ack in 1999, when people believed the e-tailing shakeout would leave a few Internet merchants standing in every category to compete with the Web sites of traditional companies, the idea of comparison-shopping sites sounded — like so many things dot-com — brilliant.
With a multitude of places to shop on the Web, the thinking went, consumers would quickly gravitate to those that could help them choose the best price, product or online store for their needs. And because Web merchants would presumably pay to advertise on sites where shopping-minded surfers gathered, companies like MySimon, Deja.com, DealTime and Productopia would surely flourish.
The reality is that such businesses have fared only slightly better than those they had hoped to profit from.
The buying services of companies like Productopia and Deja.com both went belly up late last year, while others, like Epinions.com, have had to lay off workers to placate profit-starved investors. Still, the companies that remain standing insist they have a better chance at surviving than many e-tailers, given the continuing — if slower — growth of online shopping.
"Fewer online retailers doesn't mean fewer sales or transactions," said Josh Goldman, chief executive of MySimon, a product review site that was purchased for $700 million last year by CNET Networks, an online technology shopping and news service. "Will the makeup of our site change?" Mr. Goldman said. "Yes, but as long as people buy on the Web, we'll be there to help sell it."
Mr. Goldman said the company was not "downturn-proof," as is shown by the slumping demand for banner advertising on his site. But, he said, a substantial portion of MySimon's revenues come from the fees it receives from retailers.
When a customer uses MySimon to compare product descriptions and prices for computer monitors, for instance, and then clicks on one of the listed merchants and buys the device, the merchant pays MySimon an undisclosed percentage of that sale.
Moreover, roughly 10 percent of the site's 2,300 merchants pay a fee — also undisclosed — to have their names appear prominently on the results list when a consumer types in a product request. (Without such preferential placement, the listing is free.)
• • • MySimon's revenue sources have been solid, Mr. Goldman said, as overall Internet sales have continued to grow and as more traditional merchants have moved onto the Web to fill the void left by so many dot-coms.
Such a diversified source of revenues may, in fact, be giving companies in the comparison-shopping category at least a slim buffer against the dot-com downturn, according to Ken Cassar, an online retail analyst with Jupiter Research, the consulting unit of Jupiter Media Metrix. "For folks that capture a piece of the transaction revenue, there's still certainly a market," Mr. Cassar said.
In fact, Productopia is planning to reopen under new management, and Deja.com's buying service could, the company's chief executive said, reappear in the future under the ownership of eBay.
Mr. Cassar said that for most comparison shopping sites, banner advertising accounted for about half the revenues, and fees for prominent placement, sometimes referred to as sponsorships, about 40 percent. Sales commissions contribute the remaining 10 percent. These companies initially hoped to make the bulk of their cash from the commission of 4 percent or so on each sale, he said, "but it didn't shake out that way."
Part of the reason for that revenue disappointment, said Daniel Ciporin, chief executive of DealTime, a comparison shopping site, is that only a fraction of the online population — some 4 percent — has tried comparison shopping.
"We think this is the tip of the iceberg, and that people will ultimately choose to shop this way," Mr. Ciporin said.
Mr. Ciporin, whose site collects fees for ads and sponsorships, and an undisclosed fee each time a customer clicks on a merchant's offer, said DealTime's revenues had grown significantly, "exceeding all internal plans," despite the souring atmosphere among dot-coms.
He said e-tailers were watching so-called customer acquisition costs with more vigilance than ever. As a result, Mr. Ciporin said, Web merchants appreciate advertising programs that cost them little or nothing until a customer is actually delivered to their sites.
Like a handful of other online companies, DealTime offers product ratings that are written by consumers on the Web site of Epinions (pronounced EE-pinions), which occupies another tier in the comparison shopping category. As Deja.com did before it shut down, Epinions gathers buying advice and ratings on a range of products, and sells advertising to merchants who sell those goods. It also collects a per-click fee for customers it refers to other sites.
Underscoring the challenges experienced by online comparison shopping services, Epinions laid off 24 of its 88 employees last week. But "we're feeling really good about the progress of this company," Nirav Tolia, Epinions' chief executive, said.
Mr. Tolia said the layoffs, though painful, were necessary to help achieve the company's goal of profitability by year's end. Epinions relies on its users to provide editorial content, paying contributors 1 to 3 cents each time someone reads one of their reviews.
Mr. Tolia said operating expenses were relatively low for an e-commerce company — less than $1 million a month. "Our goal was to create a platform that would run itself," he said. "This isn't a business that needs 100 employees."
Even in the moribund online advertising market, Epinions "hasn't been affected by the downturn at all, because we still have a lot of headroom, in terms of the number of potential companies who could still be our customers," Mr. Tolia said. "We didn't even have a v.p. of sales until December," he added.
Another obstacle that could stand in the way of comparison-shopping sites, said Mr. Cassar, the Jupiter analyst, is credibility. "It will always be a difficult balance, on the one hand, to help consumers find the best price for a product in an unbiased manner, and on the other hand, receive the bulk of your revenues from retailers. But I just don't know how much consumers will make of that in the long run."
If the online division of Consumer Reports is any indication, consumers have already made much of it, at least in the short run. Consumer Reports Online has attracted about 526,000 paid subscribers for its service, which costs $24 a year, or $4 a month, and refuses to carry advertisements. According to John Sateja, vice president for new media at Consumer Reports, a division of the nonprofit group Consumers Union, those fees will translate to profitability by the end of fiscal 2001, though he declined to be specific about the extent of those profits.
• • • Mr. Sateja said the Web site had been slowly expanding its online distribution to include sites like Amazon, CNET, MySimon and others that sell the organization's buying guides on their sites, in return for an undisclosed commission.
"It's similar to the agreements we have with newsstands that sell our magazines," he said.
As for whether the shifting fortunes of e-tailing sites could thwart that expanded distribution strategy, Mr. Sateja said: "Because it's relatively new to us, I don't know. The ones we're trying to deal with are the solid ones, which, hopefully, will be around awhile. And if not, there are still quite a few of them out there."
