The question facing e-businesses

At first glance, the arrangement seems to make perfect sense: Online merchants seeking wide exposure pay premium prices to lease space on portal sites boasting the highest traffic. But what happens when the rent goes through the roof and everyone keeps paying anyway, knowing that a steady stream of rival tenants are right behind them? That_s the question facing virtually all businesses selling their products through electronic commerce today. And no easy answers are emerging, even though the payoff of this expensive real-estate practice is decidedly unclear. "It_s still very much an open question whether they are getting a return on their investment," said James Vogtle, research director for the Boston Consulting Group. In fact, according to a study last month by research firm Jupiter Communications, more than two-thirds of e-commerce merchants surveyed failed to generate more than 30 percent of their sales from these portal deals. Fewer than 5 percent of executives polled at the time were "highly likely to renew" their portal agreements. And primary portals are expected to see only a minor rise in online buying in the next three years, from an 18 percent increase in 1999 to a 20 percent gain in 2002.