Easier Shopping Around -- Online

The popularity of comparison-shopping sites is changing the game this year for holiday e-tailers -- and consumers stand to win
NEWS ANALYSIS
By Sarah Lacy

With the holiday shopping fest well under way, it's not surprising that companies like Amazon.com (AMZN ) and eBay (EBAY ) are receiving the lion's share of e-commerce business, along with online outlets for megastores like Wal-Mart (WMT ) and Best Buy (BBY ).

But in terms of Web-surfing traffic, a new class of sites is starting to catch up to the big e-tailers. They're called comparison-shopping sites, and what they do is exactly that -– they crawl through the Internet to find the best product prices. Instead of going from one store's Web site to the next, shoppers can get all their information in one place at the comparison site.

ONE NICKEL AT A TIME. More and more Net shoppers are doing exactly that. According to Nielsen/Net Rating's Web traffic survey for the day after Thanksgiving, Yahoo!'s (YHOO ) Yahoo! Shopping and newly public Shopping.com (SHOP ) ranked right under eBay, Amazon, Wal-Mart, Target (TGT ), and Best Buy. About 30% of online shoppers are expected to use comparison sites this year, up 18 percentage points from a year ago. A poll by market researcher Harris Interactive says that percentage could easily top 50%.

This is a business where money is quite literally made one nickel at a time. Comparison sites get their cash when shoppers click on a product and head to a retailer. Retailers, in turn, pay these sites as little as five cents or as much as several dollars per click, depending on the product. It can be a cheaper way for retailers to go than traditional Net advertising, but it's becoming a tougher slog for the comparison sites.

Hard sales figures for sites like Shopzilla, PriceGrabber.com, and NexTag.com are hard to come by, but all three have been profitable for years and say sales are up. On Nov. 22, Shopping.com, which is the only publicly traded comparison shopper, said fourth-quarter sales would be about $34 million, an increase of 33% over last year. Big Web portals like Yahoo, Google (GOOG ), and Time Warner's (TWX ) America Online also have comparison services, but they don't break out the numbers.

SHARPENING ELBOWS. Rosy earnings aside, this is a tough business, and it's getting tougher. The sites get as much as half their traffic by buying ads on search engines. That's fine for now, but the search engines are starting to become competitors. Google's Froogle is small but growing, and AOL recently launched its own comparison site, In-store.com. Analysts expect Microsoft's (MSFT ) MSN isn't far behind. "There's not room for this many big players with the current business model," says Carrie Johnson, a senior analyst at Forrester.

Such concerns led Deutsche Bank, one of four investment banks that took Shopping.com public on Oct. 25, to issue a sell rating on Dec. 6, sending the stock down 13% in one day. Shopping.com closed Dec. 7 at $23.90, down an additional 7.5%.

So what's a comparison-shopping site to do? Well, there's the obvious: Improve search capabilities so consumers get the best range of options possible when they're bargain hunting.

There's more. Shopping.com now offers cash-back rewards to shoppers, and PriceGrabber has a price-alert feature. Shopzilla went one step further. On Nov. 16, it changed its name from BizRate to Shopzilla because a focus group preferred the whimsical name. The site also has other new features, like a window that allows shoppers to set the range of prices they're willing to pay for products.

NEW FEATURES. Nearly all the comparison sites are expanding their listings to target women, who now are responsible for 60% of online shopping. "Our largest growth area is home and garden, and it's close to being the largest revenue producer as well," says Daniel Ciporin, Shopping.com's CEO.

Expect more features to be added after the holidays, as sites like NexTag, Shopping.com, and PriceGrabber get deeper into comparison engines for services such as travel and mortgage underwriting. Meanwhile, Shopping.com, PriceGrabber, and Shopzilla have serious plans to launch in Europe.

While the comparison-shopping upstarts duke it out, consumers are the clear winner. Smart shoppers can sit back and enjoy the tug of war.

Lacy is a reporter for BusinessWeek Online in the Silicon Valley bureau