Kudos to Niki Scevak over at Bronte Media for a great post yesterday on the dilemma facing the big boys of Comparison Shopping.  Using Shopzilla’s recent struggles as an example, (thanks to Brian Smith’s coverage of Shopzilla here and here) Niki correctly points out that the gravy train of Search Marketing for big PPC-based Comparison Engines like Shopzilla and Shopping.com may be coming to an end as keyword competition becomes more intense. 

The big four CSE’s (shopping.com, shopzilla, pricegrabber and nextag) found a classic arbitrage opportunity: buy customers from Google, Yahoo! and Microsoft, and then quickly sell them to retailers through multiple paid clicks at higher rates.  This strategy works great when the clicks at GYM stay low, but as retailers get smart and start competing for keywords, these GYM rates rise and the arbitrage dries up.  

The big problem is that these PPC-based shopping engines create limited, if any, customer loyalty.  The result is that the CSE’s have to continue to re-acquire their customers time and time again from GYM.  As paid search rates go up, this strategy becomes increasingly problematic and ultimately unsustainable. 

Brian was just in my office yesterday contending that no CSE has built a sustainable business outside of the shadow of GYM.  It appears that many of the new CSE start ups (e.g., Shopwiki) are also jumping into the PPC arbitrage game.  We are taking a completely different approach at Jellyfish.  With our VPA auction and cash back system, the Jellyfish model creates strong customer loyalty.  But since we aren’t playing the PPC game, competing against our retailer partners and extremely deep pocketed CSE’s, our big challenge is customer acquisition and brand awareness.  Our answer to this challenge has been to spend our marketing dollars creating remarkable, entertaining content through Smack Shopping.  Time will tell whether this approach works, but as the GYM arbitrage model dries up, this strategy looks better every day.               

A company called Xedant claims that have come up with a way to rid the world of Adsense Arbitrage (explained here and here). The solution? Teach people how easy and profitable it is to game the Adwords/Adsense programs. Their online tutorial (posted here) records how easy it was for them to build “Made for Adsense” click optimized pages and make money from them by buying Google Adwords. (e.g., buy traffic from Google (Adwords) and monetize that traffic by getting those folks to click on higher paying Google Adsense links).

The company claims to be doing this because they are sick of competing on Google Adwords with these arbitrageurs. They figure if the problem gets big enough that Google will eventually have to do something about it. I can’t vouch for their actual motives (or the research they claim to have done on the extent of the problem), but you have to hand it to them for creativity.