Stock Report – Scripps (SSP), The Future of Shopzilla

Scripps, owner of Shopzilla, announced preliminary earnings this morning:

Q4 2007 revenue for Scripps Interactive (Shopzilla and uSwitch) was $79.8m.
Q4 2006 revenue for Scripps Interactive (Shopzilla and uSwitch) was $86.6m.

Q4 2007 segment profit for Scripps Interactive (Shopzilla and uSwitch) was $25.1m.
Q4 2006 segment profit for Scripps Interactive (Shopzilla and uSwitch) was $28.3m.

According to the release, for the fulll year (2007), at Scripps Interactive, “Revenue was $256 million compared with $271 million in 2006. Segment profit was $39.7 million compared with $67.7 million in the previous year.”

Obviously these numbers aren’t going the direction Scripps was hoping for when it acquired Shopzilla and uSwitch. So is Shopzilla crumbling or is it uSwitch? Seems to be uSwitch.

Scripps said “The decline in Interactive Media revenue and segment profit during the fourth quarter was attributable solely to reduced online energy switching activity at uSwitch. Revenue and profitability improved year-over-year during the fourth quarter at Shopzilla.”

Scripps also said they will take a “charge against earnings for impairment of goodwill and other intangible assets related to losses and challenging business conditions at the company’s uSwitch subsidiary in the United Kingdom.”

Early in the 4th quarter of 2007, after Scripps announced that it was spinning out its faster growing segments (Interactive, National Cable Networks) a number of sources said that Scripps was shopping Shopzilla around. These rumors started after Scripps CEO Ken Lowe said “As far as Shopzilla and uSwitch, I think it gives us an opportunity to look a lot harder at those businesses and how they fit overall into our interactive strategy.” (Red Herring)

I never commented on the Shopzilla sale rumor as I didn’t think it would happen with the holiday season heating up. And now? If Shopzilla had tanked in the 4th quarter, I think it would have been over for Shopzilla. Lowe’s comments this morning, attributing the rough numbers from Interactive to uSwitch, seem to indicate that everything is at least ok at the shopping engine. It’ll be interesting to hear what details Scripps reveals about Shopzilla and uSwitch in the earnings call this morning.

In the long run, I think that Shopzilla can be an extremely attractive property for Scripps. Search is huge and the product search game is still being played out, with no clear winners. It would be premature for Scripps to sell off Shopzilla.

I think we’ll finally see some creative integration of Shopzilla into Scripps’ other properties in 2008. At the same time, Shopzilla will continue to struggle to break free of its PPC addiction and become a destination rather than a quick stop along the purchase path with no real lifetime value beyond a single session.

I’ll hedge my bets a bit, though, and say that if Scripps finds a buyer for uSwitch, it might just decide to offload Shopzilla as well. Scripps’ acquisition of Recipezaar was bundled under the Scripps Network brand, not Interactive. According to Paid Content, Ken Lowe had this to say of the acquisition: “Recipezaar, a $25 million acquisition, is very much in line with what the company will do going forward. Overall goal is to dominate on the web the way the company dominates certain categories on cable. The site is different form the main FoodNetwork.com, since it’s user-gen. Millions of uniques over the holiday season.”

Well, if Scripps is looking to emulate its success of cable properties like Food Network, HGTV, Fine Living, etc., Shopzilla would seem to have no place in Scripps’ future.

SuperBowl Merchandising

According to the Retail Advertising and Marketing Association (RAMA), “This year, consumers plan to purchase 3.9 million televisions for Super Bowl Sunday, up more than 50 percent from 2.5 million last year. In addition, viewers plan to purchase 1.8 million pieces of furniture, up from 1.3 million last year.” (via NRF via Shop.org Smartbrief)

Some shopping engines don’t run strong merchandising efforts as they are vertical search engines. It’s not as if you see Google or Yahoo! going gangbusters on a vertical experience for Valentine’s Day or Christmas. But with the shopping engines, we’re talking about products, and I think consumers are very open to, and maybe even want, a very targeted shopping experience for a special occasion.

So which shopping engines are taking advantage of SuperBowl Sunday merchandising? Become & PriceGrabber (through their websites), and Shopzilla (through their email blast).

Become promotes a HDTV section on it’s homepage. Obviously the focus is on HDTVs (allowing consumers to search by size and manufacturer), but Tivos and Home Theater Systems are also highlighted. I especially like the links to Buying Guides and Discussion Forums, but those are a little hidden at the bottom of the page.

PriceGrabber’s SuperBowl Shopping Guide, features 2 anchor sponsors (JC Penney & OneWayFurniture) as well links to pages for a Westinghouse Widescreen TV and a high end Tivo. The real value of the guide, though, comes from the Personal Shopper section. All PriceGrabber has done is filtered its index to grab the good stuff – so Shop for Her brings up the pink jersey, earrings, and women’s Ts, Shop for Pets brings up costumes and rubber footballs for the pooch, and Super Bowl Necessities brings up the slew of high tech gizmos and gadgets that no true SuperBowl party can be without.

Shopzilla doesn’t have a special SuperBowl section, but they did send out a Super Sunday themed email blast last weekend (before my Giants stunned the Packers).

Shopzilla Gets Organized

Shopzilla has quietly, but dramatically changed the way it presents search results to users.

Big bold pictures highlight the change in this search for Football (Go Giants!):

As opposed to:
Pricegrabber

Yahoo! Shopping

Shopping.com

Furthermore, Shopzilla is delivering detailed categorization to help the user narrow results.

For example, the main page of Home Organization lists Storage Product Type, Closet Organization, Garage Organization, etc.:

And drilling one level deeper on Closet Organization reveals options such as Shoe Organizers, Hangers, and Closet Rods:

Shopzilla’s taxonomy only has ‘Home Organization’ (25000800) as an option, so they are doing a solid job of going deeper than just what merchant specifies as the proper category in a feed.

While this taxonomy work isn’t anything new for the shopping engines and Shopzilla still has a long way to go, Shopzilla’s filtering options just seem to be a little sharper/cleaner than what’s found on the other shopping engines.

Examples:
PriceGrabber – Home Organization
Shopping.com – Home Organization
Become – Home Organization
NexTag – Home Organization
Yahoo! Shopping – Home Organization
Smarter.com – Home Organization
Sortprice – Home Organization
Pronto – Home Organization
Google Product Search – Home Organization

Starting with the big, bold pictures representing the categories and then moving down into cleaner/more robust filtering options and a more granular taxonomy, shoppers should be finding products easier (which makes for a better shopping experience) and merchants should be getting more relevant clicks (which improves ROI).

Banners Ads Coming Soon to ShopZilla

I’ve been waiting a while for Shopzilla to start displaying graphical ads (banners)…seems like that day might be just around the corner. There’s currently a job posting on Shopzilla for an Online Ad Traffic Coordinator:

The Online Ad Traffic Coordinator will interact with ad serving and web technologies to execute ad insertion orders per specifications and monitor delivery of multi-faced ad campaigns to ensure successful execution. In this position, the Online Ad Traffic Coordinator will partner with the Banner Ad Sales Director to provide inventory availability, traffic creative from agencies and clients, and assist in banner proposals and request for proposals. Keeping abreast of the future of online advertising, providing support for our sales efforts and helping enhance Shopzilla’s relationships by providing exceptional service is necessary for the success of this position.

With Shopzilla’s redesign focusing more on product discovery, the company has the potential to make a pretty penny from online ad sales. This is a no-brainer for the company. I just hope that they don’t make the page about the banner ad…there’s still amazing potential for product search.

Seasonal PPC Increases on the Shopping Engines

It’s that time of year again. Many of the shopping engines have raised their cost per click (CPC) rates for the holidays. The shopping engines do this to counter increased rates on Google Adwords and Yahoo! Search Marketing and justify the move by saying that conversion rates increase during the holidays. In effect, the shopping engines are saying that merchants still made out like bandits and they have to cover their collective asses.

Shopzilla will increase its CPC rates by 25%. The change takes effect on November 12 and goes through December 31, 2007. Ok, at least Shopzilla moved the increase out to the 12th as opposed to starting November 1.

PriceGrabber increased its CPC rates by 25%. The change took effect on November 1 and goes through January 15, 2008. Ahhh…January 15? Excuse me?

NexTag increased its CPC rates by 25%. The change took effect on November 1 and goes through January 2, 2008. A 25% increase never feels good, but this is the one increase I don’t think merchants are worried about. NexTag continues to drive incredibly qualified traffic.

And then there’s Shopping.com. Not only did they they move the rate increase out to November 15 (as opposed to November 1), but they aren’t doing a blanket increase of 25% across all categories. Incredible. Someone listened!

In some random course in college, I had a professor give a class about generalizations…how dangerous and wrong they often were.

NexTag, Shopzilla, and PriceGrabber are saying that conversion rates increase during the holiday shopping season. But I’m not so sure that this Forklift seller is going to see a huge spike in conversion. Or that people will be adding projection mounts to their holiday wish lists.

NexTag, Shopzilla, and PriceGrabber are saying that CPC rates increase for them during the holiday shopping season. Again, I don’t think that argument holds for across all product categories. Do bids for textbooks on Adwords or YSM really increase 25%?

In other words, while Shopping.com didn’t get it perfect this time around, they get an A for effort, moving forward with a variable rate increase of 10-25% as opposed to a flat increase of 25%. Office equipment rates will only increase 10%. Media (books, movies, videos) rates will only increase 10%. Here’s the complete rundown:

Categories % Increase
Cars 10%
Clothing and Accessories 10%
Computers 10%
Electronics 20%
Event Tickets 10%
Flowers and Gifts 25%
Health and Beauty 15%
Home and Garden 20%
Jewelry and Watches 20%
Kids and Family 25%
Magazine and Subscriptions 10%
Media 10%
Miscellaneous 10%
Musical Instruments & Accessories 25%
Office 10%
Sports and Outdoors 25%
Video Games 25%

As for how SDC decided on the % increases, Alisa and Tomer explained to me: “We’ve done some analysis looking at previous years, looking at deltas in different categories in rate cards from our search partners. As opposed to one size fits all, we’ve done the analysis to figure out what’s needed to cover our costs. And we’ve moved the [rate increase] from November 1 to November 15 to better reflect when that increase kicks in. What we’re trying to do this year is be more sensitive to reflect what we’ve seen in the past. In some categories the keywords [cpc rates] increase more, in some categories the keywords [cpc rates] increase less.”

Sounds so simple. Makes perfect sense. Shopping.com is saying that the rates from their search partners (Google Adwords, YSM, etc.) don’t increase for all categories at a flat rate and therefore they aren’t going to pass along a flat rate increase to their merchants. Because…well…that would be wrong.

Shopping.com is good at buying keywords. The other shopping engines are also good at buying keywords. Some, like NexTag, might even be more efficient. Well, if that’s the case, why are we seeing a flat rate increase on NexTag, PriceGrabber, and Shopzilla?

Shopping.com has admitted that costs don’t increase 25% across the board (based on past data). If that’s true, then the other shopping engines are basically saying ’screw you’ to the merchants.

Ok, there might be a little more to it. Shopping.com in general seems to have a lower conversion rates then the other shopping engines because of poor partner traffic, so maybe they’re making up for that with lower CPC rate increases.

But that still doesn’t excuse the other shopping engines’ actions. They should immediately reconsider their increases for a number of categories. It’s the right thing to do.

Shopzilla Realizes Its a Search Company

Ok, it seems to be in a test phase so you might not see it yourself, but Shopzilla dramatically increased the size of the search box on its site and completely removed the staid browsing experience on those pages.

New…

Old…

Shopzilla owns the URL http://www.shoppingsearch.com (what I originally wanted to call this blog), so it’s nice to see the company is coming to grips with an identity it knew about years ago.

More on Shopzilla in a bit. The company lost its recently hired CMO, Rysa Pinter, a couple weeks back so I caught up with Bill Glass earlier this week. Will write up the post very soon.

Shopzilla Starts up TV Commercials

Haven’t seen the ad(s) yet, but Shopzilla/Scripps got a bunch of press touting the commercial(s).

Shopzilla Learns About Link Building

Scripps (owner of Shopzilla) has taken a beating recently as the company claims click costs are too much for Shopzilla to handle. Scripps has therefore said it would concentrate on brand building and driving free traffic. One strategy seems to be link building. And I mean a TON of link building.

For those of you who aren’t familiar with search engine optimization (SEO), one factor that goes into rankings on Google and Yahoo! is the number and quality of inbound links. If your site has a lot of links from high quality (traffic, relevance) sites, that’s good. Not a lot of links, not so good.

Well, seems that Scripps has discovered this SEO tactic and has put links to Shopzilla, BizRate, and uSwitch on most of its media properties. Here are some examples:

From Redding.com:

From Newsnet5.com:

So this is what they mean by free traffic.

You can find these links on most of Scripps’ newspaper (20 listed on this page) and broadcast television (10 listed on this page) sites. These links are in addition to the various modules of Shopzilla content that were already in place on most Scripps properties.

Very smart move on the surface. Whether there should be some sort of disclosure that Scripps is the parent company of both the newspaper/tv station + Shopzilla is not really bugging me.

What does make me a little uncomfortable, though, is the lack of relevance and value to the average Joe reading a newspaper site like Boulder’s Daily Camera.

After reading Looking for the warning signs in kids, do parents really need to ‘Comparison Shop for Digital Cameras and Appliances at Shopzilla& BizRate’?

Scripps Interactive Group Posts First Quarter 2007 Loss

Highlights from the press release:

“Revenue at the company’s interactive media division, including Internet search businesses Shopzilla and uSwitch, rose during the first quarter of 2007, but segment profit for the division was down because of changing business conditions, strategic investments the company is making to improve the consumer experience and competitive position at both businesses, and costs related to a transition in leadership at Shopzilla. On a pro forma basis, as if the company had owned uSwitch since Jan. 1, 2006, Scripps Interactive Media revenue was down 8.7 percent during the quarter.”

“Interactive Media revenue was $62.9 million for the first quarter compared with $58.6 million in the first quarter 2006. On a pro forma basis, as if the company had owned uSwitch for the full year 2006, Scripps Interactive Media revenue was down 8.7 percent. The segment loss at Interactive Media was $400,000 compared with $13.9 million in segment profit in the first quarter 2006. Costs related to the leadership transition at Shopzilla reduced segment profit by about $5 million. The company also invested $10 million during the quarter to build brand awareness for uSwitch in the U.K.”

“Scripps Interactive Media, which includes Shopzilla and uSwitch, is expected to generate segment profit of about $5 million in the second quarter. The company’s outlook for the second quarter and balance of the year assumes no improvement in market conditions experienced by both businesses in the first quarter. For the full year, interactive media segment profit is expected to be between $30 million and $40 million.”

The bigger they are the harder they fall?
—Q4 2006 Earnings Call
—Q2 2006 Earnings
—Q1 2006 Earnings
—A look at 2005

Management Changes at Shopzilla

I’ve been thinking about this post for a couple days, and I’ll add more in a separate post soon, but considering that the news just hit the wires, I wanted to let you know that Farhad Mohit and John Phelps have announced that they are leaving Shopzilla.

Here’s the press release announcing the departures and the naming of Bill Glass as the new president.

PS. Thanks to everyone who broke the news to me over the last week…just didn’t want to post anything prior to the official release.