the evolution of global portal strategy

I

25

The Evolution of GlobalPortal Strategy

Fernando Robles

Executive Summary

The worldwide penetration of the Internet has provided great opportunities for globalexpansion of Internet portals. Despite their early advantage and superior technology,U.S.-based portals have failed to challenge strong local portals. This article describesthe internationalization of portals, using the extended integration-responsiveness the-ory to explain the pressures of international portal strategies, and speculates on thefuture of international portals. © 2002 John Wiley & Sons, Inc.

INTRODUCTION

n their early stage, broad-based portals were popular gateways to informationand commerce in almost every country. As the Internet matured in pioneer coun-tries like the United States, national portals expanded internationally for furthergrowth, eager to claim leadership in ever growing global Internet markets. Intheir international expansion, portals have evolved from an exact replication oftheir business models to extensive localization and local site development overtime. With the possible exception of U.S.-based Yahoo!, most other U.S. portalshave not able to command any consistent top position in national markets withsignificant Internet populations in Europe, Asia, or Latin America. Despite theirearly advantage and superior technology, U.S.-based portals such as AmericaOnline (AOL), AltaVista, Infoseek, Lycos and others, have failed to challengestrong local portals. Many of these early global leaders have been acquired orintegrated with other global portals.

Other portals have based their initial business models on a regional footprintrather than a global expansion; as in the case of Spain’s Terra-Lycos, LatinAmerica’s Starmedia or Asia’s Sina.com. Furthermore, with strong positions indomestic markets, some non-U.S. portals have started to expand to other coun-tries in their regions like German-based T1 online, Brazil’s UOL, andSingapore’s Singtel. Which portal strategies will emerge as winners? Are global orregional portal strategies more effective against strong national competitors?Why did most of the first international movers fail to gain strongholds in inter-national markets? How should portals replicate their portal strategy in interna-

Thunderbird International Business Review, Vol. 44(1) 25–46 • January–February 2002

© 2002 John Wiley & Sons, Inc.

Fernando Robles is Professor of International Business, The George Washington University, Schoolof Business and Public Management, Washington, D.C.

tional markets? This article addresses these questions. Borrowingfrom the extant international business theory, it provides an explana-tion of the evolution of the global portal and analyzes the reasons forthe lack of success in meeting the local challenge. The article isexploratory because of the changing nature of this sector where manypure Internet firms have closed, merged, or integrated with more tra-ditional firms. The surviving firms are few and their global strategiesare evolving. The contribution of the article is to provide a frame-work grounded in the integration-responsiveness theory.

The article is organized in five sections. The first section reviews threestreams of international business theory relevant to global portal strat-egy. The second section describes portal architecture and its interna-tional expansion. The third section identifies the drivers of globalportal strategy. The fourth section presents a framework for globalportal strategy formulation based on the extended integration-respon-siveness theory. The final section provides the main conclusions fromthe analysis and speculates about the future of global portal strategies.

CONCEPTUAL BACKGROUND

Three streams of international theory are relevant to global portal evo-lution and strategy. The first school of thought is internalization theo-ry (Johanson & Vahlne, 1977; Johannson & Wiedersheim-Paul,1995). Under this view, the international firm goes through stages ofgreater involvement and adaptation of strategy as more knowledge isacquired. Initially, the inherent risks of a complex international envi-ronment are overwhelming, and firms commit low resources and uselow-risk market entry strategies such as exporting and licensing. Asfirms acquire experience with international markets, they assume morerisks, commit more resources, gain more control of international oper-ations, and benefit from increasing returns. This view suggests thatfirms follow a deterministic approach of evolution, recommending spe-cific strategies and modes of entry at each stage. The basic assumptionof internationalization theory is that international strategy is predomi-nantly determined by the level of uncertainty.

A second stream of theory is the eclectic theory of international busi-ness (Dunning, 1981). According to this theory, three conditionsexplain the use of direct investments to seek above normal returns ininternational markets. The firm must own specific assets that providesuperior competitive advantages over local firms. These advantagesare typically in the form of tacit know-how, brand names, or specific

Fernando Robles

26 Thunderbird International Business Review • January–February 2002

assets. The second condition is that firms find it more advantageousto exploit these assets internally rather than sharing or transferringthem to others. The final condition is that firms will be able to com-bine competitive advantages with immobile local factors.

The third stream of theory is the well known integration-respon-siveness framework (Prahalad & Doz, 1987; Barlett & Ghoshal,1998). The integration-responsiveness framework focuses on inter-national corporate orientation, coordination, configuring assets,and coordinating business units, processes, and tasks across inter-national markets. According to the initial formulation of this frame-work, firms develop international strategies that respond to theimperatives to optimize efficiency of operations in the diversity ofnational markets.

According to Prahalad andand Doz (1987), firms that perceive ahigh level of pressure for integration use a corporate strategy ofglobal integration. The main objective of global integration is toreduce unit costs and capture large sales volume. Under this strat-egy, firms strive to integrate and rationalize their activities amongseveral countries. By consolidating volume in a few productioncenters, firms can achieve economies of scale and afford plant spe-cialization. On the other hand, firms that perceive a high level ofpressure to respond to local needs use a nationally responsive strat-egy. Under a nationally responsive strategy, each subsidiary of thefirm pursues autonomous strategies that respond to a given coun-try situation. Firms using this strategy perceive high levels ofdomestic competition and many constraints from host govern-ments. Lacking the advantages of scale economies and low costs,these firms stress differentiation and high customization to thelocal market.

Finally, firms that perceive the need to respond simultaneously toboth integration and national responsiveness pursue a strategy thatresponds to each contingency of responsiveness/integration.Finding ways to solve this dilemma introduces a lot of ambiguity, asthe response is not consistent all the time or for every case. Barlettand Goshal (1998) proposed a way to resolve such ambiguitythrough a strategic approach, which the authors labeled the transna-tional solution. A transnational corporation attempts to benefit fromthe efficiency of integration and customization to a variety of multi-country situations. The latter is appropriate when pressures for inte-gration and responsiveness are both high. A transnational strategy,however, is very complex and difficult to manage.

The Evolution of Global Portal Strategy

27Thunderbird International Business Review • January–February 2002

A transnationalcorporation

attempts to benefitfrom the efficiencyof integration and

customization to avariety of multi-

country situations.

The integration-responsiveness framework was formulated decadesearlier than the surge of the Internet and the widespread adoption ofweb-based processes that provided efficient integration of a firm’sinternal (intranet) and external (extranet) processes. The impact ofinformation technology on a firm’s international strategy has beencaptured by Devinney et al., (2000) by adding a third dimension ofcontractual completeness. The authors argue that the frameworkdoes not adequately incorporate the different pressures across thevalue chain. With roots in transaction cost theory, the authors definetransactional completeness as the ability to engage in a range of trans-actions (external or internal to the firm) in an efficient way. Theauthors argue that a firm is transactionally more complete the morethe components of its value chain can be transacted openly in themarket (or as it is in a market). The advantages of speed and vastchoice of alternatives requires rules and discipline established by net-work participants. In-house capability with localization and globalnetwork support allows firms to determine the best way to organizeand develop an optimal configuration of functions (production, mar-keting) and processes (financing, pricing, promotion).

Figure 1 shows the extended integration-responsiveness frameworkthat incorporates transaction completeness. Figure 1 depicts the ini-

Fernando Robles


Figure 1. Global Portal Strategy

tial position of the three major international strategies: global, multi-national, and transnational (global-local). The introduction of a thirddimension in the framework allows a number of possible configura-tions of strategies as firms address the pressures of efficiency, market-ing responsiveness, and transaction completeness differently.Strategies that move the firm to the maximum iso-profit frontier aresuperior to others. In contrast to the deterministic approach of theoriginal formulation of the integration-responsiveness theory, theextended framework, as noted by the efficient frontier envelope inFigure 1, suggest a number of superior strategies (those in outsideenvelope). As firms in a given market (telecommunications, energy)make progress on transaction completeness and fully develop thiscapability, alternative paths may emerge over time. One plausiblepath may suggest convergence towards a single optimal strategy.Another path is the evolution of firms with an initial strategy of glob-al, transnational (global-local), and multinational to different strate-gies in the efficient frontier.

This brief review of the theory sets the foundation to analyze theglobalization strategies of Internet portals. It should be noted thatinternational business theory and strategic frameworks have beenbased on the analysis of industries characterized by physical assets andproducts or services supported by physical assets. In the physicalworld, strategies are to a great extent a reflection of the nature ofassets, processes, and tasks associated with the management of phys-ical assets. In contrast, as explained below, the portal business centerson the management of creation, aggregation, and electronic deliveryof information through a network of connected assets. As such, thisarticle cautiously borrows from the literature to provide an answer tothe questions posed in the introduction.

THE INTERNET PORTAL ARCHITECTURE

From their early roots as purely navigational and search sites, broad-based portals have sought to serve anyone from everywhere with aportfolio of basic content, communication, and commerce services.Yahoo captures this strategy with its vision of being the only placeanyone can goes to get connected to anything or anyone. In the earlyyears, portals received online traffic for the sole purpose of searchingfor information. The core competence of early portals such as Yahoo,AltaVista, and Infoseek was their search engine efficiency and effec-tiveness. To retain traffic, portals added services such as free e-mail,news, information, and classifieds. Today, modern portals are online



The main func-tion of the portal

leader is toorchestrate thevalue creation

process.

businesses on their own, that offer many services in many platformsto a large audience. In addition, modern portals have improved theonline experience to the point that it closely resembles other mediachannels, and their presence is accessible in multiple platforms.

The modern portal can be defined as a network leader that providescontent, commerce and community, and orchestrates value creationamong users, partners, service providers, and a myriad of other par-ticipants. The main function of the portal leader is to orchestrate thevalue creation process. In doing so, the portal firm secures and man-ages content, provides the tools, develops the rules, and develops thearchitecture (databases, connectivity, rules, security) of the network.Thus, portals have built intelligent networks that connect, store,assemble, and distribute information to users and participants. Theessence of a portal architecture resembles that of other networks(utilities, transportation) where the main tasks are those of configur-ing, dispatching, storing, processing, interacting, coordinating, andsignaling (Sawhney & Parik, 2001).

Portals also support the development of special interest communitiesin which users can share experiences, contact each other, or expresstheir views. The greater the user base in the portal, the more likelythat a community will thrive and members will return to benefit fromthe dynamics of community building.

Portals personalize the online experience by the creation of the user’spersonal sites that remember the user’s preferences and information,every time he/she logs on to the network. Personalization enhancesthe ability of the portal to deliver value to the user. The user isempowered by the tools available to create a solution for a transac-tion, to seek information, or an entertainment experience, eitheralone or with the support of the portal’s knowledge managementbase and/or live online customer service. It is the effectiveness of thisdelivery, that determines in many cases, the success or failure of theonline experience. The more personalized the experience the greaterthe stickiness (time user spent in the portal) of the site (BostonConsulting Group, 2000).

In order to create a disciplined environment and manage all the trans-actions and communications, portals have developed a set of rules ofengagement and standards. These rules permit the orderly process ofcommunications and transactions of members of the network. Portalsalso guarantee some standard of quality through compliance process-es that are ensure that regulations are met. This set of rules and pro-

Fernando Robles


cesses governs the portal and gives users a sense of security. In someportals, these rules are transparent and visible, in others they are sup-plied upon request.

The user online experience is critical to the portal’s long-term suc-cess. Users will evaluate their online experience based on the organi-zation of the information and interface, the effectiveness of thepresentation, the range and depth of choice (selection), the usabilityand the relevance of the information provided. The better the onlineexperience, the greater the perceived value of the portal visit and con-sequently the greater the user’s level of satisfaction and loyalty(Reichheld & Schefter, 2000). On the other hand, concern for priva-cy and security may influence the user’s confidence and trustworthi-ness of the portal, and thus its level of involvement and interactionwith the provider. AOL, for instance, lets the user know at all timesthat trust and security are the overriding principles of this firm in deal-ing with the customer. Finally, although value creation is central touser satisfaction, this outcome is tempered by the affordability to thenetwork. In the early years of Internet penetration, free-based portalsand ISPs put pressure on fee-based portals. For instance, UK -basedFree serve grew very fast in the early years of the Internet in the UKwith a subscription-free service putting a great deal of pressure onAOL which had entered the UK (Business Week, 2000; FinancialTimes, 1999; Business Week, 2000).

The portal business model is predicated on revenue streams generat-ed from, among others, subscription, transaction, advertising, refer-rals, and licensing fees. To maximize these revenue streams, portalshave to develop a critical mass of subscribers or users, drive traffic totheir sites, and offer a broad range of commerce options. Thus, thekey success factors for portals are partnering, innovation, delivery ofthe online experience through multiple platforms, and the mainte-nance and creation of dynamic communities that attract and retainmembership. Portals have become effective managers of networkrelations (Mahadevan, 2000).

Broad portals remain an important component of web activity. Astudy of user click rate activity in the U.S. shows that 60% of usersessions include a visit to a broad portal. The study also shows thatusers spend three times as much time (four-and-half hours permonth), at broad portals than at any other type (Rozanski &Hollman, 2000). In contrast to the concept of a gateway or pass-through, they have become destinations of content, commerce,and community, and are the most familiar places in the Internet.



In early 2001, three major portals—Yahoo, MSN, and AOL—received 80% of all portal traffic in the U.S. (Financial Times,2001a). As destinations, portals are rivaling the traditional massmedia for dominance and relevance. The portal advantage is notonly audience aggregation but also the rich information that itobtains from visitors.

EVOLUTION OF GLOBAL PORTALS

Despite the borderless nature of the Web, most portals have theirorigins and were designed initially for national audiences first. Sincethe Internet developed first in the U.S., most portal business mod-els were attuned to U.S. audiences and Internet online use. With thespread of the Web to other countries, notably Europe, U.S. portalsreceived substantial international traffic. Increased internationalexposure triggered the motivation among the top Internet U.S. por-tals to go international.

International expansion strategies triggered a number of questionsthat portals needed to address. The decisions at the early stageincluded which markets or regions to enter first, whether to use localpartners or not, what functionalities of the portal architecture totransfer to offer in international sites, what to host in the home baseand abroad, and how to develop local content, commerce, and con-nectivity. Although different approaches were used by U.S. portals, ageneral pattern evolved over time (IDC, 1999a).

The first stage of internationalization implied the translation of contentand other relevant information to the language of the visitor. At thisearly stage of internationalization, traffic to the portal and informationwas served to international visitors from home base operations.

At the second stage, portals established a presence in internationalmarkets in a variety of ways. Portals moved first to countries withlarge online populations through joint ventures and partnershipswith local media companies or telecommunications firms. The localsite at this stage was a copy of the home-based portal. The portaltransferred the basic functionality (technology) of the site whilekeeping some of the most advanced back end systems at home andalso providing hosting services for the new venture while it took off.The local partner contributed with marketing, promotion, and cus-tomer service, local network and connectivity, billing, securing localcontent, and recruiting local commerce partners.

Fernando Robles


As part of thelocalization, por-tals leverage theinformation cap-tured from visi-tors to fine tunethe local interface.

At the third stage, extensive localization and local development ofservices and tools took place. Alliances with local firms to providelocal language search engines, local directories and more local con-tent were central at this stage. An important effort at this stage wasto increase the depth of local commerce. As part of the localization,portals leverage the information captured from visitors to fine tunethe local interface. This decentralized approach resulted in a varietyof interfaces, sites and connectivity platforms in national markets, butkeeping a uniform template for all. At this stage, innovation andupgrading of services took place at the home site. Some, but not all,of these innovations were transferred to international sites.

As international expansion gained momentum, portal firms reconsid-ered the diversity of local strategies, and attempted to consolidate andintroduce efficiencies. The pressure for consistency and universalarchitecture stems from the challenge of rivals, whether global or localportals. Most firms realized that only one or two viable global portalswould remain viable in the long run. Several strategies emerged at thisstage. The most common approach was to develop a common globalplatform and a distributed architecture that made sense on grounds ofefficiency. Under this strategy, the portal firm seeks global partner-ships with content, commerce, and infrastructure providers. Anotherstrategy is to focus on a region, seeking to dominate a particular geog-raphy. The regional strategy allowed firms to become highly focusedon a given community by aggregating commerce and media to a tar-get segment, based on culture and language. In addition, theseregional portals leveraged their telecommunications assets throughoutthe region to offer excellent connectivity.

The international expansion of AOL serves to illustrate the global por-tal evolution framework. Since its humble origin as QuantumComputer ISP Services in 1985, the company went public as AOL in1992. At the time, the Internet was in its infancy and AOL and its maincompetitors CompuServe and Prodigy focused on connectivity, offer-ing e-mail, news, online forums, and limited commerce. Internationaltraffic through AOL’s U.S. network in the early nineties might havesparked the interest to go international. The second stage came aboutin 1994, when AOL established the International Division. AOLformed a joint-venture with German-based media giant Bertlesmann tointroduce AOL services in Europe. The partnership was in the form ofjoint venture where AOL contributed the name, online technology andproprietary know-how, and access to their services in the U.S.Bertelsmann contributed the funds for the European launch, mediacontent, and access to its mail order customer base. In 1995, the joint



venture introduced the German version of AOL in that country. TheGerman launch went very well and the joint venture partners decidedto roll over the launch of AOL throughout continental Europe. Thus,in the period of two years ending in 1997, the partnership launchedAOL in the UK, France, Austria, Switzerland, and Sweden. Most AOLservices in Europe were supported from the U.S., as partnerships withEuropean merchants and banks were slow to come about, given theearly stage of online activity in the region. The third stage of evolutioncan be determined with the decision to enter Japan in 1997. A difficultcountry to penetrate, although in many respects having greater con-nectivity than the European market, Japan required a greater degree ofadaptation and localization. Using the partnership approach again,AOL teamed up with Mitsui Bank and media giant Nikkei. With anAsian platform, AOL launched further penetration of the region. AOLused the Bertelsmann partnership to enter Australia in 1998, andentered Hong Kong in 1999. The Latin American strategy started in1998 with a regional partnership with Venezuela’s Cisneros Group(media, telecommunications, and bottling businesses). AOL enteredBrazil in 1999, followed by Mexico and Argentina in 2000. Furtherpenetration of the three regions continued in 2000 and 2001 with theentry to Spain in partnership with Spain’s Banco Santander in 2000and Korea in 2001. In early 2001, AOL worldwide subscriber basereached 30 million with about 4 million in Europe (Financial Times2001b). The last stage of AOL global evolution can be traced to itsmerger with Times-Warner in 2001. Although the merger of thediverse content and context assets of the two conglomerates will takesome time, the portal business is changing with the acquisition ofBertelsmann’s share in the European joint venture. One possible sce-nario may be the acquisition of regional partners’ interests which mayallow AOL full control of all international operations.

After almost ten years of international operations, today AOL operatesin 17 countries. As Table 1 shows, AOL is not among the top threemost popular destinations in key international markets. Other globalportals have reached an impressive global presence. Yahoo boosts 21international portals and MSN 31. Yahoo has joined forces with pow-erful financial groups such as Japan’s Soft Bank and CMGI’s for itsinternational expansion. MSN has opted for national partnershipssuch as the one formed with Mexico’s telecommunications operatorTelmex which also owns Prodigy.

The global evolution of portals seems to fit the theory of stages ofinternationalization described before. The main differences seem to beexplained by the nature of the technology. In earlier stages, portal

Fernando Robles



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firms export the service and enter international markets without com-mitting large resources or taking large risks. As they learn, they repli-cate the portal infrastructure for local markets and provide sharedservices to national operations. Later stages require a greater degree ofcontrol and integration. At this stage, global portals may either try tointegrate by acquiring full control such as AOL’s evolving Europeanstrategy or develop a web of national partnership such as MSN isusing. The next section identifies the challenges faced by portals asthey move from this stage to formulating a coherent global strategy.

DRIVERS OF GLOBAL PORTAL STRATEGY

The literature of globalization identifies several categories of driverspropelling markets and industries. One popular approach classifiesdrivers into four categories: market, regulatory, competition, and cost(Yip, 1992). The categories seem most relevant to drive global por-tal strategies are market, regulatory, and competitive drivers. Table 1shows a summary of these factors driving online markets in key select-ed countries. An exhaustive research of industry, consulting, and pro-prietary surveys was the method to assemble the information for thistable. The main sources are listed in Table 1.

The Diversity of Online MarketsVast differences in online behavior, connectivity, platforms, regulato-ry conditions, and cultural aspects have emerged as Internet useincreases worldwide. The different dominant delivery platforms inmany countries suggest that online experiences are very diverse.Europe and Japan are already experiencing a wireless-based onlineexperience. A dial-up experience is prevalent in Mexico and Brazil.European and Japanese users prefer wireless or Internet services toPC-based access, given the high cost of computers and small home-use environments. German online top sites are those that offer finan-cial reports, whereas UK top sites are sports and entertainment.Brazilian Internet use is dominated by chat room activity. One aspectthat is shared by most countries is the concern for privacy and secu-rity. Most online users outside the U.S. fear giving personal andfinancial information online. The most convincing argument thatlocal online responsiveness is winning the battle for local audiences isthe fact that local online portals are among the top five portals in sev-eral countries (Sonderegger et al., 2001).

The online consumer profiles range from the highly disciplined andtask-oriented German online consumer, to the more visual, colorful,

Fernando Robles


and entertainment driven Brazilian, or the information-seekingChinese. Although some of the differences of online use and experi-ence can be attributed to the different levels of Internet penetration,cultural differences may be one of the key factors explaining differ-ences in online experience in the world.

Although there are substantial differences in online use and experi-ence worldwide, there are a few similarities that are worth a men-tion. Online user concerns for privacy and security seems to beimportant across countries and cultures. Another universal trait isthe emergence of particular clusters of users with common interestsand online use. The culture of intense online socialization usingmultiple platforms seems common to youth in Japan or Mexico.Others include the emergence of female and senior users.

The heterogeneity of consumer online experiences in the coun-tries studied hampers the development of a universal dominantportal model. Furthermore, emergent niche players may claimleadership of particular global segments of online users. For broadportals, a positioning on security and privacy may be an effectiveway to communicate to a variety of online users across countriesand cultures.

Diversity of RegulationsOnline regulations such as privacy laws, taxes, or commerce have adirect impact on online providers, and thus, shape usage behavior ina given country. The type of competition emerging in a given coun-try or region depends on the type of regulatory framework. StrictEuropean privacy guidelines prohibit the transfer of data across bor-ders. In fact, the transfer of any data requires the customer’s per-mission. In Italy, bank regulations require customers to openaccounts in person, forcing online banking providers to establish anoff-line presence. French authorities fined Yahoo! for selling Nazimemorabilia at its trading site. In China and Germany, the onlineregulatory environment is restrictive and favors national incum-bents. It is not surprising to find that a local portal is frequently thetop- or second-ranked portal in these countries.

Competitive Challenge from from Regional and National PortalsGiven the low barriers of entry, national and regional portals havepre-empted global portals’ first-mover advantage. National portalshave emerged because of the heterogeneity of international markets.Local online portals seem to be more effective in addressing localmarket needs. This is particularly true in Europe, where despite the



achievement to forge a European Union, its online markets aremarkedly national.

Another reason for the emergence of strong local players is that non-U.S. portals have been able to observe U.S. market developmentsand avoid the mistakes of early competitors. Non-U.S. portals havealso been able to copy the strategies of successful U.S. portals andquickly introduce them in their national markets to gain first-moveradvantages. The case of Brazil’s UOL serves to illustrate this point.Established in 1996, UOL was the first ISP in that country after thegovernment opened the commercial ISP market to competition. Atthe time, about 90% percent of the Brazilian Internet traffic went tonon-Brazilian sites. UOL’s main shareholders were two largeBrazilian media groups, newspaper publishers Folha and media con-glomerate April. After excellent success as an ISP, UOL quicklylaunched the portal to capture the traffic. Using the rich content ofthe media parents, UOL developed an impressive site full of free con-tent for visitors and premium content for subscribers in Portuguese.UOL has become the largest portal for the Portuguese-speakingcommunity in the world with more than 880,000 paid subscribers(Mercado 2001; Patagon, 2000).

Strong local players have also demonstrated that they are very effec-tive in converting new customers into regular users. Their effective-ness can be attributed to the use of local content and strongcommunity features or price incentives (free access or subsidizedaccess). As a result, it becomes extremely difficult for a new portal tobuild membership or attract traffic from existing local portals. Theacquisition strategy of a free trial offer for a limited time is riskybecause of the low level of conversion.

Telecommunication companies have emerged as strong players inthe broad portal business outside the U.S. In contrast to the U.S.,where telecom operators posed a challenge to dominant portals,telecoms have been quick to bring traditional assets to bear on avariety of online businesses under different platforms (cable, wire-less, dial-up). The synergistic advantages of highly integrated busi-nesses allow these telecom companies to benefit from substantialtechnology sharing and financial advantages that pure portals lack.Their major weakness, however, is their lack of experience in con-tent development. One example is Spain’s Terra, the spun-offInternet division of Telefonica Spain which followed the coattails ofits parent corporation’s aggressive expansion in Latin America. Asthe main operator of telecommunications networks, wireless, cable

Fernando Robles


and data networks in the region, Telefonica Spain provides Terrawith a regional infrastructure, and access to 20 million wired linesand 13 million wireless subscribers in the region (CIT, 2001). In avery short time, Terra has built an impressive 1.1 million subscriberbase in Latin America and 2 million total including Europe(Morgan Stanley Dean Witter, 2000; Forrester, 2000). Terra’sregional strategy has been built on the acquisition of a string ofnational or weak regional portals and ISPs. Through the acquisi-tions, Terra introduces a common regional platform and gainsaccess to local media and commerce partners. Terra co-brands thelocal portal name with the Terra brand. Building a regional portalout of a string of acquisitions creates a loose network. It is hard tocreate a common position and brand identification out of manydiverse country operations. Terra is working in finding the commonground in the region. This approach contrasts with the clear glob-al positioning of AOL of simplicity, ease of use, and multiple plat-form delivery (AOL anywhere).

Terra’s future intent is to take its regional platform global. In a sur-prise move, Terra merged with U.S. Lycos in 2000. The Terra Lycosmerge gives the portal a global platform and challenges the globalplayers (AOL, Yahoo, and MSN) As part of the global strategy, Terra-Lycos has signed up Germany’s Bertelsmann as the preferred contentand commerce provider. The three companies have established a jointventure to develop wireless Internet services. The combined Terra-Lycos network controls 120 websites in 20 different languages in 40different countries reaching approximately 25 million users, close tothe 33 million AOL users (Hoovers, 2000). Like many other portals,Terra has not returned profits yet (Business Latin America, 2000).The clear intent of Terra is to be among the top three global portals.Whether Terra will be able to do so depends ion their ability to inte-grate the loose collection of businesses, customers, cultures, andcountries into an integrated global portal strategy which is the focusof the next section.

GLOBAL PORTAL STRATEGY

With the challenge of regional and local portals, what is the future forglobal horizontal portals? Which global portals (whether Yahoo!,AOL, MSN, or Terra) will prevail? How should global portals inte-grate their operations for maximum efficiency and profits? Whataspects of the global portal architecture to integrate or localize? Likemany other global industries before, portals are subject to pressures



for global efficiency and local market responsiveness. As explainedbefore, an additional pressure is transaction completeness. A move tofurther integrate portal services worldwide requires more controlfrom the center. On the other hand, local operations demand greaterautonomy and more targeted response to national challenges. Finally,the distributed nature of digital content either from internal or exter-nal partners leverages network assets that are dispersed worldwide.The challenge for global portal firms is to formulate a coherent strat-egy to meet all three pressures.

The extended integration-responsiveness framework provides a goodstarting base to analyze how the combined pressures for efficiency,local responsiveness, and transaction completeness drive global portalstrategy formulation.

In global portals, in addition to cost efficiency reasons, the need forintegration stems from the view of corporate offices desire to achieveconsistent branding. Another reason for integration is to provideusers with the same online experiences through uniform look-and-feel interfaces. Global portal integration is achieved through the useof common technology platforms and standards that allow remotesites to share central corporate resources (information) and assets(servers), use of same style guides and templates, and pre-approvedreference applications. For instance, hosting services in one centrallocation would reduce costs to all network operations. With a dis-tributed architecture, the host server could customize and deliver theservice to clients worldwide. One example could be serving banneradvertising for a global partner, where a uniform copy and messagecan be translated and customized on demand for a variety of lan-guages and geographies.

Some of the strategies used to achieve global integration includebuilding a hub for synchronization of several localized versions ofcontent, commerce, and processes. Other initiatives are the establish-ment of processes for evaluating local requests and dissemination ofnew functionalities developed by local teams. The ability to transferand coordinate global online services can be facilitated with globalteams made up of content, functional, and commerce groups work-ing with country managers or counterparts in different countries.Another area that enhances integration is the selection of global part-ners whether in commerce, content, or community. Closer integra-tion is obtained when a common positioning and corporate culture isshared as is the case of AOL. As the eclectic theory recognizes, inte-gration efforts produce firm specific advantages such as global recog-

Fernando Robles


nition (AOL, Yahoo!, MSN), or proprietary processes (AOL’s InstantMessaging or MSN messenger services). These firm-specific advan-tages are proprietary and used within the network of paid subscribers.Global portals leverage these assets worldwide which help differenti-ate their offerings against local players.

On the other hand, firms that perceive a high level of pressure torespond to local needs use a nationally responsive strategy.Localization strategy of global portals is challenging because of lack oflocal content, the diversity of platforms, regulations, and lack of flexi-bility of off-the-shelf operational programs. The areas of the portalarchitecture that require substantial localization are content, com-merce, and connectivity platforms. Content needs to be adapted tolocal user culture in terms of language, formats, and iconography. Forinstance, content adaptation of interfaces and applications featuresshould support local data formats such as dates, currencies, numbers,and addresses. This localization effort requires the redesign of formsand dynamic content generation and even back-office support systemssuch as help and customer support. The commerce architecture alsoneeds to be localized to support different payment mechanisms, taxsystems, currencies, fulfillment options, and compliance with privacy,and decency regulations. A third important area of localization is theconnectivity platforms in the local market. The local telecommunica-tion options and capacity will determine the mix and richness of text,graphics, voice, and video that can be delivered online (Drakos,1999). The eclectic theory of international business recognizes theleverage of local resources as one of the advantages of global firms inentering international markets. In this case, the local resources areintangible. It is the creative effort of the local operation that adaptsonline products, software, or services to the local audience. This com-petence can be leveraged worldwide through global teams that trans-fer these competencies to other localities. Terra, for instance, hasidentified core e-commerce capabilities in banking, travel services, andlogistics, where Terra personnel works with regional or global partnersto support local operations (Business Latin America, 2000).

Given the nature of their business, global portals will be among thefirst to exploit transaction completeness. The distributive character-istics of integrated global networks provide the architecture toattempt to not only be able to centralize certain processes, but beresponsive and able to coordinate the variety of localized sites andcomplex collaboration agreements at the global, regional, and locallevel. In the area of content, for instance, portals can introduce con-trols that allow them to identify versions, team authoring, personal-



ization, and dynamic page assembly in the network. Another areawhere global portals have been able to develop strong competenciesis in the integration of the value chain. The value chain for portalscan be defined as the design, production, and delivery of contentand commerce through a rule-based system that permits the creationof value to the user. Broad-based portals have benefited largely fromtransactional completeness in the value chain because their operatingcosts to aggregate and manage large pools of providers of content,engage in commerce, and develop communities are very low. Asintegrators, portals create online user value at a minimal cost. Theiroperating costs are mostly related to network communications andoperations. This architecture allows portal firms to separate commoncontent from content that is specific to local sites through central-ized hubs. The key to building such architecture is to build the flex-ibility to support multiple localized versions in the initial networkdesign (Jones, 2000).

To reduce the local responsiveness pressure, some global portals haveconcentrated in particular niches. These niches are either language-based (Chinese or Spanish language portals) or business-segment–based (sports, entertainment, financial information). For instance,two online financial portals, Zona Financiera and Patagon, havedeveloped a successful business model, focused on the needs of LatinAmerican investors. The success of these regional vertical portalsattracted the attention of global players. Citibank acquired ZonaFinanciera and Banco Santander acquired Patagon. Both banksintend to integrate these portals into their regional financial strategyto integrate bricks and clicks in their contest for Latin Americanfinancial markets.

Based on our description of portal evolution all global portals havereached the more advanced stage (i.e., four). Starting from a baseof centralized operations, firms like AOL and Yahoo! have movedtowards more localization. On the other hand, MSN and Terraseem to have started with a greater localization approach. All ofthem are working towards greater transaction completeness. AsFigure 1 shows, their future evolution may take several paths. Onepossible outcome is that they may all converge in one superior strat-egy in the long term. Another scenario is that global portals mayfollow different evolutionary paths as they place greater importanceon any of the three global imperatives of efficiency, localization,and transaction completeness. Under this second scenario, someglobal portals may achieve global transaction completeness withgreater localization at the cost of global efficiency. Other global

Fernando Robles


portals may base their strategy on greater global efficiency, transac-tion completeness, and less localization.

THE FUTURE OF GLOBAL PORTAL STRATEGY

U.S. broad global portals such as Yahoo!, AOL, and MSN are vyingto become the top global destination sites with Terra-Lycos quicklytrying to close the gap. These firms are the top destinations in ahandful of countries, but despite their superior resources and firstmover advantages, they struggle to be in the top three spots in allinternational markets. I have argued in this article that this failure toachieve global supremacy stems from the complexity and diversity ofglobal online markets, the low barriers of entry that gave rise to pow-erful national competitors, and the challenge of developing a well-coordinated global online strategy.

Although admittedly any conceptual framework is an oversimplifi-cation of a multifaceted and complex process, the extended inte-gration-responsiveness framework can be used to analyze theevolution global portal strategy. Given the recent nature of global-ization of the Internet, an effective global portal strategy has notyet emerged. The potential to develop one depends on firms’ abil-ities to formulate an adequate balance of the global integration,local responsiveness, and transaction completeness. As they expand-ed internationally, global portals focused on local responsivenessgiven the challenge of local portals. The need for integrationstemmed from the pressure to achieve global efficiency. The drivefor transaction completeness is more recent and one in which glob-al portals may strike the right balance. Finding the right mix of effi-ciency, local responsiveness, and transaction completeness and aglobal configuration of assets, competencies, partners, content,commerce, and community is a challenge.

In the mid-term, global portals should focus not on global mar-kets, but rather on the challenge for leadership of particularregions as the rapid ascendance of Terra-Lycos to global portalpowerhouse has demonstrated. A strong platform in a singleregion may provide a strong platform in a given market based onlanguage and culture. Addressing the localization of a region thatshares language and culture is still complex but focuses the effortin developing localization competencies. A few online playerswhich include China’s Sina.com, Spain’s Terra, and German T-1have already taken this approach and seem to be poised to become



the leading destination for Chinese and Spanish speaking onlinepopulations respectively. With the Chinese-speaking online popu-lation forecasted to be the largest audience in a few years, China’ssina.com can rightfully argue to be largest portal in the world.Spain’s Terra has shown the path to take a regional platform to aglobal scale through mergers and acquisitions. Germany’s T-1 hasnot yet clearly shown such a strategy, yet but it has the potential tobe the leading provider for the extended German-speaking popu-lation. English-based portals will see their current dominant posi-tion erode over time.

Broad global portals are also challenged by global specialists thatfocus on a global market niche. Online market fragmentation nur-tures the emergence of global portal specialists as they address theparticular needs of online groups based on age (youth, senior), gen-der (male, female), and or activity-topical (entertainment, informa-tion, financial, sports). Although no single competitor has emergedto claim leadership of a given market segment, many second-tier por-tals may migrate to this strategy as they realize that a more focusedstrategy is the only viable way to remain competitive. Although pre-vious efforts to use this approach have failed with the closing of spe-cialists such as Disney’s go.com, future challengers may emerge in thefuture. These vertical global niche players will be a threat to broad-based global and national online players as they can deliver more tar-geted audiences to advertisers and provide online users with a richexperience in their particular niche.

The future of any global portal also depends on their ability to con-quer the massive online populations in the developing world. Currentstrategies have been based on the online experiences of first timeusers in China, Brazil or Mexico which tend to be highly educated,affluent and cosmopolitan, see Table 1. The needs, concerns, andexperiences of the larger masses of middle class and poor income seg-ments could be radically different.

Forecasting the future of the Internet is fraught with risks. I haveargued in this article that a handful of global portals will cohabit withlocal champions and global specialists. In each country market, twoor three broad portals will command the majority of traffic. Two pos-sible scenarios are that the global strategies of the dominant playerswill be indistinguishable from each other (convergence) or radicallydifferent (differentiation). At present, all players are working in shap-ing their strategies to respond to the global imperatives of efficiency,localization, and transaction completeness.

Fernando Robles


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the evolution of global portal strategy

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