Sometimes it’s astonishing how quickly things change. Ten years ago internet advertising didn’t exist. Five years ago it accounted for just 1% of UK spend. It overtook cinema advertising in 2000, radio and consumer magazines in 2004, outdoor and directories in 2005, and will overtake national newspapers very soon.
This meteoric growth – driven by search, which accounts for about 75% of the total – cannot continue indefinitely. But it will continue transforming both consumer habits and advertiser spends for some time to come. So what’s next?
Here’s a suggestion. Watch out for a current Cinderella of the internet: comparison shopping. Compared to the hype surrounding the likes of MySpace and YouTube, it seems like a dull backwater. But ignore it at your peril. Here’s why.
The last truly profound economic transformation began in the early years of the 20th century with the rise of mass production. Mass production was based on some simple but fundamental building blocks. Take standardised parts. If each item is made individually by hand, no two parts will snap together easily. Assembling a complex piece of machinery with many different parts invariably entails huge amounts of non-value adding rework. Pre-specified, interchangeable standardised parts eliminate this wasted effort.
Standardised parts, in turn, made moving assembly lines possible. These created two further, huge benefits. First, they allowed for asset re-use. If a machine costs £1m and makes just one item, that item costs at least £1m. But if the costs are spread over a million items, then the work done by that machine costs just £1 per unit: a massive productivity leap. Second, moving assembly lines connected men and machines in ways which minimised unproductive time and effort: walking around, looking for things, picking them up, and so on.
Together these building blocks helped Henry Ford slash the costs of motor car production by 90% or more. In doing so, he made the previously unimaginable luxury of personal mobility affordable to millions of people, and established the motor car as a cornerstone of modern economic life.
Now fast-forward to the early 21st century. It’s an unavoidable fact that we only know the value of a piece of information after we have spent time and effort paying attention to it, absorbing it and processing it. Therefore, in a world of exponentially increasing information, the amount of time and effort that’s wasted consuming information of little value also grows exponentially.
Search allows us to avoid this waste by pre-specifying what we want to pay attention to. It is the information age equivalent of the standardised part.
What about comparison? Until recently, when Mrs Jones researched the prices and qualities of digital cameras or washing machines, it took her many hours to assemble the information. Once she had made her decision, the information she acquired was effectively used up. There was no way that Mr Smith, who lives two streets away, could re-use it.
Comparison services make the re-use of information assets possible. With a comparison service, Mr Smith doesn’t have to start from scratch to re-do research already done by Mrs Jones. He can re-use information that has already been used many times before (thereby slashing the unit cost of providing it), achieving in one minute what previously might have taken 100 minutes. Comparison services, therefore, deliver productivity leaps to consumers equivalent to those of the moving assembly line – while also delivering turbo-charged connections (this time between buyers and sellers, rather than men and machines).
Designing waste out of core processes, re-using assets to turbocharge productivity, improving alignment to release precious resources: these core principles lay at the heart of mass production. With search and comparison they are now being reapplied to an information age, especially to the information-rich processes of exchange and distribution – “marketing” – rather than production. Search and comparison are not some vaguely interesting sideshows. They are the building blocks of a new economic revolution whose effects will reverberate and ricochet for decades to come.
As with mass production in the early 20th century, however, these building blocks (and their related business models) are still in their infancy. Comparison shopping in particular has many hurdles to overcome. It faces problems with accuracy, comprehensiveness (“how do I know your comparisons cover all the important options?”), honesty and integrity (“how do I know your results are not biased by seller incentives?”), ease of use, and scope (“yes, price is important, but what about quality and reliability, functionality, delivery and after-sales service?”).
But all of these hurdles can, and are, being overcome. While today’s comparison services help people decide where to buy on, for example, the basis of price, “no one is successfully providing advice on what to buy”, notes Richard Anson, chief executive of Reevoo, a service that hopes to fill this gap by collating and presenting customer reviews of products after they have purchased them. Reevoo is already being used by the likes of Comet, Dixons, Currys and Jessops, which have discovered that trust-building, impartial customer reviews significantly increase conversion rates. Reevoo is now extending its service to new sectors.
As the trust, utility and convenience barriers to price and product comparison services fall, we can expect two things to happen. First, they will increasingly emerge as a natural first port of call for buyers for a growing range of categories and purchasing considerations, accounting for a growing proportion of their total spends. Second, marketers in these categories will have to adjust their advertising and distribution strategies accordingly.
For sellers, such developments signal both opportunities and threats. On the threat side, sellers may see traditional advertising and channel strategies lose resonance as buyers increasingly pay attention to new and different sources of information. They may also be forced to confront hard questions such as “is our current brand strategy designed to avoid or survive comparison?”.
On the opportunity side, sellers are not only discovering new ways to connect with buyers at lower cost, they are also discovering new ways to use the information generated by these services to keep track of market developments and rapidly identify strengths and weaknesses in their offerings, including gaps in their product portfolios.
Last year, according to Hitwise, consumer traffic to UK comparison shopping sites jumped 33% (if the effects of the divorce between Kelkoo and MSN are excluded). In the US, three comparison sites figure in the top 15 online shopping destinations. Comparison shopping services are already the subject of many takeovers and acquisitions, and the focus of many new launches. A new commercial phenomenon is now reaching critical mass. Don’t miss its significance.