Decemner 14, 2005
Experian Pays $485M for PriceGrabber.com
By Evan Schuman, Ziff Davis Internet
Betting that price comparison sites will play an increasingly prominent role in e-commerce, credit information vendor Experian will spend almost half a billion dollars to take over PriceGrabber.com, Experian announced Wednesday.
Following on the heels of June's purchases—just days apart—where E.W. Scripps paid $525 million for Shopzilla and eBay paid $620 million for Shopping.com, Experian's move seems to continue a trend.
Price comparison sites make their money by charging retailers a fee when customers are sent their way.
The big question is whether consumers will start letting price comparison sites influence their purchases in the same way that traditional all-encompassing search engines impact so many other pageview issues.
Not coincidentally, other major players in the price-comparison space include entries from search engine leaders Google (Froogle) and Yahoo (Yahoo Shopping).
NexTag.com is one of the larger remaining independent price-comparison sites.
Analysts say that the acquisitions are all about future market-share potential and that's why the purchases are happening at such high multiples.
For example, Wednesday's $485 million PriceGrabber grab was buying a company that is expected to deliver only $60 million in revenue this year.
Experian officials point to strong profits being more meaningful than sales, but PriceGrabber's healthy profit margin is still only projected to deliver $25 million this year.
"We believe that we got a fair price for a good business," said Experian EVP Peg Smith.
"The market itself is forecast to grow about 40 percent this year, and we expect to grow faster than the market. The underlying drivers for this business are going in the right direction."
Beyond pure profit growth, the other reason for an acquisition to work is strategic synergy, said analysts.
In other words, if the combination of Experian and PriceGrabber will boost corporate profits for the $2.5 billion Experian more than $485 million, it's a good deal.
Experian's Smith said that the retail vertical represents 17 percent of total sales for Experian, and she characterized that as "a very large portion of the revenue."
For years, she said, Experian has been working with those retailers trying to help connect them with customers. That made a price-comparison site a natural fit, she said.
Some analysts were not so certain that it would be a clean fit.
Sucharita Mulpuru, a senior analyst with Forrester Research, said she had expected someone to buy PriceGrabber, but was surprised at Experian's move.
"To be honest, I'm really baffled by this acquisition. Experian manages your credit report," she said. "They have tons of data about people. They're trying to roll this into their interactive group, but it's not a strong player in retail. The thing that jumps out about this is the price and the acquirer. In the other cases—Shopping.com and Shopzilla—there was more synergy between them and the acquirer. I find it harder to see how PriceGrabber will serve Experian and vice versa."
Forrester's Mulpuru also said she thought Experian paid way too much.
"It was definitely overvalued. I don't see growth being as substantial because PriceGrabber is so much smaller than its competitors," Mulpuru said.
"In the month of November alone, they claim they got millions and millions of unique visitors, but Nielsen NetRatings put them at seventh among the most visited price comparison sites. The top sites had 20 million visitors. They had 7 or 8 million, so they're working off a much smaller base. I don't know how sustainable their growth will be over time."
One justification for the higher price is that not all price-comparison sites are the same.
Harry Tsao is the co-founder of E-commerce site Smarter.com and, as a student of E-Commerce, argues that finding the lowest price is actually a pretty poor indicator of the quality of a price-comparison site.
A recent Consumer Reports story, for example, did a shootout between Froogle, NexTag, PriceGrabber, Shopping.com, Become.com, Shopzilla and Yahoo Shopping.
Froogle and Yahoo Shopping delivered the lowest prices of the group, with Shopping.com coming in third.
But Tsao argues the absolute lowest prices are heavily polluted with fraudulent sites that advertise prices for products they don't have, with the scheme's goal to upsell consumers once they try and buy.
"I think finding the lowest price is a very poor metric" for determining the quality of a price-comparison site, Tsao said.
"Sites like PriceRunner and Froogle include anybody that would sell the product online. Froogle especially tries and list everything under the sun from every single merchant online" including "a bunch of illegitimate retailers."
Tsao argues that PriceGrabber does much more to weed out frauds, so while their prices may not be the lowest, they are a more accurate reflection of the prices available.
Experian's Smith said the vendor screening process was one of the attractive features of PriceGrabber.
"They are very selective in vetting who their merchants are" based on customer reviews and other methods, Smith said, adding that price comparison sites see a lot of customers choosing on non-price attributes, such as the proximity for a brick-and-mortar location or the comfort-food-aspects of a branded manufacturer and branded retailer.
Another differentiation that Tsao argues is SKU-matching to make it more likely that consumers are seeing apples-to-apples product comparisons.
"If they don't do SKU association, it might be a completely different product," he said.
Experian's Smith agreed. "It might be a compatible print cartridge as opposed to the manufacturer's own print cartridge," she said.
"PriceGrabber will not allow that to happen. They will fire merchants if they are misleading consumers."
Another key argument for Experian's acquisition is what company officials said is PriceGrabber's site visitor loyalty, resulting in a lot of repeat customers.
Forrester's Mulpuru agrees that there is a lot of interest in the price-comparison segment today, but she questions the wisdom of that focus.
"I'm skeptical of the future of price comparison sites. On a Forrester survey, e-commerce marketing budgets grew 20 percent, but the price comparison budget was flat to nominal—maybe five percent," she said.
"More money is going to the paid searches like on Yahoo and Google. It's misguided to think the growth in price comparison sites will continue over time."
As a business model, Mulpuru also questions the comparison site's longtime viability.
About "70 percent of people online in the U.S. don't use shopping comparison sites. This is 2005 data I'm referring to. From a retail perspective, I'm becoming more skeptical of these price comparison services. Outside of the holiday season, it doesn't work for most retailers," Mulpuru said.
"At the same time, you're paying for it, it's on a cost-per-click basis. Retailers aren't foolish. If they're paying for clicks and they're not getting the conversions, it's not going to work."