Five Companies That Could Destroy (or Save) Comparison Shopping Engines
Published: May 30, 2008
Author: David Rodnitzky
A few years ago, comparison shopping engines (CSEs) like Shopping.com, Shopzilla, Nextag and PriceGrabber were hot commodities. Many of them had been acquired for upwards of $500 million, they had strong profits, and a growing customer base. This despite the fact that they had very poor user interfaces, questionable data accuracy, and complicated back-end systems for retailers.
Today, the accuracy and functionality of the CSEs aren’t much better than they were in the past, but the competition lining up to grab market share is much more fierce. Over the next few years, consumers will have more choice when it comes to online product comparison than they have ever had before. My bet is that when the dust settles, the CSE landscape will be much different than it is today.
In my estimation, there are five companies that could have a major impact in the outcome of this epic battle. In alphabetical order, these are Google, Microsoft, SingleFeed, TheFind, and Ztail. This article presents a brief overview of how each of these companies could fundamentally change comparison shopping as we now know it.
Google: Google has not been shy about creating products that directly compete with eBay. This includes Google Checkout (PayPal), Google Talk (to some degree, Skype) and Google Product Search (Shopping.com). And while none of these products has yet to make dramatic inroads against eBay’s established players, Google’s aggressive tactics suggest that they are very determined to eventually grab walletshare away from eBay.
But even if Google doesn’t take out Shopping.com via Google Base, they have a potentially much more effective Plan B that they could use to seriously impair all CSEs – banning them from advertising on AdWords. Though it would cost Google money to prevent CSE advertising, it’s clear that people over at Google have been thinking of this scenario, as evidenced by a recent declaration by Google that comparison shopping engines “merited low landing page quality scores.” Getting effectively banned from AdWords is often a death knell for online companies, and while this alone wouldn’t kill the CSEs, it would certainly be a fatal blow.
Microsoft: MSN recently announced their intent to ‘pay searchers’ who buy products via MSN Live Search. This completes their integration of Jellyfish, a CSE that made it’s name by sharing their advertising revenue from merchants with the consumer. In many cases, consumers can save up to 15% on their purchases simply by going through MSN. In essence, this opens up thousands of affiliate programs to consumers.
This is really a very smart move by Microsoft for two reasons: first, it’s a great way to steal users away from other CSEs – after all, if the functionality and product selection is about the same on all CSEs, wouldn’t you rather use the CSE that gives you 5-10% back? Secondly, a cash-back model incentives Microsoft to display search results based on relevancy to the user – relevancy as defined by the percentage of people who actually buy something. The current monetization model on most CSEs is a straight CPC bidding system with little weight given to relevancy.
Since the CSEs actually make more money by providing a poor user experience (because a consumer will click on multiple paid clicks before selecting a product), the user experience is understandably frustrating. Microsoft’s new model incentivizes them to actually help the consumer find what they want, since it is a performance-based model. So as a CSE with consumer and merchant interests properly aligned, you’d expect their site to gradually become much more useful than traditional CSEs. Combine that with paying users and I think Microsoft has found a winning strategy to gain a lot of market share.
TheFind.com. TheFind differentiates itself from other CSEs in one significant way – it relies on an algorithm to find products, rather than structured data. What’s the difference you ask? Well, an algorithm (like Google’s search algorithm) is an automated program that scours the Web and organizes results based on relevancy factors. Structured data, on the other hand, requires end-users (in this case, merchants) to upload product information in a format that fits the CSE’s specific data organization.
While the idea of having merchants control their product information sounds good at first glance, it’s actually fraught with problems, not the least of which is the fact that most merchants don’t understand how to properly upload their information, don’t update pricing frequently, and as result often fill the CSEs with out-of-stock, discontinued, or wrongly classified results. So over time, you’d expect TheFind to provide more data, more accurate data, and a better user experience than a traditional CSE. Time will tell whether this actually happens, but if it does, it will not bode well for CSEs.
SingleFeed.com. A potential savior of the structured data model is SingleFeed and other data optimization companies. SingleFeed is essentially a middleman that makes it easy for merchants to upload and update their data on the CSEs. If SingleFeed is successful, you can expect many more merchants to participate on the CSEs, and you can expect these listings to be much more accurate and up-to-date. SingleFeed could be the ‘missing link’ that saves the structured data approach.
Ztail.com. Ztail is the first company I’ve seen to truly fuse Web 2.0 and comparison shopping. The essence of the business is that you can discover the worth of any product online at Ztail by looking at eBay auction prices, CSE data from Shopping.com, and user-inputed estimates. For example, if you have an 8GB iPhone, you can combine the prices of new iPhones from Shopping.com, used ones from eBay, and perhaps even iPhones that users saw for sale on Craigslist to triangulate around the true worth of the phone.
This combination of new, used, and user-generated pricing is actually a much more accurate and comprehensive way to get pricing information than going to a basic CSE. If the site takes off, it could very well become the Yelp.com of product pricing, making CSEs only helpful insofar as they exist as part of the Ztail ecosystem.
Conclusion: The traditional CSE model is dying. With little innovation in the last few years, the rise of better algorithms, Web 2.0, and new comparison shopping options, CSEs today are faced with a Darwinian reality – evolve or die. The good news for the CSEs is that most of them are now owned by giant multinational corporations with huge wallets and resources. The bad news is that giant multinational corporations aren’t particularly good at innovating. To save their investments, however, they may need to break that bad tradition pretty soon.