Web Commerce: Cruising the Online Mall

When Bill Strauss, CEO of Proflowers.com wants to move lilies or tulips, he doesn't just show them on the company's website. He heads to the mall. To be more precise, he gets help peddling his petals from two of the largest malls on the Internet, shopping areas at Yahoo.com and MSN.com that, like their bricks-and-mortar counterparts, put lots of different stores under one (virtual) roof. While teaming up with a mega-portal to help boost business is not new, the terms of the deals have changed, and that's altering the business equation for retailers and the shopping experience for customers.

Early in the dotcom boom, when just being on the Web seemed to be an advanced business strategy, retailers were happy to pay for "eyeballs"--sheer audience size. Never mind that the impact was next to impossible to track. Today eyeballs are still an important factor, but retailers prefer performance-based deals--paying for "click-throughs" (portal visitors clicking on one of their links) and, in some cases, actual sales. "Back in the go-go days of the Internet, retailers would pay for the halo effect of being on a big portal like AOL," says David Bolotsky, who headed Goldman Sachs' U.S. retail group before launching UncommonGoods, an online and catalog gift shop, in 1999. "When they realized they were losing their shirts, there was a backlash." In the next phase, retailers started insisting on strict revenue-sharing deals. These days the pendulum has swung back. Most deals between retailers and portals fall somewhere in the middle, so neither side shoulders all the risk.

For many retailers, playing the portal game means paying for high-profile promotions in all the right categories and top placement in search returns. In the case of Proflowers, Web users who enter, say, the flowers category at shopping.yahoo.com or run a keyword search for delphinium at shopping.msn.com might see a colorful ad--maybe a pop-up, maybe just text and a photo--for a specific offer ("One Dozen Roses! $29.99"). All told, Proflowers pays in the low to mid-seven figures for a year's worth of portal ads. Depending on the contract, it might share a piece of the action or pay a bounty for each customer who clicks through. The conversion rate--the percentage of those who click through and complete a transaction during the same visit--sometimes reaches only the high single digits, Strauss says, but the click-through traffic shows that the brand is gaining exposure. "We're definitely getting more bang for our buck," he says.

The landscape is still shifting as retailers try to track consumer behavior. Here's a twist: while mega-portals attract boatloads of shoppers--Yahoo, MSN and AOL (owned by the same corporate parent as TIME) rank among the 10 most visited shopping sites, according to ComScore Media Metrix--consumers don't usually think of them as shopping sites, notes Carrie Johnson, e-commerce analyst at Forrester Research. In fact, Web users often land in a portal's shopping area by accident, attracted by an ad that appears as they are using e-mail or checking sports scores. While reading about Tiger Woods' latest round, you spy a link to a deal on golf shoes--gotcha.