Harry Tsao and Talmadge O’Neill are veterans of the PPC industry. They were both employees at Goto.com (which later became Overture Services and was then acquired by Yahoo!). Harry was an early member of the product management team and Talmadge was the first business development employee. In 2002, they left Overture and launched Coupon Mountain, focusing on helping consumers save money shopping online.
In 2003, the company expanded to offer coupon sites in a number of countries and is now in 10 countries including China, Japan, and Korea. The company also owns MoreRebates (launched in 2003). Smarter.com, the shopping comparison engine, launched in July 2004 leveraging the combined power of coupons and comparison shopping.
I was in LA a couple weeks ago and met with Talmadge, Harry, and Alan Wallace (VP of Corporate Communications). Here’s what they had to say. The comments are from Talmadge unless otherwise noted.
“Most consumers use shopping engines to get a good deal, but they are missing part of the picture. Smarter.com provides more – reviews, research, pricing information, and promotional information. We didn’t call it Lowestprice.com for a reason.”
“Consumers are not librarians. From a search perspective, Google is trying to solve something really hard. 80% of that opportunity is better served by a shopping engine. Searching on Google only gives you ‘light introductions’ – pricing information and coupons.”
“Because of our experience at Goto.com, we understand the search query string and how the monetization piece works. The PPC market is $5 – $6 billion. While only 30% of queries are of commercial intent, those terms represent 90% of monetization which means approximately $5 billion in clicks is commercial. If I look at the paid search results [when thinking about shopping], they are of limited value to consumers. It’s the same with organic results as many review sites will show up that aren’t ready to sell.”
“Will users migrate from search engines to shopping engines? The better question is whether the most valuable users will migrate. If you’re looking for hiking trails in Yosemite, go to Google. If you’re looking for products, go to the shopping engines. We can provide a much better service to consumers looking to shop.”
On international expansion…
“We have offices in Tokyo and Shanghai. We will launch [Smarter.com] in Japan and China by the fourth quarter 2005. We talked to merchants in Europe, but they didn’t seem willing to pay too much for a lead and Kelkoo is already established.”
Harry added “people look at the Asian market and think it’s hard. In China there’s a concern about rule of law. In Japan, it’s difficult to develop relationships [with merchants]. However, that’s where the growth is. This has always been in our plans. We built everything in double byte (characters that make up many Asian languages are created by putting 2 bytes together).”
General search engines vs. shopping comparison engines…
“Merchants will pay the same for a lead from Google and Smarter.com, but comparison shopping offers one of the best values for your marketing dollars. We provide a more qualified lead than regular search engines. People are just starting to move to comparison shopping engines first. People are already doing it for travel.”
Alan added “At this point, people don’t recognize the savings. And with Smarter.com, because of the Coupon Mountain tie in, there even more savings [beyond a what a regular comparison engine can offer].”
Talmadge continued “on sites like Yahoo!, there will initially be a battle between the two services. Search monetizes better and Yahoo! doesn’t necessarily have the incentive to push people to Yahoo! Shopping. Search engines are trying to solve all problems – the shopping and the general. That’s why vertical search plays are popping up. They are providing better service to both merchants and consumers.”
How does Smarter.com differentiate itself…
“Firstly, through our coupon background. The promotional information we have on Smarter.com represents the largest online coupon database. We have 15-20 people working on coupons (out of 85 people in total).
We have relationships with over 1000 merchants and some (such as HP) do customized coupons for us. We provide so much traffic that we get unique deals. We also have MoreRebates.com which provides cash back offers to consumers. We basically have three platforms which allows us to have a number of different relationships with the merchants. Through Smarter.com, we integrate the promotional side so the consumer gets the best deal.”
“Second, through our mobile service (SMS). We want to have something available whenever a consumer needs us. We’re part of an industry trying to educate the market. We had [our SMS service] 6-9 months before Yahoo! The amount of searches is still very small, but we’re using SMS to understand how people use the information. In Asia there’s much more of an opportunity to generate revenue, but right now in the US, SMS is just a way to send information. If it takes off, we have to figure out ways to monetize it.”
“Third from our focus on the consumer. While we’re still rolling out categories and doing a little bit of catch up, in just 12 months, we’ve done a lot more than most of the other engines. Today the listings all come from feeds. In a year 70-80% might be from feeds and the rest from crawls to capture the long tail. Right now we’re very much focused on the [top categories] because that’s what people are shopping for. We want to make sure that’s good first. Our goal is to catch up to where everyone is. We’re focused on the consumer interest. We want to ensure retention. We want to return something for every search.”
“Fourth, our Pan-Asian knowledge and expansion efforts. In Japan, Kakaku has been around since late 90s. The company is listed on Tokyo stock exchange and has $8 million in profit on $20 million in revenue. Yahoo! Shopping and Rakuten, the major portals, also offer comparison shopping. The problem is that because advertisers are not always receptive to new things, there are significant challenges to building the business there. Smarter.com already has relationships with merchants [because of our other websites].”
Harry added “in mainland China there is no dominate player, but there are 10 smaller ones. That’s what China is like, there’s lots of competition. Askyaya is basically a Shopping.com clone and is struggling as the company can’t seem to figure out what they want to charge or what their business model is.”
[I pushed Harry and Talmadge on why they weren’t spending more money on the PPC engines…]
Today our traffic is 1/3 retainted, 1/3 paid, and 1/3 algorithmic. From our perspective, paid search is a great way to test, but we’re not willing to lose money on any keyword. Because of our experience at Overture, we understand the profitability of every keyword search. While you might be able to make money on a category basis, our philosophy is that since we have a limited amount of money to spend, we’d rather drive traffic that has good monetization. This will enable us to build a long term sustainable business. “
“Shopzilla might be bidding on 1mm keywords. We’re actively biding on a 10th of that. At this point, we’re going to be further down in the results because we don’t monetize as well. If there’s an opportunity to play, we’ll be on it, but you have to remember that we’re the new kid on the block.”
“On the Business Development side, we find our corporate philosophy more aligned with PriceGrabber than with Shopping.com. We see a ubiquitous [paid search] listings, and we find it hard to believe that Shopping.com is making money on them or providing the consumer with a great user experience.”
When we launched, it was hard to raise venture capital funds. When we hit profitability, we asked what we would really be able to do with another $3-5mm. We haven’t come across an [VC firm] where we said our interests would be totally aligned. We’re very comfortable not raising funds, but we’d hate to deny funding if it prevented us from going faster.