Yahoo to launch product comparison service

In the profitable Web search market, comparison shopping engines have become a promising niche, and industry heavyweights want a piece of the action.

Stefanie Olsen
Stefanie Olsen Staff writer, CNET News
Stefanie Olsen covers technology and science.
7 min read
Yahoo is expected to introduce a product comparison search service on Tuesday, in a move to capture the increasingly profitable intersection between Web search marketing and shopping.

The Sunnyvale, Calif.-based Web portal confirmed Monday that it plans to debut the service after nearly five months of testing as a part of a bigger initiative in consumer search and shopping. Though the company would not provide details of the service, Yahoo executives have emphasized for months that specialized search and shopping is rich soil for the company's growth.

The move highlights a hot sector of the already profitable Web search market: comparison shopping. The economic downturn, healthy broadband adoption and renewed interest in Web search has proved a boon for companies that specialize in helping people locate products for the lowest price online.

Shoppers can use comparison engines as a real-time buyer's guide: They can type in a product name, like "Canon PowerShot A70," to find where the item is sold; compare prices and product details at stores; calculate tax and shipping fees; read consumer reviews; and buy the best one directly from the site.

Many Web surfers could benefit from such features: As many as 40 percent of surfers look for information on products or services while using a general search engine, according to industry estimates. But not all of them find exactly what they're looking for when using engines such as Google or Yahoo. That could be causing people to head to specialty product comparison sites like DealTime or PriceGrabber.com. The percentage of the Web population that uses comparison shopping indexes went up from about 9 percent in 2002 to nearly 15 percent in 2003, according to recent research from Nielsen/NetRatings.

"The market has grown tremendously over the last year," said Rob Leathern, director and senior analyst at Nielsen/NetRatings. He added that in the last year alone, the number of visitors to shopping comparison sites has shot up by more than 100 percent. In contrast, top-ranked sites Google and eBay grew by about 40 percent.

After the gold rush
Despite the growth, comparison shopping sites have been affected over the last few years by the bursting of the dot-com bubble. Shopping engines like AltaVista's Shopping.com--part of an overzealous expansion strategy--were once hyped as the second coming of e-commerce, along with many concepts that flopped. Engines such as CBS-backed StoreRunner failed, but others survived or were sold off. AltaVista, for example, sold Shopping.com to comparison site DealTime in 2001 to help ailing finances and to refocus on general Web search.

On Monday, DealTime officially renamed itself Shopping.com and started directing people to the simple-to-remember Web site address. The company said the name change reflects the fact that the business is coming of age as well as its integration with recently acquired Epinions, a product review engine.

Other engines that didn't go out of business retrenched and improved their services with more detailed product information to deliver on early promises. At the same time, e-commerce has become a more stable industry, and consumers have grown more comfortable buying products online every year, which drives them to look for deals. That proved beneficial for companies such as BizRate, PriceGrabber and NexTag--all in the top 10 of comparison shopping engines. MySimon, owned by CNET Networks, publisher of News.com, is also among the top 10.

Their stability has dovetailed with the success of search engine marketing in the last 18 months. Many of the engines have turned profitable by allowing advertisers to bid and pay for placement in their product directories--a formula called "pay for performance" made popular by search giant Overture Services and adopted by its chief rival, Google. Because many advertisers have wised up to the advantages of search marketing via Overture and Google (they pay only when people click to their sites), major brands like J.Crew and Circuit City are more willing to go straight to shopping comparison sites to advertise. That, in turn, makes comparison sites more valuable to consumers.

"With the re-emergence of search, a lot of companies realize that they may be able to get better exposure with a specific shopping search engine than a more general one," Leathern said.

As a result, search heavyweights Google and Yahoo, which is acquiring Overture, have been keen to join the action. Financial analysts have said the estimated $2 billion in search marketing sales this year could be increased, if only search engines could deliver more targeted commercial results when people are in shopping mode.

Google started testing Froogle in December 2002. The rudimentary service lets people search by shopping category or by typing a product description into the search window. Google also recently added new features, including ones that allow people to sort results by price, view items by images and navigate the site more easily. Still, it's a beta site, and it only reaches about 0.3 percent of the population. DealTime, the top specialty comparison site, reaches more than 8 percent, according to Nielsen/NetRatings.

In comparing Froogle to rival engines, the company describes its service as objective and comprehensive. "Froogle...users receive the most relevant and important results first--just like the Google search engine. As Google crawls the Web, it identifies Web pages that sell products and includes those pages in Froogle," spokeswoman Eileen Rodriguez said.

It remains to be seen whether Google will do much with the service. The company started testing a similar service--one that searches mail-order catalogs--in December 2001, but it has not yet caught on.

Yahoo started testing its own product comparison site in April. In its early stages, the test site allows people to type in a product name or category such as "digital cameras" and call up a list of brands; narrow items by price; find where a camera is sold; compare prices and product details from a list of stores; and click to buy. It also features up to five links from advertisers.

The site will likely complement Yahoo Shopping, a virtual mall that it launched in November 1998 and that is already considered the largest shopping guide, reaching about 11 percent of the Web population, according to Nielsen/NetRatings. Yahoo lets consumers search for products and services in its Yahoo Shopping area. With each purchase from its site, it gets a cut of the retailer's revenue.

Yahoo and Google have yet to work out business models for their shopping comparison sites. But both companies display targeted keyword ads within their product sites. Once either Google or Yahoo puts its weight behind product search, the technology could quickly capture large audiences.

Risky business
Still, both Yahoo and Google face challenges. Like specialty shopping comparison sites, general search providers must maintain a balance between consumer and business interests, given that marketers often pay for placement in the directories.

Also, despite their growth, product comparison services have yet to become mainstream with Net users. Search pundit Danny Sullivan said Yahoo, Google and others are challenged to perfect and personalize search formulas so that people can get product results without visiting specialty engines. They must learn to infer user intent to deliver product results on the spot, he said.

"The real thing that will set this industry off is when you will see it integrated across the network--when search engines have the guts to give you shopping search results instead of general results," Sullivan said. "But they risk losing users if they're wrong."

In a sign the major search engines are leaving money on the table, DealTime, PriceGrabber and others are among the biggest pay-for-performance keyword advertisers on Google and Overture, he said.

PriceGrabber, based in Culver City, Calif., has grown fastest among the price comparison sites, at 127 percent from July 2002 to July 2003, according to Nielsen/NetRatings.

A privately held company financed by investors, it is profitable and makes $28 million in revenue annually, according to company executives. It makes that revenue by referring $1 billion worth of merchandise sales from about 500 brands per month. Brand advertisers pay on average between 25 cents to 75 cents per click, depending on the category of merchandise. Digital cameras, for example, can command click prices of more than $1.

PriceGrabber, along with rival sites, is aggressively expanding shopping comparison categories to attract a more mainstream audience. Shopping for computers and electronics has long been the top trafficked area of product comparison sites, but now, PriceGrabber and others want to lure people to shop for apparel and jewelry.

DealTime, the largest specialty product site, has had similar success with the same pay-per-click model. The company reached profitability in the third quarter of 2002 and it tripled the number of merchants promoting products on its site to more than 3,000 in the last 12 months. (In contrast, Google and Overture have about 100,000 advertisers each. But DealTime serves just straight product listings as opposed to the entire universe of commercial services or Web sites.) The company has expanded its site largely through partnerships with portals and Internet service providers, including AltaVista and EarthLink.

DealTime has also worked to improve its service by adding consumer reviews and ratings. Earlier this year, it bought product review site Epinions for an undisclosed sum.

"These sites managed to ride out the downturn and re-emerge. We're seeing steady growth in consumer behavior, and they've managed to interest enough merchants to make their model sustainable," Nielsen/NetRatings' Leathern said.