October 31, 2003, 12:00 AM

The New Competition

(Page 2 of 3)

The order in which those products are listed will be based primarily on popularity, meaning products most often clicked on by other buyers will get listed first. But no more will consumers be limited by how Yahoo wants to rank offerings. They will be able to click on price features that allow them to rank offerings by the lowest price or limit the search to products within a certain price range.

And in the future, consumers may have even more say on what is relevant. For example, in a Yahoo beta test, customers asking for digital cameras can dig further into the data by clicking on the Optimize Comparison button. This allows them to rank on their own determination of the importance of certain features, including price, speed, resolution, optical zoom, brand and size. Rowley says the company expects to have a limited number of electronics products with this feature by the holidays then expand the functionality to appliances and other product categories.

It’s true that product comparisons have been available for a long time at sites such as BizRate.com. But what’s revolutionary in this is the idea that Yahoo is including products from nonpaying participants. Rowley says in order to make the information as useful as possible to consumers, it needed to go beyond the 15,000 retailers that currently pay Yahoo for referrals.

But this is not an eleemosynary endeavor by Yahoo. “While our first priority is to provide the best search, our goal is also to get merchants to pay us for bringing them customers,” Rowley says. “We think that overwhelmingly the largest number of retailers we provide information about will be those that appear on a paid basis because the number of retailers that we don’t have relationship with will dwindle.”

He also argues that in addition to being guaranteed placement, paid sponsors have greater control over their product descriptions. Because affiliated companies provide information directly to Yahoo, as opposed to Yahoo picking up information off their web sites, they can make sure product descriptions and prices are accurate and up to date.

Competitors scoff at Yahoo’s professions of objectivity. “They’re always going to promote the merchants who pay them the most, whether it is by listing them first or making sure their merchants have their logos flashing,” says Isolani of Ebates.com. “Somehow, the merchants who pay are always going to stand out ahead of the others.”

Direct feeds

To distinguish themselves from the Yahoo shopping portal approach, some shopping sites maintain that they can provide the most accurate information to consumers by partnering with retailers that provide product information directly to the search site. PriceGrabber’s Pourzanjani argues that by crawling the web and picking up information off web sites, search engines’ product data are often inaccurate and not helpful to consumers. “Unless you get the information directly from your partners, there is no way of knowing if the products you are listing are in inventory or if there has been a price change,” Pourzanjani says. “Your information is only as good as your last data update and you’re not doing anyone any good if your information is not current.”

Still, some observers see the trend toward free inclusions continuing and note it could change the economics of product searches. “This a new way of generating revenue,” says Rob Gallo, consultant with Columbus, Ohio-based Retail Forward Inc. By including retailers that will not pay it anything, “it is likely that Yahoo will receive less per click on average than before,” Gallo says. But that’s not bad, he adds: By providing better information to consumers, Yahoo is hoping it will have more clicks because it will be able to attract more customers.

Tough competition

Despite its Internet prowess, Yahoo will face tough competition in this market. Many of the players have a head start in providing product rankings and information and many have special niches. “Google and Yahoo have very talented people and are formidable competition,” says Ignacio Fanlo, chief revenue officer of Shopping.com. “But their expertise is in algorithmic searches, not shopping. Shopping comparisons are much more difficult and require a lot more data cleansing to get the right information. Shopping is what we know best.”

As of early October, Shopping.com was working with 3,000 merchants to provide product information and it expected to grow that base to 10,000 by the holidays. Its initial product rankings are based on which merchants do the most business with Shopping.com, but consumers can re-sort the list based on price and sometimes by specific product features. Shopping.com also makes sure to include the most popular online retailers near the top. “If someone wants to buy a book, for example, we would have to have Amazon’s price near the top. Customers expect it,” Fanlo says.

Even competitors see Shopping.com as having a first mover advantage. “Yahoo has more total customers using its search engine, but its product searches are a small part of the total business. Yahoo is more a work in progress and we’ll have to see if it can surpass Shopping.com,” Isolani says.

But while most observers point to Yahoo and Shopping.com as being the ones to watch, there are a number of other players and they have certain strengths that they play up.

Ebates.com, for example, refunds part of the commission it collects back to the consumer. Isolani says merchants pay his company 10% to 12% for each closed sale. Ebates then retains up to 2% and rebates the rest to the customer.

Isolani notes that a lot of customers use competing search engines to do the comparison shopping. “But then they come to us when it is time to buy so they can get the rebate,” he says. As long as his company is doing the referral, Isolani doesn’t care which site customers visit first. It works with 700 retailers.

BizRate promotes its advanced research and ratings capabilities. In early October, the firm had 33,000 merchants for which it provided product information. “We provide the most product data of anyone,” Davis says. “Most search engines base their quality ratings by collecting a few reviews off the web. Many times, merchants have written their own reviews. We look at an average of 20,000 surveys on each merchant before we rate it. Most other searches don’t even look at 100.”

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