Buying in a post-store world

The web is the store—marketplace, really—and the search engine is the interface, right?

It wasn’t always this way, and it’s instructive to consider the underlying forces that drove this and the role of some of the Web’s largest companies in this evolution.

Buyer behavior today

Here’s the way in which I buy most things, which I imagine is similar to the approach of many others who buy a lot of different things online:

Determine the specific product I want—Read various review sites and read newsgroup posts, both through Google (google.com and groups.google.com).  To narrow this down, check Amazon and read the reviews there.  One of the things that Amazon has added that has been especially helpful is the information that notes, “People who shopped for this item also bought/viewed . . .”  This may add a product or two to my list to check out.

Ideally, find a unique product name or model number.

Find the low-price sellers—Enter this in to Froogle.  If I’ve already got a model number, such as for the Lutron dimming switches I recently purchased from “Beverly Hills Electronic,” this is where I start; no product shopping required.  (I use the Firefox browser with Google search built into the toolbar, which includes buttons for site search, search within discussion groups, and a Froogle search, which means that product search is available from every page.)

Rank the results from low to high, which is done with one click, and focus on those at the top of the list (i.e., those that are the cheapest).  Depending on the item, check eBay.

Assess the trade-offs for low-price seller—Look through the first few low price results for a retailer one recognizes. Check the “About us” and other information at the site to assess the degree of confidence in the merchant.  This includes their stated return policy and information from independent store rating services (if available).  Weigh whether the price difference between the cheapest and the next cheapest and is worth the difference in perceived risk? For example, is it worth saving $17 on a $300 item if that means I’d be buying it from a company that I’ve never heard of and who claims they have it in stock, versus from Outpost (a division of Fry’s) or buy.com or Amazon?

Because the Web enables anyone to put up a store front, the price competition is brutal, and since with many products the only thing you care about is price—you’ve already figured out what you want and there isn’t any after-sale service to consider—using a convenient shopping search engine such as Froogle increases the likelihood that you’re getting the best price possible.

It’s exactly this behavior that caused Yahoo to launch Yahoo stores and later drove Amazon to create their zShop program and their “sell yours” programs, and still later to purchase a small search technology company and invest in the additional development necessary to launch A9.

The new battleground

The battle now shifts to getting people to use “your” search engine.  Here are four ways in which this battle is being waged:

• Convenience: Building search into the toolbar.
• Ubiquity: Building it into the browser (MS).
• Pervasiveness: One form of this, though not specifically search, is Google’s gmail, which incorporates their Adwords ads, which are triggered by the context of the e-mail messages.  And we’ve all read about the work being done on hard drive search.  We’ll see something from Google soon that provides hard drive search and includes Adwords Ads in the results.
• Money: Amazon has created their “splitting the pi” financial inducement, which I think creates a perverse incentive for Amazon buyers to search for products outside of Amazon.

Special cases

• Travel—The travel aggregator sites have done an excellent job of making it much easier to find good prices on all aspects of travel.  On top of these have come new companies whose products search not only those sites but also the sites of some of the hoteliers that advertise that they have the guaranteed lowest rates and the specialty travel sites that offer last minute fairs, for example.  (Some of the aggregators have purchased or have deals with some of these, of course.)

• Repeated buying in one product category—In the case of someone who is buying the same type of thing over and over again, such as books, a specialty book store site or a few might be the only place one goes.

• eBay

Increasing returns to scale—One of the cornerstones of eBay’s success is the fact that they benefit from increasing returns to scale, which is essentially increasing returns to success.  In other words, the extent to which eBay is the largest auction site makes it more likely that someone listing or someone looking to buy via an auction will go there first, which puts them even further ahead of their next largest competitor.  As this process continues eBay becomes even larger.

eBay recognized the opportunity with merchant stores—The result of the four factors above is that you’ve got to search eBay separately. EBay recognized the opportunity that this created. Specifically, that enabling merchants to build out their own “stores” within eBay created an opportunity for eBay to make even more money because stores would be exposed to traffic that might not find them through searches on the general Web or shopping searches.

In the US, the game is over and one doesn’t even remember that there once were other auction sites of any size. This isn’t the case in many other countries, and eBay has had to acquire the dominant players in those countries for this very reason that it’s extremely difficult to catch up if you’re small and your competitor is big. In other markets where the two (typically) competitors are close to being the same size, they’re locked in intense competition to emerge as the dominant marketplace in that country, and once one pulls ahead by any significant degree, the dynamics noted above will really kick in. In the case of other merchants, while there may be increasing returns to scale, there is not this powerful effect which drives a huge wedge between the dominant player and the next largest.

Collectibles and things not found in stores—If you’re trolling for one of the early GI Joes, a particular tea cup from 100 years ago, or will settle for a used monitor, where else would you go other than to a place where you can buy it directly (and presumably most cheaply) from the person selling it. Who needs a “dealer” when you can buy direct?

eBay results often don’t show up—I’ve found that eBay listings don’t show up in Google search results (other than the paid ads along the right side, which are humorously off-target sometimes. Here’s one example:

Arc De Triumph
Aff. Cheap deals on
everything Arc De Triumph.
eBay.com

Those that do are sometimes out-of-date—Sometimes the results that do show up are found on pages that are created through the use of eBay’s APIs, which enable others to build applications that pull information from eBay. By formatting this information on a page that has a high rank in search engine results, the entrepreneur is hoping that at a least a few people click through, bid, and eventually buy something on eBay, which generates a commission for him. The developer programs from eBay and from Amazon have resulted in a lot of these, and since in the Google search results they don’t reveal that these pages are simply a repackaging of sometimes expired our or out of date products, it frustrates users who are using something like Google to look broadly for product and price information. Both Amazon and eBay claim that their developer programs have been very successful, but it’s clear that one of the unintended results is negative for buyers who use a search engine as a shopping interface.