would discontinue its horizontal portal operations in April and become an online services portal offering IT solutions for small- and medium-sized enterprises and institutions. The portal and Web services company had racked up a zł. 5.7 million ($1.36 million) loss on zł. 6.7 million ($1.6 million) in sales in 2001.