UPDATE: Goofy Strategy Sank Disney's Go.com

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Walt Disney Co.'s decision last week to close its Go.com portal, resulting in the layoffs of 400 workers, has left many wondering whether the move is the death knell for the portal business. Add to that the financial troubles experienced by Excite@Home and Yahoo, and there seems to be little hope left.


Disney said that, effective March 20, all outstanding shares of Disney Internet Group common stock will be converted into shares of Disney common stock. The Walt Disney Internet Group will continue under its current management structure as a business segment of the Walt Disney Co. The conversion is expected to result in the issuing of approximately 8.1 million new shares of Disney common stock.


The company also said a streamlined version of Go.com will continue to operate for a period of time to allow for a transition. During that time, it will also continue to operate and support the Infoseek search engine and associated traffic. Some of Go.com's more popular content and services will be migrated to other Disney-owned sites. Astrology Zone by Susan Miller, for example, will be moved to ABC.com.


The Walt Disney Internet Group plans to continue operating Disney.com, DisneyAuctions.com, DisneyStore.com, DisneyVacations.com, Family.com, ESPN.com, NFL.com, Soccernet.com, ABC.com, ABCNEWS.com, Mr. Showbiz, Movies.com and Wall of Sound.


Meanwhile, industry observers noted that Disney easily could have made a success of Go.com but made two fatal mistakes early on. It did not brand the site with the Disney name, and it operated the service as a general portal in the vein of Yahoo and Excite.


Jon Roska, CEO of Roska Direct, a direct response advertising agency, said there are plenty of portals pulling a lot of traffic but not making much money.


"Trying to be everything to all people sets you up for failure," he said. "The broader you are in appeal, the less able you are to establish a brand."


Roska noted that the problem with Go.com was that it did not offer anything that could not be found on other portals. Also, typical advertising found on portals, namely banner ads, generally is not very lucrative.


He advises clients to tread carefully when they decide to advertise with portals.


"My advice has always been never to go with a broad portal deal," Roska said. "Never sign a portal deal until you've thoroughly tested the vertical segments. You can't throw ads at them blindly."


Disney's Go.com portal was originally meant to mimic Yahoo, offering searches and a host of other features such as stock quotes, e-mail and chat rooms. In October, Disney refocused Go.com to emphasize searches for entertainment and leisure activities. But the new bright-orange design and a lot of television promotion on the Disney-owned ABC network were not enough to win Go.com a critical mass of either users or advertisers. Only about 22 percent of the Go.com network's traffic is on its portal site.


If the company had continued on this track, Roska said, it could have made a success of Go.com.


"Why do you want to build something from the ground up when you have this great brand already?" he asked. "You have to focus. You have to have a unique position in the market."


Roska said specialization was the key to success in the portal business. Being a destination for people looking for information and news on a single topic, rather than a site that covers many topics, would probably be a successful formula, he said.


"Portals will become more successful when they begin to niche themselves and specialize," he said. "You need all the services of a portal, but positioned to a set of vertical customers."


Disney was not alone, however. Other portals are having similar problems. Excite@Home said last week that it would lay off 250 people and write off $4.8 billion, largely related to the decline in value of its Excite portal. NBCi, the portal affiliated with General Electric's NBC network, announced a second round of layoffs earlier this month, leaving it with 350 employees, down from 850 a year ago.


"The failure of the Go.com portal, coinciding with the problems at NBCi and Excite@Home, illustrates the difficulty companies are having breaking into the upper echelon of mass market portals, currently ruled by AOL and Yahoo," said Arthur Newman, an analyst at ABN AMRO Inc. He noted that Microsoft's MSN service and Terra-Lycos are the only competitors that have the potential to "successfully make the leap."


However, the newly merged AOL Time Warner is rumored to be considering transforming the America Online-owned Netscape.com into a portal for some of Time Warner's magazines, such as Time, Entertainment Weekly and People.


Industry observers noted that Time Warner tried once before to develop a portal using its magazine content. In 1994 it developed Pathfinder, an attempt to package all its print content into a single online site. That site was eventually shuttered, and the online divisions were folded back into their respective print publications.


"Portals started as search engines," Roska noted. "Except for commodity products, specialized verticals are the way to go."
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