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Microsoft, Google in catfight over online shopping
by Staff Writers
Washington (AFP) Dec 2, 2012


Deal or no deal? Online discounters face woes
New York (AFP) Dec 2, 2012 - It looks like a tough sell for the online daily deals sector.

After much excitement last year and a hyped public offering from Groupon, the main players are now focusing on saving money themselves as consumers show deal fatigue.

Sector leader Groupon, which went public a year ago with an offering at $20 a share, has seen its stock slide some 80 percent. This week, chief executive Andrew Mason kept his job despite swirling rumors that he was to be ousted.

Rival Living Social said meanwhile it was cutting 400 jobs, or nearly 10 percent of its staff, in a retrenchment which follows big losses for the company.

Lou Kerner of The Social Internet Fund said these firms are in trouble because of a "bubble" which inflated their value based on unrealistic expectations.

"Shoppers are very excited about the coupons at first, but over time they get fatigued and usage drops off. The business model needs to evolve," Kerner said.

The firms aim to make money by selling members deals for discounts on activities, items or services and then splitting the money with the businesses involved.

Both firms have been seeking to diversify, but have been struggling to become profitable.

"People dramatically overestimated the value of their email lists," Kerner told AFP.

"They have a lot of emails, which is valuable, and people like deals... But they need to get better deals that work better for merchants, that are more attractive to the buyers."

LivingSocial spokesman Andrew Weinstein said in an email that the Washington-based firm is seeking to realign costs "after two years of hyper-growth" in a move to "help us set the company on a path for long-term growth and profitability."

LivingSocial remains privately held, but Amazon, which owns a stake in the firm, has been forced to take a write-down of $169 million recently on that investment under accounting rules requiring a charge against earnings to reflect the lower estimated value of the company.

Groupon in November reported a loss of $3 million in results that came up shy of most analyst forecasts for a small profit, creating more pressure for the Chicago-based firm.

Groupon remains plagued by concerns about its accounting methods, as well as its strategy as it moves into direct retail sales.

Living Social claims to have 70 million members worldwide, and Groupon more than 200 million. But analysts say those numbers don't necessarily lead to profits.

"The type of customer attracted to these deals is often not the type of customer that the retailers want," said technology analyst and consultant Rob Enderle.

"In addition there is a ton of competition, making it very likely that several of these firms will fail."

The two firms are facing competition from small and large players: Google, for one, has a similar service called Google Offers, and recently snapped up the marketing firm Incentive Targeting to give it more tools.

Facebook began an effort in the sector but ended it last year after just four months.

Trip Chowdhry of Global Equities Research remains cautious on the deals sector.

Chowdhry said the deals firms have "a nice concept, a noble concept, but without any strong business model behind it."

"If you have some other business then it's fine," Chowdhry said. "You can drive traffic or business to something else. If you don't have something else, you're losing money."

Just in time for the holidays, Microsoft and Google have become embroiled in a bitter dispute over who is the fairest of them all for online shopping, stepping up the battle between the tech giants.

Microsoft threw the first punch when it launched a campaign for its Bing search engine "to highlight Bing's commitment to honest search results."

The campaign also seeks "to help explain to consumers the risks of Google Shopping's newly announced 'pay-to-rank' practice," a Microsoft statement said.

Microsoft created a Web page called "Scroogled," which points out that its rival has reversed course on its pledge at the time of the Google stock offering to avoid paid ad inclusion for search results.

"Google Shopping is nothing more than a list of targeted ads that unsuspecting customers assume are search results," Microsoft claims.

Google announced earlier this year it would revamp its product search to become a shopping service with paid listings. This eliminated merchants which opted not to pay, including some notable ones like Amazon.

Google said it completed the transition October 17 in the US, and will be rolling out the same model in Britain, Germany, France, Japan, Italy, Spain, Netherlands, Brazil, Australia and Switzerland.

"We think this will bring the same high-quality shopping experience to people -- and positive results to merchants -- around the world," a Google blog posting said.

Microsoft is promoting its campaign online and offline with ads "demonstrating why consumers should be concerned and helping them take action" on the Google shift, a Microsoft statement said.

"We're also calling on Google to stop this 'pay-to-rank' system for their shopping results and give shoppers what they expect -- an honest search."

Google maintains that merchants cannot improve their rank simply by paying more, and that sellers who have a financial stake in the results will keep their information up to date.

"Google Shopping makes it easier for shoppers to quickly find what they're looking for, compare different products and connect with merchants to make a purchase," said an email from a Google spokeswoman.

But some analysts say both companies are less than transparent about how their shopping engines work, and that Microsoft is not without blame.

Danny Sullivan, analyst with the website Search Engine Land, said of the Microsoft effort: "Great campaign, if it were true. It's not. Bing itself does the same things it accuses Google of."

Sullivan told AFP that "at least Google has the fine print that you can read; Microsoft doesn't have it at all."

Microsoft, according to Sullivan, excludes new merchants from Bing search results if they don't pay for inclusion with its partner, Shopping.com, even though this is not fully transparent to consumers.

"Payment is a factor for ranking," in Bing, said Sullivan, who maintains that Microsoft's campaign is misleading.

Microsoft said its own shopping results through Bing are not influenced by payment.

"Bing includes millions of free listings from merchants and rankings are determined entirely by which products are most relevant to your query," said Stefan Weitz, senior director at Bing, in an emailed statement.

"While merchants can pay fees for inclusion on our third party shopping sites and subsequently may appear in Bing Shopping through partnerships we have, we do not rank merchants higher based on who pays us, nor do we let merchants pay to have their product offers placed higher in Bing Shopping's search results."

Sullivan argues that Google, ironically, may have moved to paid listings to deflect attention from regulators and others who complain it had been skewing its search results.

"If you have people complaining you search results are unfair, you can turn them into ads," he said.

But Sullivan noted that Google merely adopted the same policies of most shopping sites, which use paid listings even if they appear to be an impartial search.

The overall message from the latest row, according to Sullivan: "You need to shop around. Use multiple search engines. All of them that suggest that they are gathering stuff from across the Web but may not be doing that."

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