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June 2001 |
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Half.com’s expansion is helping the US become a nation of online shopkeepers
By Andrea McKenna Findlay
With every move it makes, Half.com looks more like a retailer.
Since it was acquired by online auction powerhouse eBay last summer, Plymouth Meeting, Pa.-based Half.com has been slowly building its fixed-price online bargain empire. Founded in July 1999 as a person-to-person online marketplace to sell books, music, movies and video games, Half.com in April added four new categories: consumer electronics, computer equipment, sporting goods and trading cards. The expansion adds 5 million items, boosting total listings to 15 million. Today its stock even includes liquidation of retail goods.
“It may not be obvious, but we’ve been playing in the retail to consumer space for a while,” says Chris Fralic, vice president of business development.
But though Half.com touts retail goods it still does not consider itself a retailer. Rather, the company operates like an online marketplace or clearinghouse for sellers who range from individuals to small businesses to big manufacturers.
If Britain is a nation of shopkeepers, as Napolean claimed, Half.com, Amazon Z shops, Yahoo’s Y shops and services that allow small retailers to go online for little or no cost are all working to make America a nation of online shopkeepers. “We’re dealing with everything: retail stores, e-tailers, small mom-and-pop operations, liquidators,” Fralic says. Sellers range from Brokenmoon, a singer/songwriter who sells CDs and books at Half, to such vendors as CD Warehouse, which puts its entire inventory of more than 1 million used CDs online at Half.com. Half says “a healthy percentage” of its sellers are merchandise liquidators.
Its protestations to the contrary, Half.com is actually one of the most popular retail sites. ComScore Networks, a traffic measurement service, reports that Half.com had 5.25 million U.S. users in March and ranked No. 14 in the shopping category.
Hands off
What Half.com provides is the online forum in which sellers can hawk their wares anonymously at a set price. Users range from retailers wanting to unload excess merchandise to small sellers who want to get their product online without the cost of developing a web site. Sellers send an inventory file that lists goods for sale. Half.com posts it on the site with a full description and images in the appropriate category. When customers buy, they pay Half.com, which submits the order to the seller, processes the transaction and pays the seller. “We never touch the product,” say Fralic.
Half.com requires retailers to provide a certain level of service, such as on-time delivery. Even with a large and diverse group of sellers (the company declines to specify the total number) the site gets good ratings from customers on its services. Half.com provides customer service on behalf of the seller, acting as the mediator between buyers and sellers. Sellers pay Half.com a fee of 5% to 15% per sale, depending on the price of the goods.
Adding more low-price items is the plan for Half.com’s evolution. Citing demand from customers to expand, Half.com now is adding more categories that sell well online. Half.com cites a Jupiter Media Metrix study that says the new product categories (computers, electronics, trading cards and sporting goods) will account for 47% of all sales online this year. “People have asked us to get into more categories because they wanted to be able to buy more things,” Fralic says.
Half.com’s first four categories represented only 15% of all e-commerce purchases, he says. “We definitely want to expand into more categories throughout the year,” says Mark Hughes, vice president of marketing, though he will not elaborate. “The model we’ve developed is expandable and scalable. Half.com is a great model for mass market goods because consumers want low prices.”
However, Half.com says it wouldn’t get into areas like collectibles because they are better suited for the eBay auction format.
In addition to the new categories, Half.com has introduced new site features that benefit both consumers and sellers. For consumers, the site now has Power Shopper and Product Advisor, which are search capabilities that help shoppers find what they want, as well as product recommendations, which offer shoppers more product selection purchasing options.
Even though Half.com is not a traditional retailer, it is following a retail strategy of enticing customers to shop. A recent PricewaterhouseCoopers survey on how online sites can convert shoppers into buyers showed that search capabilities and product information are most important to online shoppers; 43% of 500 online shoppers surveyed ranked search functions first while 40% ranked product information first.
Fralic says the technology for the Power Shopper allows customers to put in specific detailed information, such as laptops that weigh less than 8 pounds, which narrows the list of searchable items and makes it easier for customers to find what they need. “That’s really powerful to be able to find things like that,” says Fralic. “It was done from watching how people search for consumer electronics, so it’s very suited to that category.” Meanwhile, the product advisor, Fralic says, is a plain English version of the search function that makes product recommendations.
Half.com also is adding a buyer/seller communication feature, which allows shoppers to ask sellers questions directly before buying a product, and expanded buyer protection policies to accommodate the higher value of many of the items sold in the new categories. For sellers, Half.com is instituting a direct deposit function to allow sellers to receive their funds faster through electronic funds transfer. Sellers can sign up for this feature when they open an account.
Price competition
All these enhancements aimed at improving the customer experience make Half.com’s marketplace that much more intriguing. If consumers shop there instead of at other retailers, doesn’t that mean Half.com competes with retailers?
Not exactly, says Half. The only level on which Half.com competes with branded retailers is price—not brand—so far. The site’s popularity because of its low prices has gained Half.com plenty of users. And they’re talking about it: “We get a significant portion of our customers from word of mouth due to the popularity of our low, fixed-priced model,” says Hughes, who cites customer surveys that shows word of mouth is responsible for a big piece of the site’s growth.
Hughes says while retailers spend money to promote their brand, Half.com—which started out offering half off the products it sold compared to other store prices—considers the customer experience part of its brand. “We view ourselves as a marketplace. Where branding comes in is in the experience,” Hughes says. So Half.com spends its marketing money promoting its low prices.
Fortunate advertising
While Half.com may be following a retail path by expanding into popular online product categories and adding important site functions to make it easier for people to buy and sell online, it is being more creative about its marketing. In the past, Half.com has gotten its message across by persuading a town called Halfway, Ore., to change its name to Half.com for a year and by printing the message “Why pay full price when you can get it for peanuts,” on bags of nuts sold by New York City sidewalk vendors.
More recently, Half.com has an exclusive deal with fortune cookie manufacturer Wonton Food Inc. to bake Half.com messages into 1 million of the 2 million fortune cookies it makes each day to distribute to restaurants nationwide. The message “Save a fortune at Half.com” along with $5 coupons appear on the back of the paper fortune. Hughes, who declines to reveal the cost, says Half does this to keep marketing costs low as well as to make an impact on consumers. “We market like a retailer because we focus on the price points but we don’t really market like anyone else. We can’t afford to pay Time magazine what they want for advertising so we have to think of creative ways to get our message out,” he says. “The chances of consumers reacting to a newspaper ad is low, but people are definitely going to open a fortune cookie, read it and take notice. They’ll remember that.” The promotion started in April.
Opportunistic ads
Half.com also does limited print advertising in such forums as Sunday newspaper circulars. But it usually only does this type of advertising to help a seller when a product is not moving. “We are opportunistic with print ads,” says Hughes. “Rather than let a retailer’s inventory go unsold, we will turn around the creative for an ad to promote it within 24 hours.”
Half.com also has coupons in online coupon sites, such as Fatwallet.com and DealCatcher.com. Hughes also says a big part of Half’s marketing is online ads through affiliates, especially shopping comparison sites. “We do use a pay for performance model or pay per click in some cases with the larger online properties,” says Hughes.
Duif Calvin, vice president and retail analyst with consultants iXL, says Half.com is a unique online player: it is not a retailer, even though it competes on price with retailers. “Half.com’s fixed price format has been well-received,” she says. “They’ve developed a new model of direct selling and they’re making it work.” But she believes the company is breaking new ground. “Half really is just changing the retailing format by providing retailer services. They are making things possible that some retailers or sellers cannot do on their own, such as selling online, offering payment support and customer service. They are providing a similar service to what Amazon.com is doing with Toys R Us, except without the branding aspect.”
The reason Half.com has been successful, Calvin says, is because it hasn’t tried to become a full retailer, owning merchandise and promoting a brand.
Even as Half.com builds its anonymous, fixed-price business it is not ruling out branding options. “We’re always developing thoughts in terms of how to create new tools for our sellers,” says Hughes. Says a Half spokeswoman: “It’s too soon to say for sure how the marketplace will grow and expand. We’re in close contact with our sellers and if it turns out that the solution is branding then we would consider it.”
andrea@verticalwebmedia.com 
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