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Up Close with IAC's Pronto Shopping Search

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IAC, owner of Ask.com, has launched Pronto.com, a comparison shopping search web site. Can it compete with the entrenched, well-funded giants in the shopping search space?

"[Comparison shopping” makes so much sense that we didn't do it. We looked at all of them. They were for sale for anyone who would pay the price. We looked and said they do something good, but it's boring, we don't want to do it. I think comparative shopping is very interesting, but I think the valuations are insane. I wish them well, but not too well."

-Barry Diller (Chairman and CEO IAC) on comparison shopping engines, addressing a group of merchants at Shop.org last September. [Not verbatim, but close”

About 4 months later, Diller's IAC launched Pronto, the 357th shopping comparison engine in the market. But Pronto had a little twist as it was a downloadable application. While not as intrusive as pop-ups from the old Claria or the current WhenU, the system was still a downloadable application, the adoption of which I think is extremely hard to pull off in an internet environment where such apps are immediately associated with Adware/Spyware.

There are incredible success stories in the downloadable space, and I'm sure over half the readers of SearchDay have a Yahoo! or Google Toolbar (or both). Additionally, you might have Southwest's Ding or an instant messenger program like Trillian. However, for every one good download, there's probably one malicious download wreaking havoc on someone's system.

To fully understand my opinion on downloadable applications, you need to know that I worked for WhenU for 9 months. And with the last name "Smith" (the obvious name to type into a company directory) I got at least a call a week from an angry consumer who had downloaded a WhenU application and now wanted to do fairly bad things to me (using their fists, knives, and baseball bats). I went to WhenU thinking that I could create great applications that people would download in exchange for seeing two pop ups a day. I was wrong.

So Pronto launched, and I wasn't too impressed. Besides having a bad taste in my mouth from my WhenU experience, I knew the economics of downloadable applications. SmileyCentral (now part of IAC under the Fun Web Products name) was able to acquire customers at an incredible clip and at an incredibly low CPA back in the day, but in early 2004, the climate had changed. Also, Pronto would be going up against Google and Yahoo! who were paying rates previously unheard of for installs of their toolbars.

That said, Pronto had potential. IAC purchased a company named Semantic Discovery in early 2005 to provide the smart agent which would crawl the web for product pages. This was and still is an exciting proposition. Even in the age of whiz-band technology, crawling the web for product data, understanding the different elements of product pages, correctly extracting relevant data, and efficiently organizing it in shopping comparison engine form is extremely difficult. Only ShopWiki, launched in April by former DoubleClick CEO Kevin Ryan, is working exclusively through freely crawled data. Other sites like Shopzilla, Yahoo! Shopping, and Froogle do have a crawled component, but rely heavily on merchant submitted data feeds.

Pronto Switches Focus To Website

As of last week, Pronto downplayed the downloadable application and launched a functional shopping comparison engine website at Pronto.com. The type of site that Diller joked about last September. The type of site he wouldn't pony up the money for as eBay did for Shopping.com, EW Scripps did for Shopzilla, and Experian did for PriceGrabber.

I talked with John Foley, Pronto's COO about the changes to Pronto. He explained that the company hadn't dropped the idea of distributing a toolbar, but said "If Pronto becomes the search box on the web for product search, we can start to convince people that they want Pronto on the desktop. Allowing consumers to test out Pronto.com means we're more likely to get them to download Pronto. Our short term focus is on the website because we have to show our best of breed experience. It's a 'try before you buy' model. Get people to try the site and then they'll download the application."

This is a rational idea, but the challenge is that Pronto now really is the 357th shopping comparison engine. We are very early in the e-commerce game and IAC definitely has the money to be a long term threat (especially when put together with other IAC properties), but Pronto has to compete against 6 entrenched players -- Shopzilla, Shopping.com, Yahoo! Shopping, PriceGrabber, NexTag, and Google Base/Froogle -- and a host of smaller sites like Smarter and Become.com.

So what does Pronto have going for it? Pronto crawls over 50,000 sites for product information. This compares to coverage of around 10,000 merchants or less for sites like Shopping.com, NexTag, and PriceGrabber. More stores means a more comprehensive site. While the 128th digital camera seller might not sound that important, more merchants means that Pronto will also cover many of the soft goods which are increasingly being purchased online, but aren't necessarily well covered by data feed driven shopping comparison engines. If you cover the long tail well, and searchers find the rare, blue Aerosmith t-shirt on your site, they might come back and use your site when shopping for a digital camera or TV.

The business model is also a potential positive for the company. To get on NexTag, you have to sign up and pay for every click you receive. With Pronto, your site should automatically be included in the index for free (and John told me that the number of merchants covered should rise by tens of thousands soon). Free, however, doesn't pay the bills.

Many of the listings on Pronto come from Commission Junction and Performics which means that Pronto gets paid a revenue share or CPA fee for every transaction it drives. Pronto also backfills its listings with Shopping.com merchants and gets a percentage of the per-click revenue Shopping.com charges.

In the months ahead, Pronto will launch a self-serve merchant account center which merchants can use to set a per click fee for clicks or a revenue share amount for transactions. The goal is to demonstrate to paying merchants that they will receive significantly more traffic than non-paying merchants. As John said when talking about the economics, "We need to continue to shift demand toward paying merchants. To the extent that we're a volume player for them, they'll listen."

I like that Pronto is pushing the revenue share or CPA model. "People are shopping and buying things. When you're bringing merchants to users and you're creating a marketplace, you should have a performance based model. We want to win when the merchant wins." But Pronto wants to work with merchants in whatever way is easiest for them.

"We are now supporting CPC economics as well. We believe that this hybrid model, along with the ability to support SKU level coupons will quickly prove best for merchants as well as consumers" There's been more and more talk about CPA being a smart alternative/supplement to CPC. Bill Gross, the originator of the CPC model at Goto.com now runs SNAP.com, a CPA based search engine. Google is testing out CPA based advertising. And just a couple weeks ago Jellyfish, the 356th shopping comparison engine, launched exclusively with a CPA model.

There are challenges with a purely CPA based shopping comparison engine, so it's good that Pronto is offering another option. One senior executive at a leading shopping comparison engine explained "No doubt that a pure CPA system is easier for merchants to administer, but there are big drawbacks for the market-maker in terms more complicated merchant integration which could slowdown adoption and hinder comprehensiveness of coverage. Also, because the CPA information typically lags and isn't "real-time" (i.e. needs to be consolidated offline and take into account returns and such), it makes it harder for the market-maker to manage/optimize bids effectively upstream in the keyword markets, hampering traffic acquisition efforts."

If Pronto can be more comprehensive and offer better prices than those found on other shopping search engines, I'm sure that consumers will adopt the site. And then there's the downloadable application. If consumers trust Pronto, I'm sure a small but extremely enthusiastic and loyal group of users will download the Pronto application. Pronto isn't the first shopping comparison engine to realize the value of downloadable applications. NexTag introduced a toolbar last year. Vendio seems to be gaining traction with Dealio, which includes Shopzilla listings. SmartShopper's toolbar includes Shopping.com listings.

And Pronto says they've had success with their toolbar "We have a very strong retention curve. We give controls to the users and give users a limited number of toasts [price alerts”. We don't take up browser space. People aren't uninstalling once they get it on their desktop. It's tough getting on desktops, but we're getting some traction. We believe that showing people what's 'behind the door' [by opening up the website” will give them more reason to download."

Being the 357th shopping comparison engine is a tough place to start. Barry Diller and IAC could still acquire an independent shopping comparison engine like Smarter.com, but then again, maybe the valuations are insane and it's easier to build out the 357th comparison engine from scratch.

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