The online retailer has spent nearly $300 million acquiring three shipping software vendors over the past nine months.
Veteran comparison shopping sites refine their strategies as new players crowd the market.
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.
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.
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.