Dossier 4.2 – CSE Auctions, Gas Pedals and Black Boxes

Shopzilla’s update of their Smart Pricing program to a Single Rate bidding model has left some merchants confused, and rightly so. Jumping from an average of 40 – 70 cents per click up to a minimum CPC bid of $4 for all categories was a little hard to swallow.

Watch Jeremy Arthur explain how this actually affects merchants, and what it means for the industry in general. For a more in-depth explanation of both Smart Pricing and Single Rate, read Melissa Rowland’s blog article here.

To read Jeremy’s full article, download Dossier 4.2 at http://bit.ly/dossier-video


VIDEO TRANSCRIPT

Jeremy Arthur: Hello, my name is Jeremy Arthur, and I’m one of RKG’s senior analysts in the comparison shopping engine team. What I’d like to talk about today has to do with some changes that Shopzilla, one of the industry’s largest engines made in June. At that time, they introduced something that they are calling single rate, which increased the minimum CPC bid for all categories to $4 per click.

Now to give you a little perspective, we generally see an average of 40 cents to 70 cents per click for our clients depending on what types of items they sell, so an increase to $4 was something that definitely made some ears perk up.

Now fortunately, because of Shopzilla’s smart pricing model, which discounts clicks based on the quality of their traffic source, no one should be paying anywhere close to $4 for a single click, and that’s a good thing. What may not be so good is all the increasing sophistication that makes all this possible.

The merchant has no idea all of the factors that go into converting a $4 bid in something like apparel to an actual CPC of 39 cents versus an overall bid of $4 in something like appliances into a 53 cent overall CPC. All of those things that make that happen take place behind closed doors.

Now Shopzilla is not the only engine that is making such changes. The eBay Commerce Network, for example, has been using a click discounting model similar to Shopzilla’s for many years, now, and Become.com is experimenting with something which will manipulate the exposure of a particular product based on its individual performance.

So the bottom line is, things are becoming more complicated, and all this increasing complication blurs the lines of what it means to use words like bidding and auction, and it makes them increasingly obsolete. In an auction, what you bid is what you will eventually pay. In Shopzilla’s single rate model, your bid is really just a gauge of relative competitiveness.

So think of it more like your click traffic throttle. If you want more, you can step on the gas. But make sure you’re watching the speedometer, which in our analogy is actually what you’re going to be paying for each click, because that is going to tell you what the results of that increased throttle actually were.

Now Shopzilla has been very responsive to our request, and we have no reason to believe that their intentions are anything but the best. Having said that, no engine enjoys telling its merchants that it’s going to be increasing its rates. With a single rate program, what Shopzilla has done has given itself the ability to turn up its own throttle and charge a few more cents for each click without whispering a word to anyone.

When single rate was first implemented, we did not see significant changes in the CPCs that our clients were paying. But when Shopzilla does need to charge a little bit more, merchants might not see that courtesy email. Only time will tell what will happen, but at RKG we’ll definitely be keeping our eye on the ball.