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Google case spotlights decline of shopping sites
Google case spotlights decline of shopping sites

Google case spotlights decline of shopping sites

RETAILER NEWS

bdlive.co.za - Apr 20th 2015, 10:21

The biggest antitrust battle in a decade centres on comparison-shopping websites like Nextag, BizRate and LeGuide, which have been crushed by the rise of new ways of finding goods and services online. Depending on whom you ask, their demise is due to either illegal, anticompetitive moves by Google or superior technology from Amazon.com or other e-commerce companies. 

Which view prevails will help decide whether Google must pay billions of dollars in fines and undergo potentially damaging changes to its search-advertising money machine. "There’s a lot at stake for both Google and consumers," said Mr Todd Murtha, a Nextag executive who led the company’s legal department from late 2007.

The European Commission filed formal charges against Google this week alleging the Mountain View, California, company abused its dominance in the general search market to give its shopping service an unfair advantage against rivals. The regulator did not name companies, but comparison-shopping players Nextag, Twenga and Visual Meta, owned by Axel Springer, have complained to the commission about Google.

Google denies breaking antitrust rules. The company responded Wednesday by highlighting the strong competition it faces in online shopping from companies including Amazon and eBay. However, Amazon and eBay can be viewed as both retailers, since they hold inventory, and as marketplaces, where consumers can buy goods from a variety of vendors. Comparison-shopping sites, by contrast, list products from a variety of merchants or marketplaces and take a referral fee when shoppers click through.

"Google is trying to expand the shopping market so it doesn’t seem so dominant," said Mr Gary Reback, an antitrust attorney who represents Nextag and has been a longtime critic of Google. Some comparison-shopping companies Google cited in a Tuesday memo to staff as rivals are suffering. LeGuide has seen big declines in online traffic and revenue, which it blames on Google. At issue in the case are Google Shopping ads, which the search giant places atop or to the right of search results.

Unlike Google’s traditional text links, these ads look similar to listings found on sites like Amazon.com, including product images, prices, reviews, and ratings. Merchants bid to appear in these listings, which Google introduced in 2012 in the US and 2013 in Europe. Rival comparison-shopping sites argue that giving such prominent placement to Google’s own offerings in search results draws shoppers’ attention so they do not click on free, organic links that point to other shopping sites.

They also say Google keeps tweaking its search algorithm to push links to their sites down in search results, cutting into their revenue. LeGuide said an October change in Google’s algorithm led to a 26% decline in fourth-quarter revenue. To cope with the shortfall, LeGuide closed a Munich office, the company said. LadenZeile, a comparison-shopping site run by Visual Meta, saw a 60% slump in traffic in Germany in late 2012, after Google changed its search algorithm. That caused a similar drop in revenue, according to Mr Robert Maier, founder of Visual Meta. "Google has the power to destroy a company’s existence," he said in a September presentation on European e-commerce competition in Brussels.

Google argues that its actions had nothing to do with the decline of comparison-shopping sites. It said the trouble at those sites was caused by a broader revolution in online shopping in recent years. More consumers and merchants choose to buy and list products via Amazon or other direct-sale sites, rather than visiting comparison sites, Google said. "People are going directly to merchants. They’re going to Amazon and they’re going to eBay," said a person familiar with the company’s arguments.

Some e-commerce experts agree. Google has to compete more with Amazon by giving shoppers answers quickly and helping them buy products with as few clicks as possible, according to Mr Matt Ackley, chief marketing officer of Marin Software, an advertising technology firm. If Google shows consumers links to comparison-shopping sites, the company is effectively making them do product searches twice, which is a bad user experience, he added.

From 2013 to early 2015, leading shopping-comparison sites in Germany, such as Nextag, Ciao and Twenga, saw their organic search visibility drop 91% on average, while visibility for Google Shopping surged more than tenfold in the country, according to Searchmetrics, an online search analytics firm. Visibility measures how likely websites are to receive traffic from search engines. According to a report prepared by the US Federal Trade Commission, comparison-shopping engines have been in Google’s cross hairs since 2006, when the company "sought to demote all comparison shopping websites."

Indeed, Google compiled a list of comparison-shopping sites and repeatedly tested techniques to demote them in favour of merchant sites, eventually choosing one and rolling it out in an update in July 2007, according to the FTC report. However, users recruited by Google to rate its search results said they preferred the comparative listings of similar products that Nextag and BizRate provided, the report said. The FTC decided not to take antitrust action against Google. A spokesman for BizRate, which is now part of Connexity, declined to comment.

"After many years of natural-search traffic going up and users enjoying the experience, something changed strategically at Google and they decided to change how they did shopping search," Nextag’s Mr Murtha said. When Nextag’s traffic dropped, its revenue fell, which made it difficult to maintain its comparison-shopping service and invest in new initiatives, Mr Murtha said.

The reduction in traffic also meant that fewer merchants were willing to list their products on Nextag’s site. That in turn gave consumers fewer products to compare, denting traffic further, Mr Murtha said. "It’s really brilliant of Google. They started the snowball rolling downhill," he added. Mr Murtha said that if Google had not changed its search engine to favour its own shopping service, then Nextag would have had the revenue to invest in new products to keep up with the changing e-commerce landscape.From DFM Publishers (Pty) Ltd 

Read more about: south africa | nextag | google | ebay | amazon

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