Meet the Street: Putting a Tail on E-Tail Sales

Investors and analysts who follow online retail companies such as Amazon.com (AMZN) have few tools to assess those businesses in between quarterly earnings reports.

Gian Fulgoni Chairman, comScore Networks

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Unlike bricks-and-mortar retailers, Amazon and its dot-com brethren do not report sales on a monthly basis. But as the investing winds have changed, dubious metrics such as eyeballs or site visits no longer cut it.

In steps comScore Networks, a new-to-the-scene research firm that aims to compile reams of Internet data, including tracking online retail sales on both a monthly and weekly basis for investors. Other market research firms have tried this before, but comScore's founder and Chairman Gian Fulgoni says his company does it better. His reason: comScore uses a huge sample size of roughly 1.5 million people, and uses its technology to track sales as they happen as opposed to asking consumers to remember their purchases after the fact.

In New York to makes his pitch to investors and analysts, Fulgoni chatted with TheStreet.com.

TSC: What does your data tell us about how online retailing has been affected by the terrorist attacks?

Fulgoni: In the first two weeks -- the week of the attack and the week following -- total e-commerce sales were down over 40%. In the last two weeks they're still down, but probably half that. So they're still down in the 15% to 20% range vs. what they were, on average, the previous five months.

Some categories have been hurt a lot more than others; obviously travel just got hammered in the first couple of weeks. It's come back to where online travel bookings are now down about 10% from where they were before the attacks. Hard goods are actually suffering more right now. Another category that is kind of indicative of the mood of the country is that even tickets -- online purchasing of event tickets -- was a disaster. They were off 80% in the first couple of weeks after the attacks, but that's also come back to now being down about 30%.

TSC: How is what you do in tracking online buying habits different from other organizations that do so -- such as Jupiter Media Metrix? You obviously feel you do it better. Why?

Fulgoni: I think we do it better for two key reasons. First of all, we don't ask people to remember what they bought, which is the old way of doing it. The problem with that is that people don't remember too well what they bought in any given period of time. In fact, generally people will overstate what they bought by 50% or more. That's a well-known problem with that method.

So we don't ask people to tell us. Our technology is literally on servers looking at everything these one-and-a-half million people are buying. So there is no ifs, ands, or buts about it. And then we do it with a massive sample size. We're not talking to a few thousand people. We are doing it with one-and-a-half million people. So it's the scale of what we do, the massive sample sizes, and it's the actual measurement of what people bought, not consumer recall.

TSC: Some have said comScore has the potential to change how companies such as Amazon do business by effectively forcing them to report sales data more frequently. Do you think this is a possibility?

Fulgoni: I'm not sure if we'll be the ones forcing that to happen. But what we certainly do is provide financial analysts with information on what is happening within the quarter, month by month or week by week, in terms of buying. So helping them move off from just a reliance on traffic, which is a remnant of the crazy days when all Internet business was based on advertising models, [is one thing we do].

If I were to go to an offline retailer, like a department store, and said I'm going to give you one number and you're going to run your business by it, and that's a count of how many people walk through the front door of the store, I'd be laughed out of the building. That's what traffic is.

So what I hope the data will do is have a positive effect on the ability of financial analysts to gauge the performance of companies. I would hope that is something everyone would want, because you get really hurt on the Street if you surprise people. I think the more insight people have into what's going on, the better for the whole industry.

TSC: Have you had much success developing relationships with Wall Street analysts?

Fulgoni: We released this particular tracking product just recently, called the comScore Investment Brief, and we are out now selling it to both the buy side and the sell side. We are getting a very, very encouraging response to it, especially among the buy-side folks. If you're on the buy side, our data will help you make an investment decision right then and there.

Whereas if you're on the sell side, you put it in the reports and disseminate it to your customers and you might not be the one making the direct investment decision. We are very optimistic about the demand for the investment brief in the buy-side community, because we are able to estimate the quarterly sales performance of public and private companies well before they release their numbers.

TSC: Amazon has told The Wall Street Journal that comScore does not "have enough insight" into their system to be accurate. How do you respond to this?

Fulgoni: Maybe what they're saying is that we don't read all of Amazon's revenue, which is correct. We're reading their e-commerce sales. We don't read if they are generating revenues; if they got service revenues from partnerships.

We would be the first to say that not every single dollar of revenue that Amazon reports do we see. But we are tracking the guts of their business. And if the guts of their business predicts what happens to them in total, then we'll be pretty accurate. There's no question we capture, for our one-and-a-half million people, we are capturing beyond a shadow of a doubt what they are buying at Amazon. So to the extent it is a representative cross section of Amazon's buyers, well that is projectable, it's a sample.

There's an old saying in market research that if you don't believe in sampling theory, next time you go to the doctor and he wants to take a little blood, tell him to take it all.

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