Internet Search

1
Internet Search
2
Background Information

• Dramatic collapse in the stock prices of leading
  E-retailers.
  
• Etoys, an online shop selling toys, had a market
  capitalization
  
• Year 1999 10 billion
• Year 2000 only 4 million
• on the verge of bankruptcy

3
Reasons for the collapse

• High fixed costs
• advertising
• website development
• not just one time set up costs
• Low price-margin
• internet search technologies create Bertrand-like
  competition
  
• Price searching business is becoming more and
  more important as the E-retailing business is
  more and more popular

4
Flow of report

• Introduction to search engine
• How search engine affect business online?
• Question and Answer

5
Price Search

• Price Search Engine
• websites specified in finding out the lowest
  price offered in the internet by E-retailers
  
• will direct you to the website of retailers

6
Price Search

• 2 kinds of search engine
• Database-based
• Shopbot-technology-based

7
Price Search

• Database-based
• Firms directly enter prices and item descriptions
  into the database
  
• Use a web-based interface to enter and change the
  price
  
• Pricewatch.com, Shopper.com

8
Price Search

• Prices listed can be changed
• Firms can complete with each other
• Shopper.com change twice a day
• Pricewatch.com unlimited times a day

9
PRICE WATCH

• Pricewatch.com
• Database-based facility
• specified in searching computers components
• E.g memory, CPUs, motherboard...etc
• Firms listed mainly small firms
• large number of small business in this segment
  without advertising or web development costs
  
• the major channel to reach customers Pricewatch

10
Search Engine Revenue

• E.g Shopper.com
• 1000 one-time, non-refundable fee
• Additional 100 at the beginning of each month
• Firms receive over 250 qualified leads
• Qualified lead a consumer clicks-through from
  the Shopper.com site to a firms site
  
• 0.5 per lead for first 50,000 leads
• 0.6 per lead for each additional

11
PRICE WATCH

• ResellerRatings.com
• Evaluate companies who sell computer products
• enable people to post feedback on companies

12
How Internet Search Work

• Search the Internet
• Building the index
• Search for indexed data

13
Price Search

• Shopbot-technology-based
• Shopbot - An automated search engine that visits
  multiple E-retailers sites to collect
  information about prices and other attributes of
  goods and services
• MySimon.com

14
Search the Internet

• Example Google.com
• Use of multiple spiders
• Use of special software robots Spiders
• Starts at popular sites
• Indexing words on web pages
• Follow links and spread out
• Store the indexed data for later access For
  system sent 4 spiders at a time
  
• Crawl over 100 pages/sec
• Generate 600kB/sec

15
How spider works?
16
Building the index

• Select information and method of indexing
• Assign weight to each entry
• Words in titles can more heavily weighted
• Different search engine have different weighting
  methodology ? different ranking
  
• Other information will be stored e.g. Font size

17
STOP SEARCHING!

• Possibility of improper usage
• Search engine spamming
• Child care in web site selling children
  clothing
  
• Use of playboy, playmate in a website and had
  been sued by Playboy
  
• Bargain Finder by Brian Krulwich
• Search online CD stores for the best price
• Over 100,000 users in the first 2 months
• 3 out of 8 online CD stores the program searched
  decided to prevent its search on their web sites

18

• a highly scalable information retrieval system
• advanced parallel search technologies
• Offer instant product comparison
• User link to merchants buy page for easy
  purchasing.
  

19
Pricing strategy

• Commission model
• charge the sellers a commission of 2- 5 of each
  sale
  
• Sponsor model
• charge the sellers a certain amount of ad fee

20

• On one hand,
• Merchants are willing to be comparison-shopped
  because the Web traffic they get is motivated
  to buy.
  
• On the other hand,
• Retailers never like to be side by side with
  their competitors
  
• want to build brand on their own

21
Empirical Studies Data

• Price data hourly data of certain pre-selected
  products from Pricewatch.com
  
• Sales data from one internet retailer
• Little advertising
• Most traffic is from Pricewatch
• Other data ranking of firms lowest price

22
Empirical Results

• Extremely high elasticity in demand
• Negative cross-price elasticity

23
Empirical Results

• Prices are only about 2 above marginal cost
• Bertrand competition
• even efficient, budget-conscious retailers that
  did not advertise could hardly survive
  
• Cross-price elasticity of demand for a higher
  quality product with respect to the price of
  low-quality product

24
Empirical Results

• Given the limited capabilities of search engine,
  consumers only option is to first use the price
  search engine to get a list of the websites
  offering the lowest price for any memory module,
  
• and then to follow some hyperlinks provided to
  find the price of the product that best fits
  their preferences.
  

25
Obfuscation Bait-and-switch

• Bait-and-switch
• offering a low quality product at a very low
  price to attract customers
  
• and then try to convince them to pay extra to get
  another product of higher quality in the website
  

26
Obfuscation Bait-and-switch

• Higher quality product with higher price are
  advertised on the websites
  
• Better warranty and return policies.
• Eg, CPU without fans VS CPU with fans

27
Search Engine Revenue Paradox

• Revenue of Search Engine
• Retailers side membership fee, referral fee
• E.g. Yahoo! Shopping 2 gross profit
• Consumers side membership fee

28
Search Engine Revenue Paradox

• Retailers Side
• Bertrand-like competition
• making no profit
• will not pay much to be listed
• Consumers Side
• no price dispersion
• unwilling to pay for the information

29
How do E-retailers survive?

• Limitation of search engine
• One cannot ask a search engine to find
  decent-quality memory modules sold with
  reasonable shipping, return, warranty and other
  terms

30
How do E-retailers survive?

• Cheating!!!
• Obfuscation
• make it difficult for consumers to compare
  prices
  
• increase search cost

31
Obfuscation Mattress Case

• Search and Obfuscation do not start with the
  internet
  
• Phone an effective method for comparing prices
• Mattress case
• Retailers use different model names to hinder
  price comparison
  
• Only 2 out of 44 have same model names

32
Obfuscation Hidden cost

• Offering a low price with unreasonable shipping
  and handling fees
  
• Unattractive contractual terms
• Consumers return shipping and 15-20 restocking
  fee on all returns. (Include defective product)
  
• very short warranty period
• Now give a range or put and up after the number

33
Obfuscation

• For shopbot-technology
• More prone to obfuscation
• Incorrect prices and matches
• E.g Yahoo! Shopping
• 128MB PC100 SDRAM
• 5 lowest prices 0!!
• Incorrect memory module

34
Obfuscation

• Some firms state that offered prices are not
  available through the website and require
  consumer to call on the phone.
  
• While other retailers state that the prices on
  Pricewatch are only available through the website
  and do not apply to phone orders.

35
Tools those Search Engines Use

• The search business is also more focused on
  making money. Without a profit, search sites
  won't be around.
  
• They're doing their best to match advertisers
  with potential shoppers.
  
• Different search sites show their sponsor search
  results with different degree of transparency,
  and some may even be misleading.

36
Commercial Interests Affect Real Result

• A site owner who pays a search engine to be
  included receives a guarantee that the site's
  pages will be frequently revisited.
  
• Search engines, e.g. AOL and MSN, are able to
  manipulate results and prevent competitors sites
  form showing up.
  
• Search engines also places sponsored links before
  other non-partner links in the real results.
  

37
Sites that Pay

• Metasearch engines are even worse, and they
  become meta-yellow pages because they query paid
  listings.
  
• However, one search engine, Google, opposes and
  claims that treating a smaller list of sites
  differently isn't fair.
  

38
(No Transcript)
39
(No Transcript)
40
Are Ads All Bad?

• Ads can be useful, depending on what you're
  searching for. If you're shopping for something
  specific, sponsored links can often lead you to
  reputable e-commerce sites.
• E.g. "Palm M130
• If you search for "Palm M130" on any of the major
  sites, you'll get links to several stores, and
  often to ads or sponsored links with the latest
  prices.

41
Search and Obfuscation

• A game of balance of power
• Improvement in information technology
• decrease or sometimes increase the search costs
• Search engine case
• Consumers wish to lower search cost
• Retailers wish to raise search cost

42
Conclusion

• While the internet clearly facilitates search, it
  also allows firms to adopt a number of strategies
  that make search more difficult.