Just in case Glenn et al did not post here:
September 3, 1998
Internet's Robot Shoppers
Are Unable to Roam Free
By REBECCA QUICK
Staff Reporter of THE WALL STREET JOURNAL
Shopping "robots" -- computer programs that scan the Internet for
bargains -- are supposed to transform cyberspace into a consumer
paradise.
But don't try telling that to Jason Olim, founder of CDNow Inc., one of the
hottest music retailers on the Web.
Mr. Olim doesn't like the invasive "bots," and he routinely blocks them
from the CDNow Web site to prevent them from taking his prices and
stacking them up against his competitors.
Windows Shopping
On-line shopping guides are often incomplete. A search on Compaq computer's
Junglee shopping guide for the book 'The Perfect Storm' did not reveal several
on-line sites that carried the book.
Among those left out:
All Book Web
Bargain Book Warehouse
Barnes & Noble
Bolen Books (based in Canada)
The Book Pl@ce (based in the U.K.)
Books-A-Million
Powell's Books
"We're simply not interested in working with the bots," says Mr. Olim. "It's
too expensive to try and serve a customer who's only going to shop with
us one out of every three times because of a 50-cent savings."
'Frictionless Capitalism'
Internet pundits and venture capitalists have long claimed that
comparison-shopping programs will help turn the Web into a nirvana of
"frictionless capitalism," where middlemen are obsolete, markups are
pared to the bone and consumers rule. With the aid of the bots, the theory
goes, a shopper could find the cheapest price for everything from books to
flowers to spark plugs, with just a few clicks of the mouse.
Trouble is, the bots are only as good as the information they collect, and
there are plenty of ways for uncooperative Web stores to thwart and
confuse the digital comparison shoppers. Some bots charge merchants for
listing their products, thereby excluding those who refuse to pay. There is
even the specter that on-line merchants themselves may operate shopping
bots that avoid competitors' products.
Why are retailers balking? Some worry that shopping robots will turn the
Internet into a virtual wholesale warehouse, where the lowest price wins,
and other expensive features they have built into their sites will be
devalued. CDNow, for example, offers not only hundreds of thousands of
albums but also dishes out music reviews and commentary from critics and
fans, as well as recommendations based on a customer's past purchases.
Some retailers also claim the bots can clog their Web sites by requesting
page after page of data as they gather prices.
No Blockage
Catalog-sales giant Lands' End Inc. in Dodgeville, Wis., doesn't block
bots. And Thane Ryland, a spokesman for the company, acknowledges
that the comparison-shopping they offer is convenient. Still, he says that is
only part of what customers want. The Lands' End Web site, for instance,
offers essays on rural life, clothing-care tips and a folksy newsletter in
addition to the retailer's full catalog.
The shopping bots blow by all that window dressing. They are
programmed to home in on specific bits of information, such as model
numbers and prices. The bots know how most Web pages are designed,
and can sift out the needed data from the jumble of software coding and
fancy graphics.
Here's how they work: Say you want to buy a videotape of "North by
Northwest," the classic Alfred Hitchcock thriller starring Cary Grant. You
could go to the Webmarket site (www.webmarket.com), select the
"movies and videos" section and type in the movie title. In seconds, back
comes a list of a half-dozen Web stores offering the tape for prices ranging
from $14.64 to $19.49.
Some Web sites simply slam the door on shopping bots, refusing to
answer requests for Web pages that come from known bot sites. (Web
retailers can see the address of a visitor.) Or they try to confuse the robots
by changing the Web site's format or appearance, so the bot doesn't know
where to look for pricing information. Another trick that can foil the bots is
to lower a product's base price, but then raise hidden costs such as
shipping and handling.
"It's easy to break the legs of the virtual shopper at the virtual door," says
John Sviokla, a partner at Diamond Technology Partners, a Chicago
technology consulting firm. And Web retailers should be afraid, Mr.
Sviokla warns, because well-informed shopping bots could spark a
cutthroat pricing war in cyberspace.
Hot Technology
Despite these concerns, shopping robots are a hot technology, and Web
giants are clamoring to offer them to attract visitors. Search site Excite Inc.
offers a comparison-shopping guide called Jango. Last month, competitor
Infoseek Corp. shelled out $17 million for Quando Inc., which makes a
shopping robot scheduled to debut later this year.
That deal came just after Internet book seller Amazon.com Inc. paid $180
million for Junglee Corp., operator of one of the Web's biggest
bargain-hunting sites. And just this week, Inktomi Corp., a maker of
search-engine technology, agreed to acquire C2B Technologies, a maker
of comparison-shopping software, for stock valued at $92.7 million.
In addition to charging merchants, shopping bot sites can earn money by
selling advertising space. Some also enter partnerships by providing their
search software to other companies' Web sites. A Junglee "shopping
guide," for example, appears on a site run by Compaq Computer Corp. It
offers users information on apparel, books and electronics, but not
personal computers.
The first shopping bot to gain widespread notice was BargainFinder, which
was built by Andersen Consulting back in 1995 as a research project to
persuade its retailing clients to prepare for electronic commerce.
BargainFinder, which still exists, allows consumers to search a half-dozen
on-line music stores and returns with a list of titles arranged by price.
But from the very start, the technology was mangled by suspicious retailers
that refused to cooperate.
"A lot of the sites saw our robots coming in and refused them entry. Other
sites asked us not to send the robots in," says Glover Ferguson, director of
the electronic commerce program at Anderson.
Why would the retailers balk at being included in a project that could drive
traffic to their sites? "If you spent a gazillion dollars coming up with a great
site, then [the shopping robot] is just not attractive to you," says Mr.
Ferguson. "Nobody wants to be reduced to a commodity."
The shopping bot sites are quick to point out that they are driving traffic to
retailers, and that the benefits to them outweigh the risks. "There are
people who are afraid not to be included," says Kirstin Hoefer, product
manager for Jango. And even if some retailers won't cooperate now, they
will eventually bow to the bots, say the comparison-shopping concerns.
"As consumers start moving to a medium, you have to follow them if you're
a retailer," says Venky Harinarayan, a vice president at Junglee.
Undermined by Owners
The Web retailers, though, may not be the only impediment to comparison
shopping in cyberspace: Some of the shopping bots may be undermined
even by their owners. The acquisition of Junglee by Amazon.com, for
example, will give the book seller control of one of the most well-known
shopping bots. That worries critics, who note that it isn't in the best
interests of Amazon.com to have traffic driven to competitors should
Amazon.com fail to have the lowest prices.
A book search using Junglee on the Compaq Web site missed a number of
on-line vendors that offer the title, including Barnes & Noble Inc. Junglee,
which lists only vendors that have paid it a fee, says that it doesn't currently
have a relationship with Barnes & Noble, but it is in discussions with it and
other booksellers.
Amazon has pledged that Junglee won't play favorites and will make as
much information as possible available to consumers. Nonetheless, Junglee
is now playing down the idea that cheaper prices are the main reason to
use a shopping bot.
"You don't buy based on price alone. There are multiple aspects, like the
convenience of having everything in one place," says Mr. Harinarayan.
"That's the way we've started looking at this-as one-stop shopping."
interactive.wsj.com
Blue Bloods of the Internet
See Their Shares Rebound
By LESLIE SCISM
Staff Reporter of THE WALL STREET JOURNAL
Get this: There's a flight to "quality" in some of the market's most
speculative stocks.
It seems you can't keep an Internet-loving investor down. They were back
this week pumping up the prices of some, but not all, of the Internet
stocks, helping the stocks regain some of the ground lost in the
shellackings of late August that brutalized stocks across many industry
groups.
The recipients of Internet investors' affections this week: longtime darlings
America Online, Amazon.com, Yahoo! and several other companies that
qualify as "leaders" or are actually turning profits, albeit generally slim ones.
All enjoyed strong gains either Wednesday or the day before. AOL was
up 3 Wednesday, on top of a 3 1/16-point gain on Tuesday, to hit 88.
Yahoo gained 5 1/2 to close at 77 3/4, while Amazon.com tacked on 7
59/64 to close at 87 7/8.
Up, Down and Up
Internet stocks took a beating during last month's stock-market sell-off,
but now some rally more than others:
Stock
52-wk.
High
Closing price
Aug. 31
Closing price
Sept. 2
Yahoo!
$103.8
$69.0
$77.4
Amazon.com
147.0
83.8
87.9
Netscape
44.6
18.0
22.6
Excite
55.5
21.8
27.7
Lycos
53.6
21.7
26.1
Broadcast.com
74.0
37.9
37.8
GeoCities
51.4
18.1
23.4
DoubleClick
77.1
23.9
25.8
SportsLine
39.6
19.9
23.1
CDNow
39.0
7.8
9.6
Source: Morgan Stanley Dean Witter
But many other Internet stocks didn't rebound with such vigor. Indeed,
some that not too long ago were hot properties aren't showing much
improvement at all. In this category: Lycos, NetGravity, Cyberian Outpost
and CDNow, to name a few, with businesses that range from searching
the Internet to on-line music retailing to advertising sales.
"You saw the whole thing taken down and then you saw the profitable
companies and the leaders coming back first," says Steven Horen, a
NationsBanc Montgomery Securities analyst. "The next group you see
coming back are the category leaders that have near-term break evens."
That investors are being "a bit choosier," he says, "is a great thing" -- and
overdue in the view of many market watchers, who were stunned earlier
this year as the market capitalization of youthful and still unprofitable
Internet bookseller Amazon.com surged ahead of that of its two biggest
rivals combined, bricks-and-mortar giants Barnes & Noble and Borders
Group. As of Wednesday, Amazon's $4.3 billion market cap remained
down sharply from the $6 billion it hit earlier this year, but it still remains
ahead of the two other book-retailing chains, which together weigh in at
$3.6 billion.
Mr. Horen isn't among those who think the unprofitable but fast-growing
Amazon.com deserves the strong rebound it enjoyed. He downgraded the
stock earlier this year when it was about 120 and contends it remains
overpriced at 88. But he applauds investors' seemingly newfound regard
for earnings' capability elsewhere on the Web.
His favorites are software maker Intuit; Pegasus Systems, which provides
services over the Web for the lodging industry; and TMP Worldwide, an
Internet-based yellow-pages advertising and employee-recruiting service.
He says all three are "already profitable, and trade at very reasonable
multiples relative to their growth rates."
"Looking back at this summer, investors were buying almost anything
Internet," says BancAmerica Robertson Stephens analyst Keith Benjamin.
Now, "we'll see the recovery primarily in the leading franchises, starting
with the franchises making money, like AOL."
Another such strong and profitable company in his view: Yahoo. He also
favors Amazon.com, while in the "emerging franchises" category he sees
CNet, a portal company or gateway to the Internet, electronic brokerage
firm E-trade and sports-information business SportsLine gaining more
ground over the next month or so, as each is likely to release positive
news.
For CNet, he's anticipating news about its auctions of sales spots to
generate ongoing fees, while E-Trade will be launching a new advertising
campaign, and SportsLine will be heavily promoted by CBS, which owns
a stake in the company, during football season.
Stocks to avoid, in Mr. Benjamin's view: "wannabe franchises." In this
category he puts music retailers CDNow and N2K. "They're competing in
the music space against Amazon, and at this stage I would give Amazon
the benefit of the doubt," he says.
Frederick Kobrick, who heads investment firm Kobrick Capital
Management, anticipates "a huge shakeout" of Internet stocks, with victims
being those companies that "don't have strong managements, strong
business models, mass, market share and momentum." His favorites: AOL,
Amazon.com and Yahoo.
But as Internet stocks seek to regain lost ground they face opposition from
money managers like Paul Wick, who specializes in communications and
information stocks with investment-management firm J. & W. Seligman.
"We have virtually nothing in pure-play Internet stocks right now, because
our feeling is that there are much better values in other parts of
technology," including stocks like WorldCom, he says. His fund sold the
last of its AOL position in July.
Mr. Wick considers it "unlikely that the Internet stocks will continue to
outperform the broader market," given how swollen many of their
valuations remain. "They are just too big," he says. "Eventually, these
manias run out of steam. It's just hard to predict when it will happen."
Indeed, some market observers think Internet stocks are incredibly risky.
Edward Kerschner, PaineWebber's chief investment strategist, recently
warned in a research piece for clients called "Net for Naught?" that "one
can pay too much for even the best company. Even an 'industry leader'
may not survive for long" in a fast-changing industry.
The piece also warned: "Beware of mediocre companies that come to
market simply because there is demand for them."
James Preissler, a PaineWebber analyst, adds in an interview that one of
the safest ways to play the Internet is to choose what he calls
"pick-and-shovel players," those firms that sell services to Internet
companies, making money the way pick-and-shovel salesmen made
money off gold-rush enthusiasts who often lost money.
His picks: Sterling Commerce and Checkpoint Software, software and
other electronic-commerce service providers. "I'd rather have a company
with a real underpinning for its valuation," including both earnings and a
strong balance sheet, if the stock-market maintains a bearish tone, Mr.
Preissler says. |
