Yahoo buys Kelkoo – how will the search value chain shake down…?

So today Yahoo has bought European online shopping comparison service Kelkoo in a EU475m cash deal. Yet another cat set among the search pigeons…

If you took a simple purchase process you might have the following:

1. Shopper searches on search engine for a product to buy
2. Shopper gets results – both paid and organic – which increasingly seem to be from affiliate sites or comparison engines like Kelkoo (they do kind of dominate these days..?)
3. Shopper heads of to merchant to purchase.

The search results part is being commercialized as we know – with trusted feeds, pay for consideration, pay for inclusion, pay per click. As far as I hear only Google are vociferously saying that their organic listings will remain ‘free’ – and many aren’t even convinced of that given the mooted IPO and those resulting greedy shareholders.

The merchant end of the buying process is transparently commercial too. They are there to sell you the product.

The middle bit – the intermediary site – is also commercialized in the case of affiliates and the likes of Kelkoo. And these guys have grown quickly in commercial importance. According to our own recent research 15%-20% of all sales for online retailers come from affiliates or the Kelkoos of this world. Indeed, in some cases, the retailers don’t even bother with their own search engine marketing, preferring to rely on their affiliates to send them customers and pay a commission.

But so far these affiliates and shopping comparison engines have been independent middle men sitting between the search results and the merchant, happy to deal in leads and take their cut along the way. With Yahoo buying Kelkoo, however, the search guys have taken control of the middlemen. They own 2 parts of the value chain. Are they doing this just to make money twice along the way? In the long term do they want effectively to ‘own’ the buying customer and trade them to the highest bidding merchant?

One has to wonder whether Froogle is simply Google’s version of Yahoo + Kelkoo? How far can this go – if you own the start of the shopper’s journey, why not own the whole of it? Perhaps eBay should become the fourth player in the search game..?

Equally, if you are a big online retailer who is reliant on affiliates for 20% of your sales does this deal not make you wonder whether you shouldn’t buy your super-affiliates now, whilst you have the chance, before the search lot buy them up or create their own? Now that Kelkoo’s been bought, surely the likes of Cheapflights.co.uk are in the sights of either the airlines or travel companies, at one end of the chain, or the search posse at the other end?

Ashley

'll start this particularly long post by congratulating Kelkoo people in selling their company for a very serious amount of money in _CASH_. You survived the Big One (.com crash) and you got reward at the end - well done. I hope that most people there (not just founders and VCs) will get a nice reward for being through very tough times, in fact I must admit that I did not think you will make it at all. Well done to prove me wrong.

I will now continue on a much less optimistic note. I think there is a fundamental problem between Kelkoo-style operation (I will refer to these as Price Comparison Sites - PCS) and Etailers.

Inherently Price Comparison Site rely on cooperation with Etailers who supply it with product data, which allows to compare products. The main objective for these PCS site is to provide end use the _cheapest_ options. So, we are talking here about competing on price, something that not every Etailer wants or even can do. Some tried to forcibly retrieve data from etailer web sites, but this is a very hostile approach and it can easily be defeated.

Of course Dell's of this world will benefit, but what about other (perhaps majority) companies? Will we arrive to situation of desperate price cutting in order to be on "top" of PCS listings? The listings themselves do not provide all information that helps differentiate one supplier from the other. In fact I think these price comparison sites are flawed in a way that they may not show the best deal to customer. Indeed all these price comparison engines fail to take into account extra discounts on bundles, or even loyalty points that could offer reduced price to a loyal customer. Hence my view is that simple price comparison that these sites offer is not taking into account all variables, and therefore not in the best interest of consumers.

When Jungle.com made a deal with ShopSmart (then leading price comparison service) I voiced concern that by cooperating with these sites we will help them reach critical mass and force consumers to go to THEIR site first, and only then pass to our site (if we are lucky). Also conversion tracking that we developed shown that (as expected) only low margin (loss leaders even) products received traffic, and as the result the whole affair was not particularly attractive from financial point of view. As more and more etailers start to better understand real value (profit) of different traffic streams, there will be more of them who would come to conclusion that being part of that game is not a good thing.

Talking of Google, Yahoo and MSN - I think that these companies are slowly but surely becoming a threat to everyone else as they wish to be THE first place of call for customers, they want to be in comfortable position where they make decision who gets the share of views. It is good for them (can't blame them in fact!) but its not good for everyone else (apart select few with huge budgets).

It is because of that consideration (or so I believe) Amazon refrained from joining these sites (or at least it was the case last time I checked). This is a strategically right thing to do - lack of Amazon there will sure force people to go and check Amazon _as_ _well_, something that in a way defeats the objective of Price Comparison Sites.