The death of online price comparison
The news of Microsoft selling off Ciao to the mid-size French company LeGuide.com has us scratching our heads here at Bitterwallet HQ and wondering if we are seeing the end of online price comparison. The golden days seem to be behind us as the old big names slump in traffic and value. Ciao was bought by Microsoft for a half-billion dollars only a few years ago but has been bought in cash by a company with EBT of €8.6m and a market cap of only €51m. Kelkoo was bought by Yahoo back in 2004 for €450m and sold a scant 4 years later for a rumoured fraction of the price. Pricegrabber jumped on the mid-2000 sales club by selling to Experian for a half-billion and has slipped down the traffic rankings since then.
It seems the heady valuations of 6 years ago haven't panned out as the sector has declined in popularity even though online shopping has grown massively. Indeed it seems illogical that price comparison portals with their early head start haven't become the defacto starting point for online shopping. While other ecommerce sites such as codes, group shopping, cashback, and deals have exploded, the comparison sites have taken a distant back seat.
There are two probable reasons for this decline: (1) comparison sites were built on the idea of a rational consumer, someone who was carefully planning and executing on their purchases, (2) the model and traffic of price comparison in the first decade was built around traffic arbitrage and search rather than genuine consumers.
Let's take apart reason two first. The initial boom of price comparison was built on the back of organic search as comparison sites churned out millions of pages optimised to rank on the long tail of model number and product search. If you think back to 2004 you probably remember doing a model number search and seeing nothing but page after page of comparison sites ranking for these keywords. Google slapped down these rankings on an individual basis with site penalties in the subsequent years but their recent focus culminating in Panda has made this a central part of Google's ranking algorithm. In a nutshell Google doesn't want pages rankings which are simply link collections to other sites - they want unique content or some value add. Second, the early comparison models were built around CPC (cost-per-click) payments from retailers to the comparison sites. A little bit of simple math (buy incoming clicks for less than outgoing clicks) meant they were able to funnel through large amounts of traffic from cheap sources and simply arbitrage the pricing. This practice has declined as cheap traffic sources have declined and retailers improved their source value attribution tracking and moved away from CPC towards performance models. Lastly, the entrance of Google into the comparison market with Froogle (now Google Shopping/Product Search) and mainly the promotion of these Google Shopping results to the top of the results page has meant that organic traffic for comparison has pretty much dried up.
The second reason is not as simple but I think strikes to the core of why comparison was valued so highly at its peak. When shopping tools are built we often consider the end user to be a rational and ideal future self - the kind of future self that will eat healthy, budget carefully, bike to work and never get *that* drunk again. In reality our present self is very different and driven more by soft social and psychological factors rather than logical reasoning. In the sector of online shopping the price comparison site is more of a tool for the rational future self which is not the mode most people are in when they make a purchase. On paper it looks like the price comparison site would be a necessary piece of the online shopping boom - after all wouldn't every single purchase be checked on a price comparison before going through checkout?
In the end it seems that convenience and reputation are still as powerful online as offline. Consumers continue to keep Amazon as the largest online shop because they trust the service, enjoy the convenience and more or less believe that it's probably a reasonable price they are paying. Sites like Groupon have shown that consumers will happily purchase without comparison based on the narrative of the sale (50% off!!) and the time pressure (today only!).
A third reason for the decline in price comparison may be that the online market has become increasingly large and less transparent. With the boom in private sale sites where prices are hidden behind a registration wall, special discounting services like Amazon Prime, and, again, sites like Groupon where prices are short-term and limited, it has become difficult to compare true prices. Simply put, the price is harder to compare than in early online shopping days where the number of merchants was limited and prices were easier to compare like-for-like.
A last bit to throw in is that as online shopping has become the norm and more brands have become trusted consumers may be less likely to visit price comparison as a trust reference and product discovery mechanism.
After all that waffling on - what say you the Bitterwallet consumer? Have you found your price comparison use habits shifting? Do you remember using comparison sites more in the past?