America Online to launch shopping search engine

September 13, 2004

America Online (AOL) will introduce a new shopping search engine called In-Store.com to go with the company's improved shopping section.

It will be AOL's first offering to consumers who want to research products side by side before buying. As a result, comparison shopping websites and search engines such as Yahoo Shopping, Google's Froogle, MySimon, BizRate and Shopping.com are about to face some new competition from an old online player.

An AOL spokesman would not comment on the impending announcement, but AOL executives who spoke on condition of anonymity said the new service had been in development for 18 months and would be accompanied by considerable promotion to AOL members, starting next week. "We've done a lot of heavy work to get back in the game," one executive said.

Analysts said it was too early to say whether AOL's new offering would have a meaningful financial impact this year. Other portals with shopping comparison features do not break out separate revenue figures for those features, but Shopping.com, which this spring registered with the Securities and Exchange Commission to offer shares to the public, said in its filing documents that it had earned $7 million last year on revenues of $67 million.

Consumers have yet to fully embrace comparison shopping. Only about 10 percent of online consumers visited a comparison site during last year's holiday season, and most of those people were shopping for consumer electronics, according to Patti Freeman Evans, an analyst with Jupiter Research. But the sites have enjoyed fairly strong momentum in the last year. The number of visits increased 13 percent over the previous year, according to comScore MediaMetrix, an Internet statistics firm.

The new shopping category also represents a shift in how AOL operates with advertisers, company executives and analysts said. Instead of charging advertisers on the basis of how many thousands of people view an ad, as it has in the past, AOL will collect a fee each time someone clicks on an ad.

In-Store will include elements of both a traditional online shopping mall, with an array of products and featured merchants, and a comparison shopping engine, which allows users to select attributes of, say, digital cameras, then choose from a short list of products that fit the bill.

Shoppers also can click to select a product category. On each page, a drop-down box called "Pinpoint Shopping" will help shoppers narrow a universe of more than 45,000 online sellers with combined inventories of 25 million items.

For instance, digital camera shoppers can narrow the field of 1,407 products by selecting the camera's resolution, zoom settings and price, among other attributes. Thus, when searching for a camera below $340 with resolution of at least 3.0 megapixels and zoom capabilities up to 3x, the search narrows to three cameras. For consumers who are unfamiliar with a particular merchant, the site will display customer ratings.

Shoppers can test a version of Pinpoint Shopping now, at PinpointShopping.com. The site also allows AOL members to save products to a single Web page, so they can compare them side by side or simply build a wish list - a feature that will be available to non-AOL users when In-Store rolls out.

In-Store.com will also automatically show repeat visitors a list of their most frequently visited stores, and users of AOL's instant messenger will be able to view products together and chat about them. Shoppers will also have the option of requesting e-mail alerts when prices on specified products reach a certain threshold.

According to Ms. Freeman Evans, who previewed an early version of In-Store, the new service "is a good first step."

"It's become the standard among portals," she said, "to have comparison shopping features, so they're catching up in the game."

Indeed, last year Yahoo started an aggressive counterattack against specialty shopping sites like Shopping.com, BizRate.com, PriceGrabber.com and NexTag, which were threatening to steal momentum from Yahoo Shopping. Google's entrance into the shopping category last year, with its Froogle service, also signaled its intention of competing with Yahoo on several fronts.

In the face of that competition, Yahoo introduced a handful of new features intended to help customers simplify their online shopping tasks, including a price-alert function, along with a service allowing users to save products they are considering.

Shopping.com, meanwhile, is quietly introducing a promotion in which it offers $10 rebates for purchases from certain merchants. According to Sarah Leary, Shopping.com's vice president for product marketing, the company is offering the rebate with about a dozen merchants, and will expand it to include "hundreds of merchants" later this month.

Sites like BizRate.com, Shopping.com and PriceGrabber.com have expanded the roster of merchants that they can search on behalf of buyers, in hopes that apparel shoppers, car buyers and others will also look to them for help. More shoppers means more revenue for the shopping sites from merchants, who typically pay a fee ranging from a few pennies to 50 cents or more every time someone clicks on their product.

Although AOL's entry could mean fewer customers for other sites, at least one company, BizRate.com, stands to benefit. According to Chuck Davis, chief executive, his company largely developed the Pinpoint Shopping function for AOL in exchange for a share of revenue when customers click on a merchant's product. He declined to say what that share was.

"This category is still in the second inning," Mr. Davis said. "So this partnership, I think, will help grow the category, and grow BizRate."

The new service will also turn from the cost-per-click approach that has dominated in recent years, thanks to the growth of Google's search advertisement program and that of Yahoo's Overture unit.

Now, retailers can avoid committing to, say, a banner ad on the home page or in the apparel category for a year, and can instead negotiate for the right to have their ad appear for limited time during peak shopping seasons. With enough merchants, AOL claims that its overall revenue will not suffer. Those advertisers will also be given the chance to swap out their ads on short notice if they are not performing well, AOL executives said.

To attract more merchant revenue, both from featured advertisers and from smaller merchants who appear in the shopping search results, AOL is making the service available to non-AOL members.

Ms. Freeman Evans, the Jupiter analyst, said: "This is a much more reasonable approach for AOL. It's basically brings them in line with the industry standard, so I can see them getting good traction with advertisers - especially because retailers want access to the AOL customer."

Indeed, while AOL has seen its subscriber base erode from a peak of 26.7 million in September 2002 to to 23.4 million last June as more users gravitate toward high-speed Internet services, retailers still covet the service's customers, because they tend to be more avid online shoppers than non-AOL users.

According to a March report by comScore, AOL members spent more than $15 billion online in the previous year - roughly 25 percent of overall online spending. And Ms. Freeman Evans said that more than two-thirds of AOL's members shopped online.

"That's a pretty high penetration," she said. "So it means a lot for AOL to enhance its shopping environment, which in the past was really not so great."

Source: NY Times

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