Shopping sites flex their muscles as Yahoo forces changes at e-shopping malls
By Lauri Giesen
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.
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.”
BizRate provides information on paid retailers and those who do not pay commissions to BizRate. “We would never lead with a merchant that was poorly rated, even if it did pay us,” Davis says.
Another big player in the market is PriceGrabber.com, a site with 8 million users and 500 large retailers. In addition, PriceGrabber provides a storefront to about 1,000 companies that want to sell via the web, but do not have their own online presence. The firm is paid on the basis of referrals.
When displaying merchants, PriceGrabber lists featured merchants first—those who pay more, but they are listed as such. Additional listings are based on popularity and retailer and product ratings. Also, customers can re-sort the listings by price or certain other features. “Everyone talks about listing by price, but 70% of shoppers do not choose products based on the lowest price, even on the same brand and models. They look at seller ratings and return policies and a variety of factors before choosing,” says Pourzanjani.
Watching the other big guy
While observers today are looking to see how Yahoo and Shopping.com’s new offerings change this market, they are also keeping an eye on Amazon.
The new A9 unit is very hush-hush about its plans, merely acknowledging the firm’s intent to deliver e-commerce search technology. The most the company would say is that the unit began development work in October with 30 employees and is headed by Udi Manber, former vice president and chief of algorithms for Amazon.
And many note that while Yahoo’s and Amazon’s Internet prowess makes them the players to watch, the battle for share is far from over in a rapidly growing market. “This is still a big field and there are a lot of people looking for stuff to buy on the web,” says Isolani.
Lauri Giesen is a Libertyville, Ill.-based freelance business writer.
