Portal Strategies: Partner or Build?
I can see the value of Verizon offering its customers choice, and I can also see the benefits of developing a custom portal with exclusive multimedia content. But the benefits of doing both at the same time are less clear to me.
I spoke with Verizon about its video services last year, and at that point it was offering a substantial amount of video content via its portal. Verizon had an exclusive deal with Walt Disney Co. (NYSE: DIS) for games and animation content, not available anywhere else online. Even the content available on the Disney site is for a fee, while it's free to Verizon subscribers. Verizon also has ESPN360 content that is not available on the open Web (though other service providers also offer it on their portals). Verizon was also the first provider to offer selected NFL video programming via its portal.
That's a lot of development for an optional, secondary portal.
The partner vs. build decision is a tough one for service providers. On one hand, a partnership gets you all the content and applications you need. Also, given that most broadband subscribers switch out their home page anyway, there's a higher likelihood of maintaining a relationship with the subscriber if the portal is one they are already using (such as Yahoo, MSN, or AOL). Portal partners also have greater online reach and in-house advertising sales teams, so they are more likely to generate meaningful advertising revenue.
The downside is that the customer's relationship is with the online brand, rather than the service provider's brand. It's the classic "dumb pipe" situation that providers are so keen to avoid.
But I have to assume from this announcement that Verizon thinks it is better off with an established online brand than trying to build its own. That's the conclusion AT&T Inc. (NYSE: T) and many others came to some years ago: To compete with established online brands in a market like the U.S., you would need to launch a full-on Internet media assault. Comcast Corp. (Nasdaq: CMCSA, CMCSK) is certainly doing it with Fancast, but can leverage decades-long relationships and greater bargaining power with programmers. It's unlikely that a telco would be able to execute the same strategy.
— Aditya Kishore, Senior Analyst, Heavy Reading