July 18, 2003

In the early days of the supposed dot-com revolution, online retailers promised to save you a trip to the mall. Now a crop of new services promises to save you a trip to even those Web sites.

In what has become another lucrative niche on the Web, price-comparison shopping sites, also known as shopping-search sites, are simplifying life for bargain hunters — and making a tidy profit in the process. "We're Consumer Reports and the Yellow Pages on steroids," said Iggy Sanlo, chief revenue officer for privately held DealTime.com Ltd. It's the No. 1 shopping-search site, with 6% of the market in Web site visits, says researcher Hitwise.com.

"Shopping search is the nexus of search and e-commerce," said Sanlo. Buoyed by the key holiday season, it was profitable in the second half of 2002. DealTime, Pricegrabber.com and MySimon are among shopping-comparison services that say they're profitable. And while the all-important holiday shopping season is six months away, many merchants are already factoring these sites into their retail plans.

Think of it as shopping in reverse. Instead of clicking through a morass of retail Web sites, online merchants come to the consumer. The shopper types in what he's looking for, and gets a list of vendors. The sites often compute sales tax and shipping prices, and show how other shoppers rated the product. From there, the user picks one and is taken to the checkout area of the seller's site, which pays a click-through referral fee. Some sellers pay extra to be listed higher as a "featured merchant."

Such sites have been around for years. But consumers, who don't often have personal shoppers offline, are only starting to get used to the idea of virtual aides for online buying.

Shopping-search sites are often lumped into the $1.4 billion paid-search market with sites such as Google, so it's hard to measure their growth. But according to researcher I.think Inc., nearly 60% of online shoppers start at so-called aggregators — which include shopping-search sites, portals and big retailers like Amazon.com Inc. (AMZN) — rather than individual stores. And half of those shoppers use search engines or shopping-search sites. The appeal to consumers is clear. But search sites are also a marketing deal for merchants.

According to a May study by Forrester Research, shopping-search sites have become the Web's fastest growing marketing tool, as measured by the number of merchants using them. Twenty-eight percent of sellers use them, and 86% found them to be very effective. That beats banner and pop-up ads, e-mail promotions and deals with shopping portals. Smaller merchants can go head-to-head against giant rivals without the huge marketing budget of a national brand. And since buyers can do all their product and merchant research on the site, most who click through one of the listed prices are ready to buy.

"We're winnowing out the browsers," Sanlo said. "We only send the shoppers." Most of those shoppers come for the bargains, analysts say. The sites make plain which merchants offer the best deal and can alert users when an object of desire falls within reach.

That could squeeze online retailers' already tight margins. "The classic argument about the Internet is that improved transparency drives down price," said Matthew Berk, an analyst with Jupiter Research. "The more visibility you have into pricing, and the easier it is — literally, in a single click — to go to one merchant vs. another, the more price is a consideration."

Price isn't the only issue. Kamran Pourzanjani, president of Pricegrabber.com, says that despite the site's name, 70% of the site's users don't click on the lowest price. Most look at the seller's feedback from other users and often favor better-known vendors. "People don't have a problem paying a little more for a recognized name or highly rated vendor," he said. That's especially true of the site's business users, who make up 55% of Pricegrabber's audience. They use the site to cut costs, but can't afford to deal with late shipments or lousy service. DealTime kicks off merchants who don't maintain ratings of two stars (of a possible five), and Pricegrabber.com has booted dishonest vendors.

These, by no accident, are often sellers with the lowest price. Pourzanjani won't detail sales or earnings for the privately held firm, but says it's profitable and is growing more so. Despite starting with a small pool of angel investment, it's already bringing in enough to pour money back into better technology, advertising and more staff. Still, comparison-shopping sites face e-tail giants such as Amazon.com, which also offer a range of products through a bevy of outside vendors, plus better name recognition and marketing muscle.

Alternative To Amazon, EBay
"Amazon and eBay are still larger than any of the aggregators," said Nielsen/NetRatings analyst Lisa Strand. "And when people think of online shopping, often eBay and Amazon are the first names that come to mind." Another challenge is e-commerce portals, such as Yahoo's Inc. (YHOO) shopping site. Like DealTime and Pricegrabber, these multistorefront virtual malls offer quick product searches and, in some cases, vendor comparisons.

Big retailers, shopping portals and shopping-search sites may not seem to be direct rivals at first, Strand admits. They appeal to different types of shoppers and have distinct business models. They don't even act like competitors. Pricegrabber advertises on Google, for instance, and counts eBay as a featured vendor.

But as time goes on, they're copying many of each other's features and vying for the same audience. Standing out will become even more important, Strand says. She won't have to convince CNet Networks Inc. (CNET)-owned MySimon, ranked by Hitwise as the No. 6 shopping-search site.

MySimon aims to stand out as a "warm and familiar environment," said Tom Jones, CNet's senior vice president for shopping services. The effort includes the friendly face of its namesake mascot, Simon, and reviews and other content from CNet's other sites. That's helped it, more than any other site, attract women shoppers, a prized retail constituency. This month it's beefing up its technology by adding soon-to-be-announced features. It also plans to promote the site more heavily through its network of news and review sites.

CNet also runs comparison-shop site Shopping.com, targeted to a different, more technical audience. The firm doesn't break out financials for its units, but officials say MySimon is profitable. General-purpose search engines are dipping their toes in the market, too. Google is tweaking Froogle, a product-centered version of its search engine. It lets users search printed mail-order catalogs scanned and indexed by its system.

But Jupiter's Berk doesn't see search engines taking the place of shopping sites soon. What makes them good for searches — finding a needle in a haystack — makes them ill-suited for broad product and vendor comparisons. New entrants, however, could pose a bigger problem. It doesn't take much money to get a shopping-search site up and running, which could prove a big headache for firms that have spent millions to join the big leagues.

Many have already turned to print and online ads to build their brands. Though setting up a Web site is easy, gaining critical mass is the real challenge. As DealTime's Sanlo points out, the market is a virtual "pet cemetery" of failed brands, including RUSure and Productopia. "If it were that easy, AOL, MSN, AltaVista, EarthLink, ATT, Excite and iWon wouldn't outsource their shopping searches," he said.

Source: Investors.com

        

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