Cyberspace is posing a new threat to retailers: consumer-shopping Web sites that deploy automatic computer programs to hunt down the best price for everything from books to cars to flowers.
It sounds like a consumer's dream -- and a merchant's nightmare. Comparison shopping was once the pastime of only the most dedicated shoppers. Making sure you were getting the best price meant spending hours, or days, driving around to different stores and checking price tags. But the new shopping robots, or "bots," as they are known, are capable of searching for goods on hundreds of Web sites in seconds, putting unprecedented pressure on Web retailers to beat their competitors' prices.Many retailers worry that the robots will set off a vicious pricing war in cyberspace and force them to slice profit margins to razor-thin levels. If one Web site is offering to sell you, say, a cashmere sweater for $20 less than a competing Web site, chances are you'll buy the cheaper sweater. That's why merchants are going to extreme lengths to foil the comparison-shopping sites -- some have even busted the bots by preventing the programs from entering their cyberstores and keeping them from cataloging their wares.
Though the Web has brought retailers this new challenge, it also offers them a chance to respond instantaneously to competitors' moves, such as changing prices and products. Can Web retailers resist this new world of dynamic price competition? A surprising number of industry executives and analysts think retailers will eventually stop trying to shut out the bots and are likely to even embrace the new technology.
Comparison-shopping technology is here to stay whether retailers like it or not, they say, because the Internet has empowered consumers with more information than they could possibly get by cruising the shopping malls. Even the least savvy Web surfer can go to a search engine, type in the name of the product he or she is looking for and find hundreds of Web sites offering information about that product. And that, in turn, has begun to change the way people shop.
"There is a fundamental shift in power, and it's shifting to the consumer," says Glover Ferguson, director of the electronic-commerce program at Andersen Consulting in Chicago. "The Internet has set up a flow of information that didn't exist before."
Here's how the technology works: A shopper goes to one of the bot sites and types in exactly what he or she is looking for (the more specific the better) -- like the book "Einstein's Dreams" by Alan Lightman. The robot program then trawls through numerous Web merchants' sites -- from Amazon.com Inc. to Barnes & Noble Inc. to smaller, specialty Web stores -- looking for any site offering that particular book.
The bot returns with a list of offerings -- as well as all the key information, such as price, description and e-retailer. For this example, a search on the mySimon shopping agent http://www.mysimon.com showed the paperback edition of the book for $7.99 at Amazon.com, $7.94 at Books.com, and $7.75 at A1Books. The consumer then reads through the list of offerings and picks the online merchant with the best price, or using some other criterion such as availability.
Analysts say consumers use the Internet to research potential purchases even when they have no intention of buying the items online. That's especially true for big-ticket items, like cars or computers. Comparison-shopping bots can be particularly useful in these purchases because the difference in price can be much more substantial. And as more consumers move to cyberspace, the bots will gain more influence.
Bots are already hot. The major portal sites are scrambling to acquire comparison-shopping technology, which is seen as a sure way of luring consumers to a Web site.
Just last month, America Online Inc. snapped up PersonaLogic Inc., a San Francisco developer of software that guides online shoppers, for an undisclosed amount. Earlier this year, Amazon.com dished out $180 million for Junglee Corp., the most prominent developer of shopping bots. And portal sites Excite Inc. and Infoseek Corp. also offer comparison-shopping technology.
But the bots are only as good as the information they collect, and several Web merchants have been loath to cooperate with a technology that puts so much pressure on their margins. Some have gone so far as to thwart the bots by feeding them inaccurate or misleading information, or preventing them from entering their sites to gather data.
And even without retailers resorting to such tricks, comparison shopping can be more complicated than it seems. On the search for "Einstein's Dreams," the comparison is made solely on the price of the individual book, and doesn't take shipping costs into account. And even if shipping charges were added to the equation, how would a robot value the convenience of one site getting you a book a day earlier at the same cost?
But many analysts say that retailers will come to realize they should do everything possible to assist the bots. These systems are, after all, driving traffic to Web merchants, something the retailers can hardly afford to ignore, given the competitive landscape. That's why many experts say the bots will change how retailers present their wares to consumers, and how consumers will shop.
One likely change: Retailers will be forced to start offering more value to customers so that price isn't the only comparison. This is particularly true for some of the less-expensive items, such as compact disks or books. Already, sophisticated e-retailers are adding special services to their sites so that consumers won't mind paying slightly more for a product.
At the online music store CDNow, for example, repeat buyers are treated to a variety of perks, including a Fast Forward Rewards program that lets them earn points for every purchase, much like a frequent-flier program.
Other ways to keep customers loyal: personalized shopping systems that remember your preferences and suggest other music you're likely to enjoy; and gift registries that let you electronically tag items you'd like to receive.
Still, some are skeptical -- mainly because it's so much easier to confuse a robot than a human consumer. Some analysts say the bots will only add confusion as Web retailers move to make their products sound different from similar products elsewhere by altering available options slightly, much like the situation today in the market for cellular-phone packages.
"They'll play around with the specifics on things -- they'll make it so you can't do an exact comparison," says Cynthia Cohen, president of Strategic Mindshare, a retail consulting company in New York.
Ultimately, whether the bots work or not will depend on whether consumers gravitate to them. If merchants see that a retailer cooperating with the bots is getting more business, they'll want in. And as the shopping bots become more popular with consumers, the trend may favor smaller, lesser-known merchants that can use slightly lower prices to combat the huge marketing campaigns of giants such as Amazon.com.
That's what mySimon, a new bot that launched last month, is banking on. MySimon claims to search over 800 merchants on the Internet -- well above the roughly 200 merchants that Junglee inspects. But mySimon seems confident that merchants will actually pay to be part of the bot technology. Under its business model, mySimon plans to charge merchants that want to be distinguished on its site with links, logos or promotional advertising.
Merchants that don't pay will still be included in a consumer search for a product, though, the company says. "You'll still show up, but we won't let you look like you're something special," says Brian Rolfe, marketing director for the Santa Clara, Calif., company.