Article 1 of 200
Management, Strategies, Trends
Price war! Dozens of new Web sites want to help on-line
shoppers compare prices-- much to the irritation of retailers.
BY Scott Woolley
12/14/98
Forbes
Page 182
Copyright 1998 Forbes Inc.
ON A HILLSIDE IN a bucolic stretch of Phoenixville, Pa., a few workers
toil away inside a converted brick schoolhouse. In a closet next to the
bathroom sits a computer that many people despise. Owned by PriceScan, it
contains nothing more than data on other companies' prices. Clerks pore
over computer catalogs, feeding in the latest price tags for monitors,
printers, disk drives and the like.
That wealth of pricing data, and the ability to get it free at PriceScan's Web
site, lets a customer click a few buttons to compare prices for the same
products--something that would take days or weeks to do off-line. The Web
biz even has a buzzword for the practice: transparency.
Computer distributors and other marketers loathe it, wary of a frightful new
world in which price alone--not service or quality or brand identity--dictates
who wins a sale. But they had better get used to it. Price- comparison Web
sites are springing up almost daily. They now sift prices for cell phones,
cars, toys, long distance plans and dozens of other products.
"Big vendors can't get away with charging higher prices just because
customers don't know any better," says David Cost, the appropriately named
chief executive at PriceScan. "We help create an efficient marketplace."
"We aren't afraid to make people mad," adds Ariff Alidina, president of
Esmarts.com, a six-month-old Web service that features the best deals on
everything from toys to calling plans.
If price-haggling sites like PriceScan and Esmarts can thrive, they will help
push the World Wide Web toward its inevitable role as the ultimate discount
warehouse.
It isn't clear whether the rookies in transparency can make a buck at it.
Dozens of fledgling outfits, lured by the low cost of entry to the price-sifting
business, are trying. PriceScan's chief, Cost, 35, owned his own computer
consulting company before he and a pal, a newly minted Wharton Ph.D.
named Jeffrey Trester, launched PriceScan in April 1997. To get started,
they invested all of $16,000.
On-line sellers balked within days of the debut. "When the site first went up,
the price differences were amazing," Cost says. "People on the high end were
embarrassed. They'd call us and ask us to take their prices down."
He flatly refused, and some vendors retaliated by withholding access to their
databases. PriceScan countered with old technology, tracking down printed
catalogs and typing the prices into the schoolhouse computer.
Ultimately the vendors caved because, after all, PriceScan sends a buyer their
way when the price is right. The site was luring a thousand customers a day
by early this year; now traffic is up to 9,000 visitors a day, many of them
corporate buyers, and is growing up to 23% a month.
Multiple Zones, a Renton, Wash.-based computer distributor, started out
opposing the PriceScan scheme but capitulated in June. Instead of making
PriceScan enter its prices manually, the seller now sends the site its data
electronically. "It was a catch 22 for us," says Ronald Risman, who runs
State Street Direct, another computer retailer based in Portsmouth, N.H.
"PriceScan and other price guides help drive volume, but unfortunately they
encourage some of the lowest-margin sales."
Eventually other dealers followed suit. "Everyone broke down and started
cooperating," Cost brags. That has helped put PriceScan in the black, a rarity
among Web sites (albeit on sales of less than $1 million this year). PriceScan
pays $775 a month in rent on that converted schoolhouse and employs only
seven people. Its revenue comes from ads-- mostly computer vendors
looking to promote special offers.
Ariff Alidina, 24, founded Esmarts in June after a short stint as an
investment banker. He had planned to sell toys on-line and was shocked to
find a rival site charging wholesale-level prices he couldn't beat. That taught
him that prices should be easier to find--and "I'd hate to be an on-line
retailer."
Esmarts relies on ad dollars but also collects a 5%-to-8% cut of the sales that
result when it refers a buying customer to some sites.
Some media giants and Internet heavyweights are taking a similar tack.
Washington Post Co. offers real-time comparison shopping at its Web sites.
On-line readers of book reviews will be able to click on a nearby link and
see an array of prices from various sellers; the Post pockets a vigorish,
typically 5% to 15%.
But will readers really see the Web's best price? The Post uses software from
a company called Junglee, which itself was recently acquired by Amazon
.com, the on-line book and CD vendor. Junglee searches only sites that kick
back a cut of the sales that are generated by its software. Yet some of the
cheapest booksellers can't spare the referral fee and don't pay it--and so
aren't listed.
Fears that Junglee will skew its price-shopping in Amazon 's favor helped
prompt Internet giant Yahoo! to abandon its relationship with Junglee a few
weeks ago. "This is such a critical technology that we needed to control it
in-house and not rely on anyone else--particularly Amazon ," says Timothy
Brady, the vice president of production for Yahoo!.
Yet even Yahoo!'s shopping software will initially sample prices only at
vendors that have paid the Web site to be listed as part of Yahoo!'s "on-line
mall." The bargain-hungry buyer can later click on a special button to get
access to a broader price list.
Users won't buy it, counters PriceScan's cofounder, Jeffrey Trester: "People
shopping on the Internet tend not to be idiots. They will recognize that more
objective comparisons exist elsewhere."
The upstarts hope customers will value their neutrality compared with
seller-sponsored sites that might shrink from allout price wars. "Customers
have to believe that we're an impartial editorial source," says Doug DeSantis,
president of Wireless Dimension, which lets consumers compare
wireless-phone plans in the top 50 U.S. metropolitan areas.
Bid Find lets shoppers search 150 auction sites to find the best price, pitting
it against Ebay, the on-line auctioneer valued at $5.1 billion on the stock
market. Founder Martin Totorgul says small auction sites appreciate Bid
Find's referrals, but big sites clearly don't cotton to all that transparency.
While "most [small] sites go out of their way to link up" with Bid Find, he
says, "Ebay won't even link back."
Amazon .com and other big-name retailers on-line get much of their traffic
from people who don't want to pay full list price at an old- fashioned store.
Yet to hear them tell it, price alone isn't what customers are after; they want
good service, a sense of "community" and other niceties. But in a world of
ever more savage discounting, the lowest price will hold sway for legions of
fickle customers, forcing Amazon and its ilk to keep pace--and giving them
a bitter taste of their own medicine. |
