The e-retailer reports a $126 million net loss, stemming from a $640 million year-over-year increase in spending in the quarter on technology and content ...
Google and Bing are wooing shoppers with new features and blurring the lines between search and shopping.
While consumers were still reeling from recession angst in the third quarter of last year, Drugstore.com Inc. managed to increase sales of beauty products during that three-month period without spending more on marketing per order. "We were able to maintain a steady cost per order while beauty products revenue grew 19% in the third quarter over the year-earlier quarter," says chief marketing officer Dave Lonczak.
What drove that performance at the company`s e-commerce sites, Beauty.com and Drugstore.com? The growth included a bounce from an unusually poor September 2008 and some other initiatives, but there weren`t any major new product launches or other uncommon events that could noticeably spike sales, Lonczak says.
Instead, he figures beauty product sales grew on both e-commerce sites mostly because of a broader and more effective array of online marketing channels, notably from two major search engine companies, Microsoft Corp. and Google Inc. Microsoft`s Bing launched last spring with new shopping-related features, leading Google to respond.
The result is that both now offer search results pages that look and function more like shopping sites, offering retailers new selling alternatives to e-marketplaces and comparison shopping engines, many of which have seen declines in traffic in the past year as product searches on Google surged (see chart, page 42), according to comScore Inc.
"Comparison shopping engines have been left out in the cold a little," Lonczak says. "They`re having a harder time attracting shoppers as Google and Bing make it easier for merchants and manufacturers to directly reach consumers. Google and Bing are doing a better job of that with product images instead of just text."
And the search engine rivalry between Microsoft`s Bing and Google is just beginning. Microsoft is poised to become the No. 2 search engine this year, taking over from Yahoo Inc., once the two companies close a deal for Bing to become the search engine on Yahoo sites. Microsoft executives say they are ready to spend billions to become a serious competitor to search champion Google, and e-commerce figures to be among the battlegrounds.
Push from Bing
Bing highlighted shopping results as one of the big ways it improved on Google when the Microsoft search engine launched in June. And Drugstore`s marketing opportunities were brightened by Bing`s arrival just before the start of last year`s third quarter, Lonczak says.
Product-related search results on Bing looked more like pages from marketplaces or comparison shopping sites, with product images and details from multiple retailers, consumer-generated reviews, and pertinent shopping topics organized in categories. There was a visual search feature that let shoppers click the image of a product to find similar ones, and a popular Cashback feature—offering consumers money back on purchases—that Drugstore and other retailers say helps to drive up conversions and sales.
Google responded quickly, and many saw that response as a reaction to Bing`s aggressive moves. "I`ve seen Google work to improve the user experience over the years, but even more so now following the introduction of Bing," Lonczak says.
"Part of Microsoft`s strategy going forward is to offer more online shopping features, and a lot of what Google has launched recently is a reaction to that," adds Scot Wingo, CEO of ChannelAdvisor Corp., a company that helps online retailers sell through third-party sites.
Eric Best, CEO of Mercent, which also helps connect online retailers to search engines and e-marketplaces, says Google`s e-commerce strategy quickly took hold with merchants. "Particularly in the last few months, we have seen a number of new ad programs from Google dedicated to e-commerce, and already these programs have seen significant adoption among retailers," he says.
Google introduced a series of retail-related innovations on its search results pages in the fall. The search giant began presenting images of products from retailers that feed those images as well as text into the free Google Product Search service.
Google is also offering Product Listing Ads, which lets retailers place image-enhanced paid-search ads on pages that appear with searches conducted on Google.com. In the past, such ads would only appear on searches conducted through Google Product Search (formerly known as Froogle). Offered on a cost-per-acquisition instead of pay-per-click basis, they`re helping Google drive up traffic and cover more products for which retailers don`t always buy keyword terms, Best says.
Other new features include Google Sitelinks, which lets retailers show multiple links for a single pay-per-click search ad, so that an apparel retailer, for example, could show a link to its home page plus several additional links to product pages for dresses, shirts and accessories; and Product Extensions, which lets retailers show multiple product images and prices adjacent to their ads without incurring more pay-per-click fees, a Google spokesman says.
Other, smaller search engines are also providing marketplace-type search results pages. Ask.com, which ranks a distant fourth among search engines with a market share of about 4%, for example, provides a Deals & Coupons section that lists search results with images of products and retailer logos along with links to online coupons and buy pages.
Microsoft`s campaign to promote Bing increased its share of searches from 8% in June to 11% in December, according to comScore Inc., while Google remained far ahead with 66% share. But if Bing can hold onto Yahoo`s more than 17% share in December, it would command 28% of the search market once it becomes the search engine for Yahoo sites.
And Yahoo further signaled its shift from competing in the search engine arena to focusing on its content sites last month when it announced it would farm out the operation of its Yahoo Shopping portal to comparative shopping engine PriceGrabber.com Inc.
Bing helped raise its profile among online retailers quickly last year with the introduction of its Cashback feature. Retailers can offer rebates of 3% to 25% of the purchase price—it`s their choice—on items purchased through the Bing Cashback program, and Microsoft writes consumers a check for the rebates they earn. Unlike other online cash-back deals in which the operator of the service takes a commission from the retailer, Microsoft is passing all the discounts back to shoppers.