Comparison shopping engines always looking for a better equation

Saul Hansell at the New York Times has written an interesting piece on Zillow, the real estate valuation site that is now getting into mortgage comparison shopping. What I found most intriguing is how Hansell characterized his views on comparison shopping engines generally:

I’ve been in love with the potential of online services to turbocharge comparison shopping by combing through all the options to find the very best deals. This is a mindset, I’ve discovered, that I share with many engineers and technically minded business people who also see shopping as a great optimization equation. …

For all of them, there has been a sadly predictable transition as idealism morphs into the cruel realities of running a business. The comparison shopping engines, like ComputerESP (bought by CNet’s Shopper.com) and BizRate (now part of ShopZilla), stopped displaying things in the order that most favored consumers with the lowest prices or whatever else the consumer wanted first. Instead, they tried to find ways to favor advertisers, like listing paying customers first or simply ignoring sites that didn’t pay for access.

Hansell wrote that Zillow plans to be different, because it will be supported not by participating lenders, but by advertisers without a conflict of interest. As the writer explains Zillow CEO Rich Barton’s point of view: “The money available from general advertising is making [it] possible to make money from services that don’t have built-in conflicts.”

It will be interesting to see whether Zillow can be successful with this model, but the history is that companies start with this kind of model and then change it when they build up enough business. So we’ll see in Zillow’s case.

eDrugSearch.com, of course, is a comparison shopping engine, too. And my thought in reading this piece is that the issue for consumers is not really one of conflict of interest. To me, that’s more of a journalistic construct than anything else. If you’re the New York Times, you can’t tie your advertising to your editorial content because then people will doubt the integrity of your content. That’s why there is a firewall built between the two sides of the business.

With online shopping engines, it’s less about avoiding conflicts of interest than it is about finding the most efficient way to express the commonality of interests among all players: the shopping engine, sellers and buyers. The market weeds out those who can’t properly balance these three parts of the equation.

Look, we are in a competitive business. If you want to know how competitive, you can just look at our post from Friday. One competing comparison shopping engine falsely accused us of stealing their code. (We responded by pointing out the many features that appeared on their site shortly after they appeared on ours.)

The bigger picture here is that when the competition is this fierce, you’ve got a lot of minds working every day to find a more efficient equation. Will Zillow be a better way of shopping for a mortgage than Lending Tree? Maybe, and maybe not. But you can bet that a lot of smart guys other than Rich Barton are working on this equation every single day.

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