Technology

These Sites Are a Shopper's Dream


Nirav Tolia loves online shoppers. The chief operating officer of price-comparison site Shopping.com, Tolia waxes poetic on the virtues of being able to hunt down bargains and product ratings of 149 kinds of goat cheese from the seven online merchants that feed their price and product info to his site. Every goat-cheese lover who clicks through from the listing to a seller's site earns 5 cents for Tolia's company.

Gourmet foods are just one of many categories that surfers can browse at Shopping.com. Higher-value categories, such as computers, earn it 30 cents per click. This year, the site will send more than $1 billion worth of business to online merchants -- about $3.6 million per day. Shopping.com's own take from such referrals will exceed $70 million, about double its 2002 revenues.

Traffic to Tolia's site actually exceeds visitor numbers at MSN Shops (MSFT) and AOL's shopping section, he claims. And by the measurements of some Web-analysis firms, Tolia says, it even tops Yahoo!'s (YHOO) formidable shopping site.

PROFIT POINTS. Tolia also claims that the surfers he sends to retailers' Web sites are more likely to buy than those who arrive from Google's vaunted AdWords links. All of which feeds Tolia's ambition to become the Expedia (IACI) of online shopping -- a dominant middleman between sellers and consumers.

"Why do most people use Expedia when they book travel?" he asks. "Because it's a better way to do things, and they can do it online. That's what we're offering in the world of products."

Shopping.com has plenty of competition from BizRate, NexTag, and PriceGrabber, which rank second, third, and fourth, respectively, among comparison-shopping sites, according to Nielsen/NetRatings. With little fanfare, each of these closely held companies has become solidly profitable. Shopping.com has been in the black for several years, Tolia says.

PriceGrabber CEO Tamim Mourad estimates that the big four shopping-comparison sites should turn $150 million to $200 million in combined revenue in 2003. Tolia and others believe that tally could double in 2004 and continue to grow for years.

STRONG PROSPECTS. E-commerce experts agree. According to Nielsen/Net Ratings, about 21 million U.S. Internet visitors surfed through one or more comparison-shopping sites last August, the most recent month for which figures are available. That was up 34% from a year earlier.

PriceGrabber grew 81% over that period. A year ago, 9% of people who bought online used shopping-comparison engines. Today, it's 15%, says Mourad. Says Robert Leathern, Nielsen's director of commerce analytics: "They have grown tremendously over the past year. Their prospects for the holiday season are strong. We're seeing shopping search coming into its own."

Indeed, Jupiter Research analyst Patti Freeman Evans says a significant portion of the 21% growth in online-shopping revenues she expects this holiday season -- to $16.8 billion -- should result from broader use of shopping-comparison sites.

SECOND GO-ROUND. If you need to buy a coffee maker, you can look at all the coffee makers in one store, or you can go from store to store. Or you could go from Web site to Web site. "That's the old way," says Freeman Evans. "With shopping comparison engines, you type in coffee maker, come up with 1,000 coffee makers, all of which have all the specs listed, including the price. You take a shopping cycle from a day in the bricks-and-mortar world down to 10 minutes online."

This is really the second coming of online comparison shopping. When the Internet rose to prominence in the late 1990s, prognosticators said everyone would have an automated personal shopping agent that scanned the Web for bargains. Price-comparison sites such as MySimon sprang up but fared poorly.

It turned out that collecting prices in real time from Web pages resulted in lots of errors. And slow dial-up connections meant surfers often had to wait eons for graphics-heavy pages to load. Plus, few merchants had viable Web sites back then, and fewer consumers were willing to submit their credit-card numbers online.

LIKELY BUYERS. Today, by contrast, major retailers have elaborate Web sites and technology staffs that feed real-time pricing data to the comparison sites. When a customer gets a price at Shopping.com, most likely the information has come milliseconds earlier from the stores themselves. As a result, error rates have dropped significantly.

While slow connections still outnumber broadband hookups, nearly 15% of U.S. homes -- about 40 million Americans -- have high-speed links. They can more easily deal with graphics- and data-rich shopping-comparison sites, which pull in multiple images and put together fat Web pages that display technical specs, shipping costs, and in-store availability, all in real time. According to Tolia, broadband users who visit shopping-comparison sites are five times more likely to make a purchase than their dial-up counterparts.

For these reasons, the use of price-comparison engines is proliferating beyond the four major sites. According to Jupiter's Freeman Evans, many big stores, such as J.C. Penney (JCP), will soon build some comparison capabilities into their Web pages so shoppers can price multiple items in the same category without leaving that site.

INFO COLLECTION. The shopping-comparison companies also have a lively business supplying their technology to other Web companies. Search engine AskJeeves uses PriceGrabber to power its comparison listings. PriceGrabber also sells its services to America Online (a unit of Time-Warner, TWX) and PC Magazine, both of which would prefer to buy the expertise rather than build it.

Aside from collecting revenues from Web merchants for paid placements and click-through referrals, the shopping portals also sell data that tracks shopper behavior and thus could provide insights into how to better target likely buyers. Since they get a lot of traffic, these sites collect plenty of aggregate data about what kinds of products people are interested in and what their likelihood is to click through to certain kinds of stores, says Ross Rubin, senior analyst at Web marketing consultancy eMarketer.

Until now, such capabilities have largely remained off the radar of bigger players such as Yahoo and AOL. But now they're rushing to catch up. In September and October, Yahoo launched a series of upgrades that copied many of the capabilities of the shopping-comparison sites for visitors who browse through the 50 million products on the portal. "We believe that Web search and shopping go hand in hand," says Rob Solomon, manager of Yahoo Shopping.

GOOGLE'S THREAT. In October, Yahoo launched an even bigger initiative: scanning the entire Internet for product listings, though without returning pricing data. That looks like a broadside at Google's online product search engine, Froogle. Launched last December, Froogle doesn't offer side-by-side comparisons, but it does allow shoppers to arrange product listings by price. It pulls in hundreds of thousands of unique visitors each month and is growing smartly -- and selling ads.

"We don't usually monetize beta products, but we do monetize Froogle," says Marissa Mayer, director of consumer products at Google. While Google contends that Froogle isn't a shopping-comparison site but rather a search engine to help customers find products, analysts wonder if the search leader has bigger plans. "If Google starts taking the online shopping-comparison part of its business more seriously, Shopping.com and the others in that group could have a big problem," says Nielsen's Leathern.

The sector's leaders say they aren't afraid of Google. They argue that its basic search technology, called PageRank, might prove difficult to adapt to online shopping. "With PageRank, the thesis is you can always rank the most relevant results at the top and the least relevant results at the bottom. In shopping, relevancy is a function of the user. Is it the brand first? Is it the lowest price? There's no PageRank that will solve what's in your head vs. what's in my head," says Tolia.

Froogle's Mayer says its product does what it's intended to do very well, which is find products and not necessarily supply comparison features. And Froogle can perform the most important relevancy calculation, namely ranking product offerings by price.

COMING TOGETHER? Still, unlike Froogle, most shopping-comparison sites offer product reviews or merchant ratings to give customers more qualitative information about both the items they're shopping for and the stores they're buying them from. Shopping.com even owns ePinions.com, a popular forum where users post reviews of products, places, and services. Tolia pairs these reviews with product listings and claims the sell-through rates on ePinion-rated product are tops in the industry and dramatically outstrip sell-throughs at Shopping.com where no ePinion rating is offered.

Regardless of whether the pure plays have enough ammunition to fight off the big guys, Leathern and others expect consolidation in the coming year, as larger e-commerce companies such as Amazon (AMZN), eBay (EBAY), or Yahoo float offers to buy Shopping.com and its ilk. No matter what happens, expect the competition to heat up considerably. Everyone wants a piece of a good shopping spree. By Alex Salkever


American Apparel's Future
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

Sponsored Links

Buy a link now!

 
blog comments powered by Disqus