Cheap, Cheaper, Cheapest

Dec 31 1998

Something's come between Jason Olim and his customers. And Olim, the president and cofounder of CDnow , doesn't like it one bit.

The intruder: comparison shopping services, which send automated software robots - bots - crawling through Web sites to collect price data. The information is compiled into databases, allowing shoppers to find the best deals online.

Olim is a vocal critic of shopping bots, although he grudgingly works with a few. His beef: Bots aren't smart enough to compare anything but price. While CDnow sometimes offers the lowest prices, he says, the site has spent a bundle on extras like recommendation services and gift registries that the automated comparisons happily ignore. Says Olim of the shopping bots, "Consumers don't gain enough in savings to make it worth their time."

But not everyone feels that way. The ranks of shopping bot enthusiasts include Kanth Gopalpur, online marketing manager at Powell's Books, a Portland, Ore.-based bookseller whose Web store specializes in used and out-of-print books.

To Gopalpur, shopping bots are a welcome addition to his own promotional efforts - they showcase the ability of Powell's to sell used books at bargain- basement prices and to locate rare volumes unavailable from bigger online booksellers. In short, the bots have been good for his business - Gopalpur figures a quarter of his customers find the site through price-comparison services. Bots, he says, "have advantages if you have a unique product to sell, regardless of price."

In short, while some online retailers consider shopping bots a valuable source for new customers, gladly paying them bounties for the traffic they generate, others view them as interlopers that are driving a wedge between themselves and their customers.

Moreover, shopping services get to the heart of a key issue for online vendors of books, CDs, videos and other goods available from multiple sources: finding a way to make consumers pay more attention to brand than to price. The Web - and shopping bots - improve a shopper's access to data by making the market more fair. At least theoretically, that should mean lower prices.

That's one reason some sites have tried to block the bots from crawling their sites. But as comparison-shopping services evolve beyond bots, and major portal sites begin to incorporate the technology into their shopping malls, merchants appear more willing to team up with bots. A case in point: Amazon.com 's new Shop the Web service, which launched Dec. 8 with more than 50 Web retailers as partners, including F.A.O. Schwarz, MicroWarehouse and Lands' End.

"Ultimately if it's something that's going to work for the consumer, it's going to work for Lands' End, and that's the measure we'd use in approaching anything like this," says Willie Doyle, manager of marketing and strategic development for the Lands' End Web site. When the ranks of online merchants were small, there wasn't much need for automated price comparisons. But times have changed.

This holiday season, according to the Yankee Group, U.S. retailers will chalk up $2.55 billion in online sales, in product categories that appear to be multiplying exponentially. There's now an abundance of choice, which complicates the process of finding what you want online at the best available price.

Enter the bots. Among the early entrants were Jango, Junglee and PersonaLogic, all of which licensed their technology to other online merchants and portals. Consumers like the concept. Traffic at CompareNet, a comparison-shopping site, has been approaching 2 million visitors a month. A rival service, BottomDollar.com, says it's answering 2 million consumer queries a month.

With the growing popularity of online shopping, other vendors are beginning to market price-comparison technology to independent shopping sites and merchants. Inktomi , the search and caching technology vendor, will soon launch a private-label comparison bot called Shopping Engine. Merchants can use the technology to help shoppers search product categories, by price or brand name. Inktomi has already licensed similar technology to shopping sites W3Networks and iSleuth. Meanwhile, another vendor, Active Buyers' Guide, licenses its search technology to PC Photo Forum, Imagine Resources and Hyperzine.

In a move to strengthen its position in Web retailing, Amazon.com is using Junglee technology to power its Shop the Web comparison shopping service. In addition to buying books, music, videos and gifts directly from Amazon.com, visitors to the company's site can browse through products offered by the bookseller's merchant partners in five additional categories: computers, consumer electronics, apparel, games and travel. Listings are linked to participating merchants, who pay Amazon.com an undisclosed finder's fee for sales that come from the Web site.

"People are doing comparison shopping with or without shop bots," observes Amazon.com spokesman Bill Curry. "We felt the higher use of the technology was helping people find what they want to buy, even when they don't exactly know what that might be."

Today, at least six comparison shopping sites search multiple product categories, including BottomDollar.com, MySimon and newcomer E-Compare. At least a dozen other sites focus on a single vertical market, like books or music.

Wireless Dimension, a site run by Nth Dimension of Bothell, Wash., compares the prices of wireless telephone services. The site demonstrates the way some shopping services provide customers with information merchants themselves can't - or won't - deliver. Wireless Dimension lists a universe of cellular and PCS service plans available from a variety of carriers in major cities throughout the country. Pulling together data on all those service packages took Wireless Dimension's editorial crew several months, an undertaking some cellular companies never bothered to do themselves.

"Cellular carriers, particularly the big ones, have been created from a string of acquisitions of regional carriers, and each entity has different tracking systems that haven't been integrated," says Court Lorenzini, Nth Dimension founder and president. "ATT had tried, but they found the work involved wasn't worth their effort, so they abandoned the project."

The state-of-the-art shopping bots now include real-time crawlers - software that searches dynamically, hitting merchants' sites only after a shopper types in a query. Other sites, like CompareNet and MySimon, use data compiled by human shoppers.

Though they use varying methods to collect information, comparison services have one thing in common: All base at least part of their business models on collecting commissions from merchants in exchange for driving traffic to their sites. Some charge by the click-through. Others ask for finder's fees on completed sales. Still others charge slotting fees, or offer opportunities to buy sponsorships or ad space on their sites.

From a business standpoint, the sites have produced encouraging results. In the year it's been in business, BottomDollar.com has signed up 70 merchants for its affiliate program. Two-month-old MySimon has already gathered 125 affiliates. Other sites, like RoboShopper, have opted to work under merchants' existing commission programs.

Whereas smaller Web merchants like Powell's Books are seeing traffic gains from shopping services, the same can't be said for larger Web sellers. At Barnesandnoble.com, traffic from bots isn't significant enough to track, says Ben Boyd, a company spokesman. "Shopping bots are simply not a priority for us now," he says.

Other merchants have taken a selective approach to shopping services. Cyberian Outpost , which sells computer goods online, has partnered with Amazon.com, and provides daily updated price lists for a few other sites. But it blocks some bots from its site, asserting that they slow down site performance. Daryl Peck, Cyberian Outpost president, declined to say which bots Cyberian Outpost blocks.

As with other online retailers, Cyberian Outpost's main complaint about comparison services is their narrow focus on price. "There are merchants who lowball their prices, then charge a fortune for shipping so they look good on price engines," Peck says. "But you're spending more money. What's the good of finding the lowest price if it means buying from a company you've never heard of before? People will spend more money with someone they've heard of and know has a good reputation."

Perhaps. But online retailing newcomers like using pricing engines for that very reason. Being measured alongside established merchants lends them instant credibility. A case in point: Flowerfarm.com. The Boca Raton, Fla., start-up flower merchant did a soft launch of its Web site in November, and won't begin publicizing the site until this spring.

Being included in pricing engines is one way to get the word out earlier. It doesn't hurt that Flowerfarm.com, which bypasses wholesalers and buys directly from South American growers, sells a dozen roses for up to a third less than its competitors. Stats like those work to the company's advantage with pricing engines. Says Abe Wynperle, Flowerfarm.com's founder: "These comparative shopping tools help us sell."

Not everyone feels this way. "They're an insignificant portion of our business right now," not even a single percentage point of total sales, says Julie Wainwright, president and CEO of video retailer Reel.com. Wainwright says Reel.com physically checks the competition's prices site by site, rather than rely on bots.

Wainwright says Reel.com permits a variety of shopping spiders and bots on its site. It also has a working arrangement with BottomDollar.com and the Excite -owned Jango bots, payin g them a bounty for sales. There's only one bot Wainwright won't allow on her site: Junglee, owned by Reel.com's archrival in online video sales, Amazon.com. "Let's just put it this way: Amazon has a lot of enemies in the retail world and in the portal world," she says.

Bernhard Warner contributed to this story.