Shopzilla’s second quarter 2005 EBITDA of $7.6MM on revenue of $29.5MM highlights the strong growth of shopping comparison engines and puts the company ahead of Shopping.com in terms of quarterly revenue. Shopping.com reported second quarter 2005 revenue of $27.8MM, $1.7MM less than Shopzilla.

As Chuck Davis, Shopzilla’s CEO points out, the company has been “growing sequentially, quarter-over-quarter, since the holidays. In a seasonal business like shopping, which normally skews heavily to the fourth quarter, this trend is quite exciting.” According to Farhad Mohit, the company’s fourth quarter 2004 revenues were $25.1MM and first quarter 2005 revenues were $26.9MM (as the company was a private corporation until the recent E.W.Scripps acquisition, there is no way to confirm these numbers). While Shopping.com’s fourth quarter 2004 revenues of $31.7MM and first quarter 2005 revenues of $28.9MM were higher than those reported by Shopzilla, it’s important to note that Shopping.com has seen a sequential, quarter-over-quarter downward trend in revenues since the fourth quarter. In truth, this is what should be expected with a shopping related site. That’s what makes Shopzilla’s strong growth even more interesting.

Here’s a closer look at what makes Shopzilla tick. I sat down with Farhad Mohit in his company’s LA office a couple weeks ago to get an overview of the company. I will follow up with Farhad in the near future to more thoroughly hit on some of the subjects covered in our conversation…

The company was founded in 1996 as BizRate. BizRate is a vendor ratings system. As Farhad pointed out “A vendor is actually a process with many different points of contact with a consumer – the consumer looks for a product, finds a product, proceeds to checkout, receives an email confirmation, contacts customer support, etc. As opposed to Epinions which helps a consumer identify an expert through a web of trust, BizRate is more of a polling system. When rating a process, a consumer doesn’t need not an expert, but rather 10k+ normal humans telling you what happened. BizRate now gets 1mm reviews a month from consumers who are telling BizRate how the vendors did. In June 1996, we started selling research back to the vendors – teaching them how to make their site better.” The company launched its comparison shopping piece in 1999 and its PPC auction in 2001. In 2003, the company released its current scalable shopping engine and last year, the company launched Shopzilla and changed its corporate name.

While there are no Jupiter or Forrester reports which study the ROI merchants achieve through comparison engines versus through other online marketing channels, I’ve heard the comparison engines say that it’s 2-7x greater. If this is truly the case, I find it odd that more consumers don’t use the comparison engines…

Farhad explained his company’s take on the evolution of comparison shopping. “Most people started out at an access point like AOL. They then migrated to portals such as Yahoo!, Excite, and Lycos. More recently, internet users went to general search sites like Google and shopping destination sites like Amazon. It is only now after 7+ years online that internet users are really using comparison shopping sites.” Farhad continued “We save you time and then we save you money; we are not just a price comparison site. If you go to an individual merchant, you have to see if the company has the product in stock, if the price is good, and if the merchant is reliable. And you have to do this for each merchant you visit. In just one pass at Shopzilla, you get all the information you need. You don’t have to back out and do the search again.”

According to Farhad, “Winners [in comparison shopping] will be determined by their ability to deliver the best product to the consumer. Product quality is more important in the long term than market timing, PR, or brand position. The fact that there’s competition in Europe doesn’t worry us. The US is ground zero for comparison shopping battle. A company like Kelkoo can’t compete here, but in the next year you will see that our product will compete out there [the UK].

On expansion into other categories…
The day that someone wants to buy high heeled pumps and mortgages [together], then we’ll get to it. Until we can cover the long tail in shopping, we’re not going to get into other services. We’re not going to compete with Expedia or Lending Tree – we’re not an arbitrage play – we’re trying to build a loyal base of consumers on Shopzilla. We’re outperforming [our competition] by sticking to our knitting. Some of the other guys, unless they start focusing, they’re not going to be the best shopping site, and they’re not going to be the best mortgage site. They will just be a traffic arbitrager with declining margins.

On technology…
Farhad also gave me an overview of the technology behind Shopzilla – something I’ve just started to delve into with the other comparison engines. He’s obviously not interested in sharing his company’s secret sauce, but you can see some of the company’s enhancements through Robozilla, the company’s “demo site showcasing some advanced technology for building a shopping search index of highly structured product and store data with literally no human involvement.”

The reason technology like this is so important is because not all the data that comes into Shopzilla is very well structured or normalized and it’s cost prohibitive to have people organizing the data. Especially when looking at soft goods which don’t always have unique identifiers, automated technology to normalize data becomes more and more important.

As an example of this, we searched for ‘one dozen red roses’ on Shopzilla and on Robozilla. On Shopzilla, the stores are not grouped around a particular item, in this case ‘one dozen red roses.’ This makes for a fairly confusing shopping experience. On Robozilla, however, the company’s technology has taken one product and mapped multiple stores to that one product, making for a much more efficient shopping experience. While on the surface this sounds like an obvious step (and might be when dealing with a sony playstation portable), it’s not so easy in ’soft’ categories when there are no unique identifiers.

Where does the company go from here…
“We now have an $8BB company with serious cash flow backing us. E.W. Scripps is betting on the outcome of the space and betting on Shopzilla. The deal removed a lot of the risk that and gives us the runway to grow.”