28 September, 2000

Comparison shopping sites feel the heat

by Karen Holloway

While e-commerce is meant to make shopping simpler, most consumers remain baffled by the number and variety of internet shopping businesses available. However, fierce competition between e-tailers is leading to a battle of dominance in which only a few big players are likely to survive.

The race is already on between comparison shopping site ShopSmart and its European-based rival, Kelkoo.com, to attract the largest user base.

Kelkoo.com stormed into the UK market three months ago with the acquisition of Shopgenie.co.uk and then turned up the heat on ShopSmart last month when it acquired shopping comparison service Zoomit.com, which claims dominance in northern European countries such as Sweden, Germany and Denmark.

Kelkoo international vice-president Fabrice Mathieu said this merger puts extra pressure on its UK rivals and increases the barriers to entry for further competitors, specifically US shopping comparison sites.

Mathieu says: "This deal places us as the dominant player in Europe. We are neck-and-neck with ShopSmart in the UK and it could be argued they have more visibility as first-movers. But the user base we now have puts the pressure on them."

Kelkoo.com has been on the acquisition trail after merging with Spain's DondeComprar.com earlier this year, and has global ambitions. Mathieu said the company is considering expanding into the US or Asian markets starting in the first quarter of next year.

The company boasts a user base of more than 1m subscribers &endash; including 143,000 monthly unique UK users. However, ShopSmart claims to have 850,000 unique users, 600,000 of whom are in the UK.

Quality versus quantity?

While Kelkoo says it has the largest European database of retailers, ShopSmart's proposition lies on 'quality over quantity'. The site offers a price selection service on everything from balloons to burgers and holidays to handbags from 1,000 online stores.

Daniel Gestetner, COO of ShopSmart, says: "We act as the definitive starting point for buying. We provide a directory of shops as well as comparison shopping technology to enable shoppers to search the price of a product at multiple shops all at once."

ShopSmart.com, which launched in June 1998, rebranded from ShopGuide last November and expanded into Germany and Sweden this year. It has signed partnerships with numerous big-name retailers, including Tesco, WHSmith, Waterstones and Amazon, and has recently signed a strategic and marketing deal with AOL Europe and Wal-Mart Europe in August.

AOL and Wal-Mart, which last year acquired Asda in the UK, have entered a four-year agreement as part of which both parties will promote ShopSmart. Also, ShopSmart's price comparison tools will be integrated into the shopping channels of AOL's services in UK and Germany.

Gestetner explains: "In the process, we acquired one of our competitors, Asda's ValueMad. The whole point of doing acquisitions is to add value to your business. I think we will see huge amounts of consolidations, mergers and lots of tie-ups."

In order to build its brand name early in the game, ShopSmart launched a hefty cross-media marketing campaign in December 1999, which included radio advertisements, billboards and full-page national press ads. It has also been sponsoring Channel 5's nightly films since the beginning of January.

Gestetner says ShopSmart now has 41% brand awareness within the UK, according to new research from Taylor Nelson Sofres.

While the UK's online shopping market may still be small, it is growing fast. According to the NOP Research Group, British consumers will spend at least £10m online this year, more than three times the £3.2m spent in 1999. The survey found that more than 200,000 people are now doing at least some of their everyday shopping through the web.

However, other companies vying for the UK's online comparison shopping market include Taxi Interactive, Swedish-based Pricerunner.com and US-based DealTime, which launched its UK service last month after signing an exclusive deal with Guardian Unlimited. Also, EasyGroup plans to launch a comparison service, easy.com, within the next few months.

Consequently, online bargain hunting has never been more confusing. In addition to comparison shopping sites, there are auction sites, such as QXL.com, and co-buying sites, like Letsbuyit.com.

Reverse-auction rival

Additionally, a new competitor, priceline.com, will soon be introducing another business model into the mix. priceline.com, which claims to be the best known e-commerce service in the US alongside Amazon, will offer a reverse-auction payment system when it launches its UK site this Autumn.

The service will enable consumers to set the price they want to pay for a product or service and then match their requests from its database of merchants. It will initially offer 'Name Your Own Price' services for airline tickets, hotels, rental cars and long distance telephone calling. This may be expanded to offer deals on home financing, new cars, food and petroleum.

Jay Marathe, head of consulting at Durlacher, believes the UK will increasingly see the development of reverse-auctions: "We are seeing the emergence of centralised trading hubs, which request people to take bids to tender. This is a particularly interesting business model and a nice one for consumers, because it puts the buying power into their hands."

Marathe says the e-commerce market will continue to see a move from buyer-driven to consumer-driven services, like the one offered by priceline.com.

In a bid to establish itself in the market, priceline Europe will launch a mass-media marketing campaign, including TV, radio, print and online advertising.

However, Timothy Brier, chairman of priceline Europe, argues that comparison shopping websites will not be competitors: "We are not a fixed-price model. Many of our more obvious competitors are actually complementary to our business model. We encourage our visitors to visit other sites so that they come to us with reasonable prices which we will be able to match."

Brier expects priceline.com to do as well in the UK as it is in the US: "What our customers get is a quality product with premium brands at a price they wouldn't be able to find anywhere else. priceline uses a next generation model that uses the power of the internet to offer a new method of shopping."

priceline claims that its brand awareness is tied with Amazon in the US. Brier says: "We will continue to build our brand at the same level throughout Europe. Demand in the US is quite significant for our service and is growing. We expect to see the same success in the European markets."

The US site, which has a customer base of 5.3m unique users, aims to set up offices in the UK, Germany and France by the end of the year, followed by Asia, Australia and New Zealand. Its targeted revenue for this year is over $1bn.

Another way consumers can save themselves money is to buy in bulk. This age-old concept has been harnessed by co-buying websites such as Letsbuyit.com, which brings together a community of like-minded customers to allow them to drive down prices by buying as a group.

The Swedish-born company orders the products in large quantities directly from suppliers and manufacturers. The site reports that it has more than 750,000 members across its localised operations in 14 European countries. Further plans include expanding into the US and Far East.

However, this business model did not prove effective for one of Letsbuyit.com's competitors. Adabra fell into liquidation in August after failing to raise sufficient funds from venture capitalists to continue operations. The company, which launched in October 1999, supplied companies like Egg, AltaVista and LineOne with its aggregated-buying product.

Letsbuyit announced last month that it planned to shed 20% of its staff, but denied that it was due to cash shortages. The company maintains that the staff losses were a strategic move to consolidate its European offices to create one single unit.

Other players fighting for their share in the aggregated buying market include CoShopper.com, which launched in September, and mytaxi.com.

And as of this Autumn, Abcaz will be launching an online shopping directory service enabling shoppers to compare prices offered by offline retailers.

Consumers are currently being inundated with choices, although there is probably only room for a few key players. As a result, it's likely that UK comparison shopping will continue to see consolidations, mergers and fall-outs until just a few strong brands dominate the marketplace.


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