Trends – Supersized Internet
On Tuesday of this week, Google broke new ground – not by unveiling an innovative feature but by becoming the largest public media company, this in only ten months of having been listed on the NASDAQ. At $80 billion, Google’s market cap overtook long time leader Time Warner, a company purchased by AOL five years ago for $106 billion during the height of the dotcom boom. And with $3.2 billion in annual revenues, Google now rivals a company who last year had more than $40 billion in revenues, i.e. Time Warner. To put Google’s market cap into perspective, as of Wednesday it led rival Yahoo by $27 billion, a number that represents 50% more than the market cap of General Motors, a company with revenues exceeding $130 billion. While Google’s stock retreated some yesterday, it still remained locked in a dead heat with Time Warner as the top media company, its market cap reflecting its position as one of the world’s premier brands.
Besides becoming one of the top media companies in the world, Google’s success no doubt helped fuel the growth and eventual purchase of two of its bigger advertisers and in some ways rivals. The first purchase comes courtesy of eBay who in the beginning of this month agreed to purchase Shopping.com for a staggering $620 million dollars in cash. The site provides comparison-shopping services allowing consumers to find product details and prices from multiple stores. To users, the service is free but the stores pay Shopping.com to be listed, and similar to Google, they are ranked by price per click. Where Shopping.com differs from the normal pay per click marketplace is by adding a feedback loop for consumers to rate the stores, much as eBay members have feedback regarding them. What eBay plans to do with Shopping.com remains to be seen. The purchase does provide eBay with a wider audience base and certainly compliments eBay’s wholesale image.
The second shopping service to be purchased was the recently re-branded Shopzilla. The E.W. Scripps Co. announced this week its intent to purchase the nine-year old Internet company for $525 million. Similar to the Shopping.com purchase, Shopzilla will also receive cash for its purchase. Shopzilla too charges merchants based on click throughs and ties into the process its former star property BizRate to power its reviews. Almost as impressive as their ability to change to market demands by turning to comparison-shopping instead of just reviews is their projected $130 million in revenues. Shopzilla, which earned $99 million in 2004, will most likely equal that amount this year, meaning the profitable company received a valuation of more than four times revenues or 40 times profits.
Besides both Shopping.com and Shopzilla being profitable online companies, they also garner a large user base. ComScore Media Metrix reports 22 million people visited Shopping.com in April and 14 million went to Shopzilla.com. No doubt adding to their appeal is that both companies combine two of the more enduring online successes, search based pay per click advertising and ecommerce. One of the trends being rewarded in Google’s stock price and the billion dollars plus spent on the two popular comparison shopping sites is an ability to not just draw traffic but to offer a platform that appears to serve the customer first and foremost even while being profit centers. Each piece of their content is not only seen as valuable by users but represents a revenue stream for the companies.
Building a large user base grows harder and harder, but what these sites show is that a user base carries a value above and beyond just traffic. LowerMyBills.com arguably generates greater revenues than both Shopping.com and Shopzilla, but its pure lead generation approach and reliance on purchased media and primarily one-time transactions most likely accounted for its mere $330 million price tag. Despite these successes, the comparison-shopping market remains a crowded one, with a quick scan of bidders on “Nikon coolpix digital cameras” yielding bids from well-know PriceGrabber.com, as well Smarter.com, PriceScan.com, and NexTag.com.
Comparison shopping sites occupy an interesting niche. They carry no inventory and have no real content of their own. In addition, they function as a traffic funnel to other sites. Many even pay for their users, which mean users go from search to search to final site. Despite this seeming extra step they help qualify the user, providing a more informed and purchase ready consumer. It wouldn’t be a big a stretch of the imagination to predict that one of the traditional e-tailers such as Best Buy might purchase one of the remaining comparison-shopping sites. Such a move would help a company not just lock up additional distribution but reduce its advertising expense by avoiding the current double bidding, i.e. their bidding on both Google/Yahoo and the shopping site. Time and again we see that platforms for content aggregation and generation servicing a theme have value, and it will keep rising as competition for users only continues to become tougher and tougher.
