[China Glass Network] Nearly five years ago, when the Internet boom reached its peak, people even dreamed of big new ideas in e-commerce. But this year, this idea will generate $4 billion in revenue for a few companies that dominate e-commerce, and spread like wildfire.
It's no wonder that a wide variety of online companies are looking for ways to incorporate this new tool into their business plans. The idea here is to bundle advertising and Internet search results together. Although this is a form of advertising, this practice called "sponsored search" bridges the gap between advertising and e-commerce.
Advertisers pay only when someone clicks on their information and visits their site, so they are actually paying for "cue". By monitoring how much of those "clues" are converted into sales, it is possible to track how much business activity has been created by this new channel on the Internet.
A year ago, sponsored searches were barely heard outside the United States, but now it is being warmly welcomed by online advertisers, thanks in part to Google’s initial public offering (IPO). Almost all of Google’s revenue comes from sponsored search. In the first nine months of this year, Google’s international revenue soared to $704 million, compared to $273 million the previous year.
Search engines have begun to have a further impact on online commerce. Its impact on business conduct is more subtle than the boring numbers of sponsored search businesses. "Search is fundamentally changing e-commerce, and that's not just shopping," said Jeff Weiner, head of Yahoo's search business.
Being able to find what you are looking for is a basic function of the Internet. This feature is being embedded in countless different business services, and for one purpose: to bring users to the stage where transactions can be completed faster.
In the process, the power balance between e-commerce companies and search engine companies on the Internet is beginning to change. For an e-commerce company, the ability to ensure adequate traffic on the information superhighway is the key to business success. And it is precisely the companies like Google that are increasingly playing the role of traffic police.
Search technology has begun to play a role in some so-called "vertical" markets, with "comparison shopping" appearing to be one of the larger markets.
This kind of creativity has been applied to a specific type of product or service and has begun to bring highly targeted search sites. Take Fare Chase, for example, an online travel services company that was recently acquired by Yahoo. As a comparative shopping site for travel, it climbs into different websites to find better deals and presents the results in a format that is easy to compare.
Specialized search engines are also beginning to influence "transactions" that do not involve simple purchases. For example, finding a suitable candidate to fill a job vacancy may involve screening among a large number of applicants, making search a key technology for recruiting job sites.
The same is true for online dating: By combining search and analysis software, services such as Yahoo Personals can claim that it improves the accuracy of virtual dating. Those analysis software attempts to pair people with similar personality types. “It’s not about searching in a vacuum, it’s about interpersonal and psychometric science,†said Lorna Borenstein, head of Yahoo Personals.
There are similar ideas behind the social network business. The social networking business is designed to create an informal online network of friends or acquaintances, which is often a prelude to activities that lead to commercial outcomes such as buying a used car or finding a job. Take LinkedIn as an example. The website was built to automate the kind of network that many professionals rely on for a long time. By reaching out to friends with friends, users should find it easier to develop “commercial clues†or find more reliable candidates than non-humanized networks. The website earns a fixed fee based on the recommended amount to make money.
Reid Hoffman, founder of LinkedIn, says that this specialized service works because it is based on a search engine that tracks relationships. He said, “Because you have to carry out very high-value matters, such as hiring or trading, you are looking for highly accurate metadata,†such as those that provide indirect personal contact.
At the same time, Google and other general search engines have begun to position themselves as a starting point for all kinds of e-commerce, a portal that many consumers will choose when they go online to shop.
"People go online to find things, and this is often commercial," said Adam Freed, director of Google's international products division. According to Rob Solomon, head of YahooShopping, about 10% to 15% of all inquiries into search engines are about products, and many of the inquiries are made by people looking for information about the products they want to buy.
For companies that want to take advantage of the sheer volume of search engines, there are two ways to increase their chances of attracting attention. One is to hire a "search engine optimization" expert to ensure that your site is well designed and that there are better opportunities in search results. But there is currently no way to keep them in the forefront, and search engine companies are constantly changing the technology to prevent unscrupulous website operators from "playing tricks" on search systems.
Another option is to spend money to include sponsored search results. “This is becoming a distribution game and you have to get traffic,†said Ciao CEO Max Cartellieri. The company operates a range of European comparison shopping sites. Paying to search engines to get traffic "is good, as long as the quality of the traffic is fine," he added.
Needless to say, Goolge did not describe himself as a gatekeeper, but instead of directing online customers to e-commerce destinations, he chose a metaphor that was less objectionable. “Goolge is like guiding the user to the sidewalks of these sites,†Mr. Fried said.
However, the stores on this virtual highway must pay for network traffic, which erodes their profit margins. If they don't pay, this sidewalk may lead to the door of their competitors' stores.
Companies such as EBay and Amazon are now among the larger search engine advertisers. Ebay reversed its earlier policy and also opened its website to the crawler's "crawler" software, which finds and indexes pages and then includes them in search results.
This kind of harmonious approach shows that search engines are now a central part of the e-commerce ecosystem: companies that operate on the Internet will risk themselves if they ignore them.
Just look at it? How do shopping service companies count on making money.
Business: Online comparison of the price of similar products to find a more cost-effective business, this potential is always expected to become one of the Internet's "killer application." Right now, with the rise of comparative shopping, this is becoming a reality. Comparing shopping sites to extract product information from different websites and then displaying the information on a single page simplifies the comparison of product features and prices. According to Hitwise, an Internet rating company, about 5% of all traffic entering an e-commerce site is compared to a shopping service website.
The challenge: One problem with such sites is that consumers often use them to gather information and then go shopping in traditional stores. “We create more value than we get,†said Ciao’s Mr. Caterina. Ciao operates a series of European comparison shopping sites.
Making money: A closer deal shows that the value of a comparison shopping site is beginning to gain recognition. This year, Yahoo paid $575 million to acquire Kelkoo, the larger European comparison shopping company. In addition, the US website Shopping.com successfully launched its initial public offering, bringing the company's market value to nearly $900 million. These sites charge them based on clues provided to merchants, much the same as sponsored searches. At the same time, although the price per click has been rising, these leading service companies believe that they are showing a much larger market in front of them, and they are currently only touching the skin of this market. "We still have to be cheaper than the same clue-based model in the Yellow Pages," said Mr. Solomon of Yahoo Shopping.
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