Transcript Price Search - Teaching Web Server

Internet Search
Background Information


Dramatic collapse in the stock prices of
leading E-retailers.
Etoys, an online shop selling toys, had a
market capitalization:



Year 1999: $10 billion
Year 2000: only $4 million
on the verge of bankruptcy
Reasons for the collapse

High fixed costs




Low price-margin


advertising
website development
not just one time set up costs
internet search technologies create Bertrand-like
competition
Price searching business is becoming more
and more important as the E-retailing
business is more and more popular
Flow of report



Introduction to search engine
How search engine affect business
online?
Question and Answer
Price Search

Price Search Engine


websites specified in finding out the lowest
price offered in the internet by E-retailers
will direct you to the website of retailers
Price Search



2 kinds of search engine:
Database-based
Shopbot-technology-based
Price Search



Database-based:
Firms directly enter prices and item
descriptions into the database
Use a web-based interface to enter and
change the price

Pricewatch.com, Shopper.com
Price Search


Prices listed can be changed
Firms can complete with each other


Shopper.com – change twice a day
Pricewatch.com – unlimited times a day
PRICE WATCH

Pricewatch.com




®
Database-based facility
specified in searching computers components
E.g memory, CPUs, motherboard...etc
Firms listed: mainly small firms


large number of small business in this segment
without advertising or web development costs
the major channel to reach customers: Pricewatch
Search Engine Revenue




E.g Shopper.com
$1000 one-time, non-refundable fee
Additional $100 at the beginning of each
month
Firms receive over 250 qualified leads:



Qualified lead – a consumer ‘clicks-through’ from
the Shopper.com site to a firm’s site
$0.5 per lead for first 50,000 leads
$0.6 per lead for each additional
PRICE WATCH


®
ResellerRatings.com
Evaluate companies who sell computer
products

enable people to post feedback on
companies
How Internet Search Work



Search the Internet
Building the index
Search for indexed data
Price Search


Shopbot-technology-based:
Shopbot - An automated search engine
that visits multiple E-retailers’ sites to
collect information about prices and
other attributes of goods and services

MySimon.com
Search the Internet

Example: Google.com


Use of multiple spiders
Use of special software robots “Spiders”




Starts at popular sites
Indexing words on web pages
Follow links and spread out
Store the indexed data for later access For system sent
4 spiders at a time


Crawl over 100 pages/sec
Generate 600kB/sec
How spider works?
Building the index


Select information and method of
indexing
Assign weight to each entry

Words in titles can more heavily weighted


Different search engine have different
weighting methodology  different ranking
Other information will be stored
size
e.g. Font
STOP SEARCHING!

Possibility of improper usage

“Search engine spamming”



“Child care” in web site selling children clothing
Use of “playboy”, “playmate” in a website and had
been sued by Playboy
Bargain Finder by Brian Krulwich



Search online CD stores for the best price
Over 100,000 users in the first 2 months
3 out of 8 online CD stores the program searched
decided to prevent its search on their web sites

a highly scalable information retrieval
system
advanced parallel search technologies
Offer instant product comparison
User link to merchant’s “buy” page for easy
purchasing.



Pricing strategy
Commission model

charge the sellers a commission of 2%- 5% of
each sale
Sponsor model

charge the sellers a certain amount of ad fee

On one hand,
Merchants are willing to be “comparisonshopped” because the Web traffic they get is
motivated to buy.

On the other hand,
Retailers never like to be side by side with
their competitors

want to build brand on their own
Empirical Studies: Data


Price data: hourly data of certain preselected products from Pricewatch.com
Sales data: from one internet retailer



Little advertising
Most traffic is from Pricewatch
Other data: ranking of firms lowest
price
Empirical Results


Extremely high elasticity in demand
Negative cross-price elasticity
Empirical Results


Prices are only about 2% above marginal cost
 Bertrand competition
 even efficient, budget-conscious retailers that did
not advertise could hardly survive
Cross-price elasticity of demand for a higher quality
product with respect to the price of low-quality
product
Empirical Results


Given the limited capabilities of search engine,
consumers’ only option is to first use the price search
engine to get a list of the websites offering the
lowest price for any memory module,
and then to follow some hyperlinks provided to find
the price of the product that best fits their
preferences.
Obfuscation – Bait-and-switch

“Bait-and-switch”


offering a low quality product at a very
low price to attract customers
and then try to convince them to pay extra
to get another product of higher quality in
the website
Obfuscation – Bait-and-switch

Higher quality product with higher price are
advertised on the websites


Better warranty and return policies.
Eg, CPU without fans VS CPU with fans
Search Engine Revenue
Paradox


Revenue of Search Engine
Retailer’s side: membership fee, referral
fee


E.g. Yahoo! Shopping: 2% gross profit
Consumer’s side: membership fee
Search Engine Revenue
Paradox

Retailer’s Side




Bertrand-like competition
making no profit
will not pay much to be listed
Consumer’s Side


no price dispersion
unwilling to pay for the information
How do E-retailers survive?


Limitation of search engine
One cannot ask a search engine to find
“decent-quality memory modules sold with
reasonable shipping, return, warranty and
other terms”
How do E-retailers survive?


Cheating!!!
Obfuscation


make it difficult for consumers to compare
prices
increase search cost
Obfuscation – Mattress Case




Search and Obfuscation do not start with the internet
Phone – an effective method for comparing prices
Mattress case:
Retailers use different model names to hinder price
comparison
 Only 2 out of 44 have same model names
Obfuscation – Hidden cost


Offering a low price with unreasonable shipping
and handling fees
 Unattractive contractual terms:
 Consumers: return shipping and 15-20%
restocking fee on all returns. (Include
defective product)
 very short warranty period
Now: give a range or put “and up” after the
number
Obfuscation




For shopbot-technology
More prone to obfuscation
Incorrect prices and matches
E.g: Yahoo! Shopping
 “128MB PC100 SDRAM”
 5 lowest prices: $0!!
 Incorrect memory module
Obfuscation


Some firms state that offered prices are not
available through the website and require
consumer to call on the phone.
While other retailers state that the prices on
Pricewatch are only available through the website
and do not apply to phone orders.
Tools those Search Engines
Use



The search business is also more focused on making
money. Without a profit, search sites won't be around.
They're doing their best to match advertisers with
potential shoppers.
Different search sites show their sponsor search results
with different degree of transparency, and some may even
be misleading.
Commercial Interests Affect Real
Result



A site owner who pays a search engine to be included
receives a guarantee that the site's pages will be
frequently revisited.
Search engines, e.g. AOL and MSN, are able to
manipulate results and prevent competitors’ sites form
showing up.
Search engines also places sponsored links before other
non-partner links in the real results.
Sites that Pay


Metasearch engines are even worse, and they
become meta-yellow pages because they query paid
listings.
However, one search engine, Google, opposes and
claims that treating a smaller list of sites differently
isn't fair.
Are Ads All Bad?



Ads can be useful, depending on what you're
searching for. If you're shopping for something
specific, sponsored links can often lead you to
reputable e-commerce sites.
E.g. "Palm M130“
If you search for "Palm M130" on any of the major
sites, you'll get links to several stores, and often to
ads or sponsored links with the latest prices.
Search and Obfuscation

A game of balance of power



Improvement in information technology
decrease or sometimes increase the search
costs
Search engine case:


Consumers: wish to lower search cost
Retailers: wish to raise search cost
Conclusion

While the internet clearly facilitates
search, it also allows firms to adopt a
number of strategies that make search
more difficult.