ComparisonEngines

Become scored a big Series C. The profitable (since Oct/Nov of 2007) shopping engine raised $17.5MM from TPG Growth, an investment arm of Texas Pacific Group (TPG) with about $2.5BB under management. Taek Kwon, Operating Partner @ TPG Growth will join the Board. Taek was one of the founders of Hotwire and then worked at InterActive Corp (Citysearch) for 6 years before briefly becoming the CEO of Friendster. Here’s the press release.

Become previously raised $7.2MM in its Series B from TransCosmos and $4.5MM in its Series A from its founders plus a couple Angels (Ron Conway). That puts the total funding raised at just over $29MM. TransCosmos did not participate in this round of financing.

So what does Become do with the fresh infusion of cash? Well the obvious answer is grow the business and take on the big boys – NexTag, Shopping.com, Shopzilla, PriceGrabber, Google Product Search, and Yahoo! Shopping.

I spoke with Michael Yang, CEO of Become, about the funding. He wasn’t as open as he usually is, so here are just a couple snipets:

Why TPG Growth? I know of them as a PE firm…
“TPG has a lot of expertise in retail and technology. They have invested in Travelocity, Neiman Marcus, and Petco so they understand the opportunities available in online retail. Also, they had the right global footprint.”

What will the money be used for?
“We’re not announcing some of the new business initiatives that we’re looking at. We’re going to strengthen our core comparison shopping business as well as our core search technology to go into new verticals. We have developed powerful capabilities using our search engine. We’re also going to invest in our SEM platform.”

It’s a crowded market. Why did TPG Growth invest?
“TPG saw strong core technology as part of the DNA. Our core search tech allows us to crawl the web – over 5BB pages – we not only offer comparison shopping, but research on the best products to purchase. We’re also leveraging our core search technology in SEM efforts. We have a powerful SEM platform – we have an enormous volume of information about products on the web.” [This can be used for keyword generation, automated bidding, global optimization - we look at our SEM campaign on a portfolio level.]

“Another thing that TPG Growth saw is that comparison shopping is still a huge opportunity. The market is still growing at 30%/yr.”

You sold MySimon to CNET for $700MM. What’s different now?
“There’s a lot more opportunity in the core product – search algorithm opportunities that better match results to search queries, better user experience and better monetization opportunities. There are also a lot more ways to access the traffic, like syndication partnerships. Our partnership with WashingtonPost.com is a good example. Comparison shopping engines today are so much better: the search algorithm, better user generated content, more user generated content, better content from the merchants, social shopping (we introduced shopping lists). Comparison shopping engines have become a lot better than they were 10yrs ago, but it’s still early.”

So what’s the exit? Google, Yahoo! and IAC all own shopping engines…
“Our goal is to build a great business that’s built to last and become one of the top shopping engines. The exit will take care of itself – whether it’s an IPO or a partnership.”

So here’s my read:
-It’s really tough being an under-capitalized business, so it makes sense to raise $17.5MM…especially with the current market condition
-After paring back a bit in terms of headcount, I’d expect Become to bulk up again
-Become will get a lot more aggressive in terms of PPC buying
-Become will get a lot more aggressive in terms of partnerships
-While Michael says Become will move into other verticals, I think its main focus and core money-maker will be comparison shopping for a long time. Become tried being something other than a comparison shopping engine for a while (pushing it’s crawled listings of product reviews and buying guides), but it took a focus on comparison shopping to become profitable.
-With this money, Become can afford to get sidestracked a bit, but not too much. I’d expect Become to go into related verticals that some of the other shopping engines are participating in. Think Lead gen services like local, online education, travel, and lending.
-The exit is going to be tough. Google, Yahoo, and IAC all own shopping engines. That leaves Microsoft, but obviously Microsoft is going to have its hands full for a while.

Ok, I had this whole post written and then my computer froze up on me. Matt and Toni, you really need to work an auto-save mechanism into WordPress!

Yahoo! has Yahoo! Shopping.
Google has Google Product Search.
Microsoft has a hodgepodge of partners/in-house clients for MSN Shopping and now owns Jellyfish.
Ask (IAC) has Pronto.
Experian Interactive has PriceGrabber.
eBay has Shopping.com.
EW Scripps has Shopzilla.
Providence Equity Partners owns a chunk of NexTag which continues to kick ass for most merchants I talk with.
ValueClick has PriceRunner and Smarter.
Accoona even is in on the game with Buyer’s Edge.

So who is left to buy Become?

Here are three possibilities:
1. One of the other shopping engines
I don’t see this one happening as I don’t think there’s a good fit technologically or culturally, but here’s why it could. Right now the shopping engines are getting squeezed by Gooogle and this pressure will only get worse: Google is going to push Google Base/Google Product Search more heavily, Google is definitely going to kill (and in some cases already has killed) the shopping engines’ organic rankings because of AdSense heavy landing pages, and as Google Checkout badges become even more prevalent and Google Adwords’ Quality Score continues to clamp down on poor landing pages, the shopping engines will have to spend more money to compete. All bad news.

By acquiring Become, the suitor gets a cash flow positive business, good technology (some smart developers), and a couple million more page views a month. Good developers are hard to find these days and a couple million page views can be very valuable in such a strong online advertising market.

2. Transcosmos
Become is a small piece of Transcosmos’ ‘Marketing Chain Management on the Web’ strategy (see page 12 of 40) which includes investments/JVs with Optimost, Ask.jp, DoubleClick, Neilsen/Netratings, IVP (a provider of ecommerce services). Become already powers Ask.jp’s shopping search site. I’m sure there are deeper synergies to be had with the rest of the portfolio.

3. Advertising.com/AOL
AOL outsources most of AOL Shopping to PriceGrabber. AOL could knock out a middle man and potentially make more money (get the whole click fee vs. 70% of the click fee) through running its own shopping engine. Or if AOL Shopping doesn’t want it, sister company Advertising.com could pick it up and add Become as another attractive advertising solution. Advertising.com currently covers: display, search – both paid and organic, affiliate, behavioral, lead gen, promotions, and video. Why not shopping search? Picking up a couple million page views a month could be extremely attractive to the ad network. If not Advertising.com/AOL, there are a number of other ad networks out there who could find Become attractive: Specific and Tribal Fusion come to mind…I don’t think ValueClick is going to be gobbling up another shopping engine tomorrow, but they could also be a suitor in the future. The online ad networks have become very good at making online buys as efficient as possible. I like the idea of them bringing increased efficiency to the shopping engines.

Over the last couple months, it’s become pretty clear that Become has become more and more of a shopping comparison engine and less and less of a product research engine. Yes, the AIR (affinity index ranking is still there) and all that product research stuff (buying guides, discussions, etc.) is still there, but shopping search is the focus of the company.

Big difference with the redesigned homepage is the addition of ‘shop by category’ section.

This comes on the heels of Become’s updated taxonomy for merchants.