Hear me out, all you online marketers happily skating on razor-thin margins: The future of Internet shopping lies in value and fulfillment – not pricing. The hype on shopping bots and price-comparison services ignores a fundamental market shift: most of the millions of products available on the Internet have already become commodities.
That is, they can be obtained by many vendors without much or any market friction-differentiated entirely by price, and moderated by speed of availability. With commoditization on the Net, price friction has mostly evaporated; the difference in daily prices among most items is ignored because it’s too slight or perceived as too slight. Are you really going to cancel the book order you made yesterday because you found Hannibal selling for a buck less today on another site? Doubtful.
Though we have to be aware that more and more customers are mathematically better trained and increasingly conscious of availability and pricing (online education options, such as math education for GED applicants) have brought about increasing awareness of those factors as well.
Major differences in prices among revenue leaders and brand leaders have become a matter of arbitrage, accident (bad database entry or bad supplier data), or temporary conditions (a sale, free shipping, whatever). The sites with the consistently cheapest prices have not achieved revenue gains or revenue levels commensurate with the leaders in each field, partly because the sacrifice in margin has brought with it a sacrifice in features, customer service, inventory, and/or fulfillment.
Because of the increasing value placed on brand and availability, price-comparison services in their present model are doomed to fail as the vast majority of customers choose their vertically integrated store to buy a range of consumer products rather than try their hand at buying the product at the cheapest price from unknown companies.
Case in point: Using CNET Shopper a few months ago, I found that Egghead.com had the lowest price for RAM and could ship that day or the next. Egghead.com didn’t report inventory status, and I discovered days later that its order-tracking link went to a page reading, “this feature is not yet available.” I canceled the order over the phone. It arrived, of course, later that week. Meanwhile, I ordered the product from MacConnection for about 15 percent more, because it listed the product as in-stock. It arrived the next day.
Comparison shopping is predicated on the notion that shopping at any given site should be as easy as at any other. But what’s frictionless for the consumer is the act of price comparison, not the act of shopping. Once consumers click through to make a purchase, they discover what differentiates a frictionless transaction from a frictionless comparison.
Another reason that price-comparison sites have proliferated is that it’s easy to create the engine behind them. I know how easy it is, because I’ve done it myself: To test some ideas I had about Web search engines and affiliate programs, I spent less than 100 hours over the past year programming and maintaining a book price-comparison engine (www.isbn.nu).
The site offers a comparison among eight online bookstores that I determined to have rapid site response, good customer service, reasonable shipping charges, and carry most books in print or have a unique edge. The result? I’m making money off the crumbs being scraped from the table of e-commerce. The site has had a run-rate of $10,000 for the past six months; clearly, these are big crumbs. The majority of this affiliate revenue comes from two stores, archrivals Amazon.com and barnesandnoble.com, which consistently have the highest or nearly highest prices.
Still, I’m confident of the demise of my service and others simply from reading the revenue figures of stores that offer more value. Their revenue goes up while their cheaper competitors remain marginal players regardless of the substantial savings available.
I’ve formulated an axiom for another factor that drives consumers to bigger brands: The lowest price and actual availability are often mutually exclusive. When you examine the lowest prices available, you often discover that the store either lacks an in-stock status checker or the product is out of stock.
Another case in point here: I recently went online to shop for a 19″ Sony farsight-friendly, high-refresh-rate monitor. Some vendors listed the price at less than $600, but the stores with that price showed it as out of stock. MacConnection had the monitor listed for $650, but showed it could ship the same day. I ordered on a Friday night and the monitor was at my door Monday morning.
Consolidation ensures that the consumer trend of putting more money in the pockets of the most established Web brands and conventional brands making a transition will continue. Every major store is gearing up to cross-sell you everything you need-eToys is stocking 80,000 books nowadays, so it can sell you a Curious George stuffed animal and a Curious George book and a Curious George game. This is just part of the larger trend.
So, as a budding, self-made shopbot-marketeer, I have met the enemy and it is me. Net consumers are looking for landmarks they recognize, not low-budget ticket takers who’ll show you the ruins for only $5, but can’t tell you that the mule ride may cost a lot more.