Probing Deeper: InfoSpace.com's Search Party

The online content syndicator is set to roll out a shopping search engine that lists both online and off-line retailers.
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When it comes to shopping,

InfoSpace.com

(INSP) - Get Report

is thinking globally and acting locally.

This Wednesday, InfoSpace.com, which syndicates content such as yellow pages and horoscopes to various sites on the Web, plans to roll out a shopping search engine, called

ActiveShopper

, that combines data from online retailers and local bricks-and-mortar stores.

An early look at this shopping tool, which has been in the works since before InfoSpace.com came public last December, indicates that though imperfect, it could be valuable new product for InfoSpace.com -- and a way to draw local merchants into the e-commerce loop.

By giving Internet users a way to search for merchandise both on and off the Internet, InfoSpace.com hopes to build up revenue not just from advertising and licensing, but from a slice of e-commerce transactions as well. The new product is "very significant," says John Arnold, InfoSpace.com's vice president of e-commerce. "That's because there are so many different revenue models from it."

Says Seema Williams, consumer e-commerce analyst at

Forrester Research

, "When they start turning eyeballs into direct dollars ... the value proposition of their audience just racheted up a lot."

What's distinctive about ActiveShopper is the vast number of choices it offers. To start, you pick what category you're searching for -- say, sporting goods -- along with the keyword for what you want ("hockey," for example) and add in your zip code. What you get back is a list of items categorized in several headings, starting with a "Buy It Online" tab, which points to Web stores, auctions or online catalogs where you might be able to find that product. Another option leads you to merchants offering the product in or near your zip code. You can also find Usenet newsgroups on the Web in which that keyword appears, as well as relevant bulletin boards operated by InfoSpace.com. Search results can be sorted by price, or manufacturer or any other criteria.

Though ActiveShopper's link to local merchants isn't incredibly fancy right now -- it's a referral to local yellow pages -- it holds great promise. InfoSpace.com has immediate plans to generate additional advertising and transaction money from the exposure that local merchants get on ActiveShopper, Arnold says. And with a merchandising program that the company announced May 18, he says, local companies will be able to target their sales, coupons and promotional offers to people living in particular zip codes.

By integrating local merchants into Web sites, "it sounds like they've pulled off what everybody else is talking about pulling off," says Williams.

ActiveShopper isn't the only shopping search engine on the Web. By the end of June,

Inktomi

(INKT)

is slated to debut its Shopping Engine, which can be previewed on the

CNNfn.com

Web site. Inktomi CEO David Peterschmidt says his company's product is more tightly integrated than InfoSpace.com's ActiveShopper with products on the merchant sites to which it links. By the end of the summer, Inktomi plans to include useful advice for shoppers drawn from

Consumers Digest

and other publications. "Our service is intended first to let you understand more about the products you're interested in," Peterschmidt says.

America Online

(AOL)

is getting into this territory, too, with the Shop@AOL initiative announced last week. Nancy Casey, general partner with

Valhalla Capital

, says there's room for several of these services, but AOL has "a clearly superior ability to market and sell their services over everyone else." (Valhalla has stakes in both InfoSpace.com and AOL.)

But InfoSpace.com does have its strengths. One is the link to offline merchants as well as the online ones, which gives the company opportunities for advertising sales through the local yellow pages publishers with whom InfoSpace.com already has partnerships. The local buying links are "the part where it really differentiates us," says InfoSpace.com's Arnold.

InfoSpace.com also has a network of more than 100 affiliates running 1,500 sites to which it can offer the new service. Arnold says the one advantage of ActiveShopper is that it can be easily customized to fit in with the brand identity of any Web site on which it appears. Depending on how ActiveShopper is presented on different sites, Arnold says, InfoSpace.com will either collect licensing fees or share advertising and e-commerce revenue with the site. Although InfoSpace.com will announce on Wednesday a slate of sites and merchants it's working with, it has already announced a link with

Catalog City

, a privately held aggregator of online catalogs such as those from

Harry and David

,

Hanna Andersson

and the perhaps lesser-known

America's Pet Door Outlet

.

Although it's early to say how much new revenue ActiveShopper will bring, Peggy Ledvina, vice president investment bank

Dain Rauscher Wessels

, has been impressed with InfoSpace.com's performance. By her calculations, first-quarter revenue per page view jumped 41% from a year earlier. (Dain Rauscher has done underwriting for InfoSpace.)

ActiveShopper still has a ways to go. At a recent trial, a search for products and information about the musician Sting -- a query that Arnold used to demonstrate the site -- resulted in links to memorabilia from the Paul Newman/Robert Redford movie

The Sting

, newsgroup postings about the professional wrestler Sting, and, for some odd reason, a listing for deodorant cream and roll-on deodorant. Says Arnold of such oddities, "this is kind of a constant battle with providers -- that they keep their product infomation relevant to what we're up to."

But InfoSpace.com has some breathing room to fill out the product listings and work out the kinks. Though time is always at a premium for Internet companies, InfoSpace.com has another resource: money. Thanks mostly to a secondary offering at the end of April, the company has about $250 million in cash and short-term investments at its disposal. Meanwhile, in the first quarter of the year, InfoSpace.com showed an operating loss of $1.7 million on revenue of $5.1 million, compared to a operating loss of just $16,428 on revenue of $1 million a year earlier. If it keeps up its current rate for net losses -- $705,000 in the first quarter of 1999 -- InfoSpace.com has a distant deadline before it runs out of cash: about the year 2089 or so.