An abundance of comparison shopping sites gives consumers numerous paths to aid buying decisions
By Elizabeth Gardner
Nowhere does the battle for the hearts and minds of Internet users rage more fiercely than among sites that would like to help them shop.
A plethora of new services offer every gimmick imaginable to aid the online shopper. NearbyNow Inc. tells shoppers what products are available in malls near their ZIP code. MyTriggers.com lets users enter “persistent searches” and receive notifications by e-mail or RSS feed when the engine finds their Amazing Spiderman #300 comic or bottle of 1989 Ducru-Beaucaillou at the price they’ve specified.
Kaboodle Inc. and StyleHive are where shopping meets social networking, as members swap news of cool stuff at good prices. Like.com searches through pictures to find close matches for the perfect brown boot or red dress. Pricenoia searches across all the international properties of Amazon.com to find out whether a given book or CD can be had more cheaply from Amazon.ca or Amazon.jp. Dealio, operated by Vendio Services Inc., offers a browser toolbar that lets members send “deals” to the site whenever they find them, so other members can take advantage of them, and notifies them when someone else has found a deal that will interest them. Become.com aggregates both pricing information and product reviews.
Several recent entrants, including PriceRunner AB,
ShopWiki Corp. and Pronto Inc., present every product their spiders can find, and reap their revenue from keyword ads or “sponsored listings” rather than charging merchants for each click-through. “We list all merchants whether they pay us or not,” says PriceRunner general manager Martin Andersen. “We decided to sacrifice revenue to gain more confident users.” Sponsored listings on PriceRunner allow users to click through directly to the merchant; unsponsored listings aren’t linked, though the web addresses are visible if the consumer chooses to key them in.
Meanwhile, mainstays like PriceGrabber.com Inc., NexTag Inc., Shop.com and Shopping.com are expanding, polishing or fundamentally changing their offerings to try to hang onto their markets. The first three registered traffic losses during the past year, despite a slight increase in the total number of comparison shoppers online, according to comScore/Media Metrix (see chart at right).
The online comparison-shopping business emerged in the late 1990s and grew along with Internet commerce itself. It used to be simple enough: gather pricing information from as many merchants as possible, show shoppers where they can get a given item for the lowest price, and collect a fee from the merchant whenever a shopper clicks through.
The model works beautifully for any product best known by its number. Consumers know that the Sharp AQUOS LC-52D62U high definition liquid crystal display television is the same item regardless of the merchant, making comparisons a cinch.
Embellishments followed as competition heated up among both retailers and comparison sites. First came reviews of merchants, to help consumers identify which merchant has the best reputation. Then came product reviews to help consumers select not only the least expensive TV, but the best one for their budget.
Then things started to get complicated. Online shoppers branched out from consumer electronics, books, housewares and other easily compared items into apparel, jewelry, shoes, and other categories where subtle variations in style and color are difficult or impossible to capture, yet make the difference between a sale and oblivion. Shoppers who want a purple bathrobe won’t settle for a blue one, but eggplant or amethyst might do nicely. A pair of mid-rise black pants is no substitute for a pair of low-rise black pants—except that it might be, in the hands of the right designer.
Competitive barriers
These categories that defy easy computerized searching are also vital to sales and revenue growth, says Jim Okamura, a principal with retail consultant J.C. Williams Group, Chicago. For many shoppers, finding the lowest price is secondary, or even tertiary, to finding the right item.
“There’s a consumer segment that’s price-driven, but it’s very hard to make money from them,” he says. “Retailers who are leaders and put up some competitive advantage barriers aren’t doing it on price, but on expertise or an eye that lets them provide total solutions.”
There’s plenty of room for the comparison-shopping business to grow. Of all shoppers who have bought anything at all in the last 30 days, from a carton of milk to a car, less than 10% used a comparison shopping web site, according to recent research from Gartner among U.S. and U.K. consumers. Figures from comScore/Media Metrix show that of the 176 million U.S. internet users, only 60 million—barely a third—use comparison shopping sites.
Keeping themselves relevant is perhaps the biggest challenge for the sites, Okamura says. “The biggest threat to their business model is that there are so many other places for consumers to get information, with all that social networking out there that has explicit or implicit commercial connection,” he says.
Moreover, as more merchants become multi-channel, customers will want shopping sites to provide information on offline availability of products, says Gartner retail analyst Hung LeHong. “Today when you go on a price comparison engine, you just see what’s available online, and not the store price. But your local Best Buy might have four in stock. When store information gets on the web in a bigger way than it is today, that’s when it will get interesting with the comparison sites.”
Patricia Freeman Evans of JupiterResearch agrees. “Consumers want online stores to have a much broader assortment, but they want a consistent experience,” she says. “They expect if they go to Crate and Barrel or Macy’s or Wal-Mart they can see the merchandise that they saw online. Their expectations for multi-channel concurrence are growing, and they want to see where the inventory is.”
Here’s how some traditional players are coping with a changing market.
NexTag
Branching into services
One of the pioneers of comparison shopping, NexTag went live in 1999, and carries information from about 7,000 merchants. Its business model rests on having merchants bid for position: those who pay a higher price per click appear higher on the consumer’s list of results. Opening bids range from a nickel to a dollar, depending on the product category. The consumer can easily change the display order to show the lowest price first, but the default view gives the advantage to high-bidding merchants.
Merchants can adjust their bids based on which products have the best return on a NexTag investment, says co-founder Rafael Ortiz. “If you see you’re getting great ROI on your plasma TVs, you can raise your bid. If you know you can’t compete as strongly in iPods, you can bid lower.”
In an attempt to bump its traffic and revenues, NexTag has recently broadened its offerings to include services: mortgages, insurance, even online degree programs. Ortiz acknowledges that the change will require intense marketing. “When people are searching for something like auto insurance, it’s not something they do often, and they may not know that NexTag can help them so we’ll have to do some advertising specific to that category,” he says. Getting the user interface right will also be a challenge. “Within each category, it’s important to offer information at the right level—it can be off-putting and too time-consuming, or not complete enough, “ he says.
Shopping.com
Thinking about mom
Shopping.com spokeswoman Wendy Sept offers her mom as an example of the customer that the site wants to serve.
“Mom doesn’t realize that there are tools out there to help her shop online,” she says. “She’ll go into Google to search for something, and sometimes she’ll end up on a comparison site and sometimes not. She’ll put in a search for ‘stroller’ and get 20 million results.”
While Shopping.com, owned by eBay Inc., eschews most traditional marketing, it does concentrate heavily on optimizing search engine results, to capture the millions of shoppers who, like Sept’s mother, never think to visit a comparison site.
Once they’ve arrived, a newly redesigned home page lets shoppers browse the five hottest items, including lowest prices and customer reviews, in the ten hottest categories. That change alone has nearly doubled the number of page views per visit, Sept says.
The site has also added shop-by-brand, suggested searches, and automatic comparison grids for the top five items in categories that lend themselves to grid comparisons. And while shoppers can get the daunting full array of available product types by clicking on a tab, the home page navigation bar includes only the most popular categories.
Shopping.com is in the happy position of having a growing user base despite increasing competition. Founded in 1998 as DealTime (which remains in business as a sister site), it acquired the customer review site Epinions in 2003 and relaunched the main site as Shopping.com. After going public in 2004, the company was acquired by eBay in 2005, and now counts Half.com and PayPal among its corporate siblings. Shopping.com also powers comparison engines for hundreds of partners, such as MSN Shopping and social shopping site Kaboodle.
While Shopping.com’s revenue model is primarily cost-per-click, it’s also testing a commission-based shopping cart and single checkout for interested merchants.
Shop.com
Becoming a mall
Mondy Beller, senior vice president of marketing for Shop.com, doesn’t care for the word “mall,” but can’t think of a better one to describe the site’s strategy. “I like to think of us as a lifestyle solution,” she says. Brought in from a traditional retail background that includes tenures at Macy’s and Ralph Lauren as well as AOL Shopping and Shoes.com, Beller is pat of a team trying to make Shop.com a one-stop resource, with a single shopping cart and checkout, for more than 1,000 online merchants, including almost half of Internet Retailer’s top 500 web retailers. The site has been adding merchants at a furious pace, with 45 new participants in the third quarter of 2006 alone, including Petco, Eastern Mountain Sports, Sierra Trading Post, and PCMall.
Founded in 1998 as Catalog City, the site has had a single-cart strategy since being rechristened Shop.com in 2004, and it reaps revenue from a fee on each order, rather than from pay-per-click as most comparison sites do. The average commission per order, negotiated with each merchant, is 16%, says Drew Green, senior vice president of merchant and marketplace development, but it can go as high as 30% to 40% in some categories. In May, Shop.com hired Ken Goldstein, former head of Disney Online, to inject entertainment into the Shop.com experience.
PriceGrabber
Shopping locally
Like NexTag, PriceGrabber also launched in 1999 and operates primarily on a cost-per-click basis. It has 11,000 merchants in its database, though 7,000 of those are in the form of storefronts, where merchants without online stores can offer products for sale through PriceGrabber itself, which takes a commission on each sale.
For the other 4,000, cost-per-click is the model, says Kamran Pourzanjani, president and co-founder. “Cost per acquisition doesn’t make sense for us from a business point of view,” Pourzanjani says. “Our job is to help consumers. Once that’s done, and we’ve qualified a referral, that consumer is well informed and should be ready to buy.” After the click, closing the sale is up to the merchant, and PriceGrabber prefers not to share in that particular risk.
PriceGrabber, part of Experian Interactive, also provides the comparison shopping engine for 300 other portal and enthusiast sites, including Ask.com, iVillage, and About.com.
PriceGrabber was an early entrant in providing comparison shopping information to mobile phones, through a service called Atpgw.com. The next logical step is to provide information on local product availability, and Pourzanjani is testing that capability now. “Only a handful of large retailers can give you that information right now, like Circuit City, Best Buy, and Sears,” he says. “Our initial step is to bring that information into the fold.” As other retailers become more sophisticated, PriceGrabber hopes to be ready to provide a near-real-time system for tracking local inventories. If it isn’t, it will be worse than useless. “What could be more frustrating than to drive to a store thinking your item is in stock and then find they don’t have it?” he says.
Nothing to lose
For merchants, the proliferation of comparison sites can be confusing, but JupiterResearch’s Freeman Evans suggests looking at it as an opportunity.
“Our advice is that retailers cast a wide net and test and evaluate their return on investment at a gross margin level,” she says. “Not all sites are going to be alike in terms of the traffic they send. Since there’s little upfront cost, there’s a low risk in trying most of them. Each retailer should try as many as they can find.”
Elizabeth Gardner is a Riverside, Ill.-based freelance business writer.
