October 31, 2003, 12:00 AM

The New Competition

Initiatives by Yahoo, Amazon and Shopping.com signal the new importance of e-shopping malls.

Was it coincidental or was it intentional? Or was it market forces coming together at a propitious time? Within three days at the end of September, three companies in the shopping portal business announced major changes to their services:

- The new Shopping.com Inc. launched, the result of a merger that combined the search and shopping capabilities of DealTime.com with the comparison and research features of Epinions.com. The new service gives users greater depth of product recommendations, including more than 1 million consumer reviews with price information on 5 million products from 3,000 retailers.

- The next day, Yahoo Inc. announced that its Yahoo Shopping portal would present search results from all Internet retailers, not just those who paid to be part of Yahoo Shopping. In addition, it is introducing a service that will allow customers to compare products first on price and later on other features, again from all Internet retailers, not just those who pay to be part of the service.

- Then news leaked out from Amazon.com Inc. that it has formed a new group known as A9, whose purpose is to develop e-commerce search technology to be used by Amazon as well as sold to third parties. Executives aren’t saying when such technology is likely to be available in the market.

“It was strictly coincidental that Shopping.com came out one day before us and we made our announcement one day before Amazon,” says Bill Rowley, director of business development for Yahoo.

Although the timing was coincidental, the string of closely related announcements represents the new importance of e-shopping malls, participants say. Yahoo’s, and possibly Amazon.com’s, entrance into the broader realm of product searches brings big names-and a lot of eyeballs with them-into a shopping portal market that had been controlled by smaller, specialty firms.

Looking at a major new competitor suddenly squatting in this part of the market, other shopping portals tried to put the best face on the development by stressing the high profile of the newcomer and reaffirmation of the business. “It’s exciting that Yahoo is coming back to this market,” says Kamran Pourzanjani, president of PriceGrabber.com, a shopping comparison site. “It is reaffirming the importance of comparison shopping.”

Changing economics

But not only do these announcements change how customers use search and comparison shopping sites, they also alter the economics of providing product information. If the new Yahoo Shopping model proves successful, shopping portals will no longer be able to rely solely on commissions and other fees to drive traffic to retailers. Instead, they may be seeing smaller-and often no-commissions for each referral. But by attempting to accommodate customers’ needs better, the comparison services hope to collect more commissions as more customers use their sites, in turn attracting more retailers.

Observers see the three developments, along with the introduction of Froogle.com by Google Inc. six months earlier, as setting up a new battlefield in the shopping arena where customers are lured to one location where they identify and compare products before they go to retail sites to buy.

Some view Yahoo’s move, while significant in the size of the player, as merely following a trend other shopping searches began. Jupiter Research reports that 28% of all shoppers who buy a product visit a shopping comparison site before they buy. “Yahoo’s joining the parade validates what we have been doing all along,” says Chuck Davis, CEO of BizRate.com.

Yahoo is not to be ignored-or written off lightly, competitors say. “Yahoo is the biggest pure Internet player in the business,” says Alessandro Isolani, CEO of Ebates.com, a shopping site that rebates part of its commission to consumers. “Yahoo had its IPO during the technology boom and, as a result, it has more market capital available for spending on promotion then anyone else. There is not enough money in the market today for anyone else to catch up.”

Yahoo is planning to capitalize on the popularity of Internet search and on the fact that Internet search results are often more targeted than retailers’ own site search. At the search sites, about 80% of product searchers type in a specific product, such as DVD player, rather than a category. 53% of product search engine users get even more specific, typing in a brand with the product name, such as Panasonic DVD player, according to Jupiter. In many cases, the search results take customers directly to a retailer’ s product page faster than if they had searched the retailers’ site directly, according to Forrester Research.

Yahoo and others believe they can get even more customers to come to search sites rather than go directly to retailers by improving the quality of information that customers get. “The push for this came from consumers,” Rowley says. “They wanted more comparison information than what was available. They want to do less surfing and more real searching and comparing.”

Greater specificity

Indeed, product searches overall are much more specific today than in the past. A search with the words “office refrigerator,” for instance, once generated as many articles about how to clean an office refrigerator as it did a listing of online stores that sold them. Even last summer, consumers could go to Yahoo Shopping, type in “office refrigerator” and get a list of possible purchases. However, the items listed would only have been products offered by retailers that paid Yahoo a commission to drive business from the Yahoo Shopping page. And the rankings were based on who paid the biggest commission.

Under the new Yahoo Shopping offering, the key to getting listed and having a high product ranking is not necessarily paying high commissions, but rather providing products that are relevant-in Yahoo’s judgment-to what customers are asking for. While retailers that advertise with Yahoo and pay referral commissions are guaranteed inclusion in listings, other retailers without any ties may find their products listed as well.

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