The new Application Programming Interface (API) is due to become available in early November. It will let software developers plug PayPal payment functionality into their systems to leverage the company's transaction, currency and security capabilities. Most interesting to us was the electric outlet analogy.

Osama Bedier, PayPal's VP of Product Development, said at the announcement event that just like electrical outlets facilitated increased consumption of electricity, "a secure global payment system will let the internet reach parts of our lives we can't even imagine." More and different ways of using the internet will be invented once monetization is possible and a profit motive present for those inventions, he argued.

That makes sense. It is a little unnerving to imagine the global system providing that platform being controlled by one company, but fortunately PayPal is following the footsteps of Amazon and its related Flexible Payment System. (See Leena Rao's account for a comparison of the two systems.)

PayPal believes it can grow even more central to the online payment economy. Ina Fried quotes CEO John Donohue at a separate event today as having said "PayPal is a business that will be bigger than eBay."

Electricity is certainly bigger than auctioneering, even if it does lack its own charming patois.

Whether or not PayPal is the company to pull off this grand vision of distributed, global, secure online payments is another question - but the analogy used by Bedier to describe the vision seems like a sound and important one. A trusted, secure, easy, sophisticated online payment system could very well foster a fundamentally different era in online computing by enabling developers to develop in a financially sustainable way.

Is this just a story of a big online shopping mall buying up a hot little online shoe store? Taking a closer look at the offline supply chain of each company indicates that there may be more to this deal. Some supply chain analysts believe that the two companies are actually radically different, but complementary, and their union could help Amazon both change the way it relates to its customers and reach a whole new group of customers willing to pay more for a high-quality user experience. This is a story of two different ways of selling things on the internet and delivering them to your door.

Amazon is a master of the supply chain. It's got so much capacity, for example, that the company last year opened up a "supply chain as a service" business, just like it created a surplus cloud computing as a service business years earlier. (Amazon's Newest Web Service: Shipping Center APIs)

Zappos is no slouch at rushing goods to your house either, though. (Just last week their elves delivered a new pair of shoes to my house the next morning after I ordered them late at night!)

It appears that Amazon will leverage at least some of the existing Zappos supply chain; Zappos CEO Tony Hsieh wrote today that Amazon doesn't have any warehouses as close to the UPS Worldport hub in Louisville, Kentucky as the shoe company does and will likely store some Amazon inventory there, for example.

Amazon could also remove a substantial amount of the Zappos distribution infrastructure that now becomes redundant and isn't scaled as well. That would mean lower overhead for the Zappos subsidiary and increased profits for Amazon.

That might make sense from a short term bottom-line perspective, but even in terms of the supply chain it may not be the whole story. "Amazon might go to shareholders and say that's the plan," procurement analyst Jason Busch of SpendMatters told us. "But what you tell Wall Street and the reasons why you do this kind of deal are often very different."

Not All Supply Chains Are The Same

Busch argues that the two companies have very different, and possibly complementary, kinds of supply chains.

Amazon has innovated around warehousing and operational efficiency. Busch says the company has acquired software makers that specialize in processes like high efficiency inventory picking and inventory tracking.

Zappos, on the other hand, has built up a different kind of supply chain. "From keeping diverse inventory in stock to very high-touch order fulfillment, the Zappos customer experience is seamless and integrated," Busch says.

"Amazon would never upgrade shipping to overnight for example, as Zappos does, except through the Amazon Prime program. Amazon's warehouse is very innovative, but Amazon is focused on warehousing and lowering costs. Zappos has learned it's about more than just cost, it's about user experience and people are willing to pay for that. It's not surprising that Amazon realized they can acquire the skills and knowledge that Zappos has developed, in addition to the business side where they were not a major player in apparel.

Amazon may be reconsidering how they serve customers, so they may choose to keep some of the redundant Zappos infrastructure.

-Jason Busch, SpendMatters

"

Lora Cecere, Vice President of Value Chain Services at AMR Research, says she agrees with Busch. "It's now a multi channel play," she told us. "Zappos deals with quick cycles, Amazon has longer cycles and is warehouse centric. They are really dealing with different supply chains. I wonder if it wasn't a preemptive move to block another competitor from acquiring Zappos."

Zappos had been talking lately about moving into the home electronics business, something Amazon excels at. Now the two companies won't have to compete, but will aim to gain from each other's different experiences and resources in order to target different types of customers seeking different shopping experiences. Some sources say that Zappos didn't want to sell itself, but was pressured by its investors. The value to Amazon seems clear on several levels.

Bringing Zappos into the tent could make Amazon an even more interesting company. That's something that could very well be worth giving up almost a billion dollars in stock for.

For casual Internet users who are all over the social web but don't have the knowledge, resources, or desire to set up and market full online storefronts, there's PutACart, which democratizes the long tail of e-commerce, allowing users to peddle their wares from a plethora of the most popular social destinations online.

Here's what the carts look like on Facebook, MySpace, and WordPress, respectively:

Since this is for casual social-web users, Paypal is the only payment method for both buyers and sellers. And if a user makes changes to certain parts of his product list or account, he'll also need to update the embed codes on his social sites.

Mostly, though, it's a great idea with a kind of bad interface. Here's a look at my web-based store. Unfortunately, I can't customize the look and feel of this page, and I have no options for customizing my social web shopping cards other than toggling between thumbnail and extended product views. I have no control over how it looks, and social web users are very big on customizable GUIs. Especially for something that will be the commercial side of their personal brand, users need to be able to choose images, colors, typefaces, and layouts. They should probably also have some level of access to style the page/widget as they like. On this site, I didn't even have the option to crop my thumbnail, which came out distorted because the creators didn't give me any dimensions, either.

Also, the message sent out after a Paypal purchase is confirmed should without question be customizable. I, Jolie O'Dell, would never write something like, "We can't tell how much cooler you are for having bought something from us. Your friends will be jealous. Thank you!" And I'm sure a great many other vendors wouldn't, either. If you're sending out a message on my behalf to people in my social graph, it's imperative that I have control of what the message says.

Customization issues aside, it's a fantastic service for social web peeps who want to throw a few marketable products into the digital universe without committing to an online store, and we look forward to seeing what the PutACart team does in the future.

Also, this is a test store, so please don't try to buy anything I've posted! Do you really think I'd sell out all my tech scene bros for $0.99? That's my retirement plan.

Take consumer electronics site Woya, for example. When faced with the daunting task of buying a new laptop without the requisite Gs needed to make that process sufficiently simple, I have been paralyzed into procrastination. In about 30 seconds, Woya showed me inexpensive, well reviewed laptops I wanted from eBay, Craigslist, Overstock, Amazon, and other sites. It did the legwork and analytics for me, making the process entirely painless.

Users can check out results from retail sites, auction sites, and online classifieds from three simple tabs on the product page. They can scope out specs and reviews for a given product, and Woya lets the user know if they think now is a good time to find good deals on the product. The Deal Digger function is particularly useful, similar to Priceline's name-your-own-price function. Users can select parameters and get real-time updates if and when the selected product becomes available at a given price point.

Woya also shows trends and analytics for the product:

Of course, there are social sharing options, and the site apparently allows users to login via OpenID (although this process was a bit buggy and ultimately dysfunctional on my end, perhaps because of a Chrome-related browser incompatibility issue).

All things being equal, Woya's consumer-friendly, ad-free, highly detailed, comparison shopping approach reminded us of discount travel sites such as Priceline, Travelocity, Expedia, and their like. Those sites enjoy their tremendous popularity for good reasons: They have taken a boring, painful process and made it easier, faster, and less expensive for the end user. For a small, Bay Area-based startup barely six months old with just one full-time employee, Woya has done a great deal to simplify and streamline online shopping in a powerful and unique way. We'd love to see the site grow to encompass all verticals of consumer products.

One thing many sellers are doing, is sticking with eBay. Rather than change horses mid-stream, some sellers are transitioning their auction businesses to the fixed-price model that is now favored by the ecommerce giant. Others are listing their wares at eBay's cross-town (on the web, anyway) rival Amazon.

Online Craft Fairs

New York based Etsy is part of a new breed of online marketplace startups targeted specifically at the needs of independent artists and crafts makers. With more and more people pledging to buy handmade goods, marketplaces like Etsy are taking center stage and becoming important hubs for small merchants. We've even wondered if Etsy might be the next eBay. Be sure to check our lists of Etsy alternatives here and here, as well.

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Classifieds

Craigslist has been accused by some of single handedly sinking the entire newspaper business by doing for classifieds what eBay did for auctions in the 90s -- putting them online and making them dead simple and accessible. Craigslist started as a local events email list for San Francisco in 1995 and has grown to an online classifieds powerhouse serving more than 500 cities in over 50 countries across the world. 40 million people visit Craigslist each month, generating more than 10 billion page views, according to the company. It's no wonder that an ad on Craigslist is an extremely effective way to generate sales, especially in large local markets.

Online Informercial

If you're like me -- and that would be a bummer for you -- you're often awake at 4am. If you happen to flick on the TV, you'll quickly notice that in the wee hours of morning, the airwaves are dominated by a certain variety of program: infomercials. Most of the time, it's hard to wonder how anyone could be suckered into ordering stuff peddled by late night hucksters. But infomercials have inundated the television airwaves since the 1970s, so they must work. Could they also work on the Internet? One company thinks so. Talk Market lets anyone host their own video sales channel on the web. Amazon thinks enough of the idea to have invested in it.

Social Networks

Yes, it doesn't seem that any of the big social networks have yet figured out how to monetize all that traffic. Facebook gave up on Beacon, and MySpace isn't living up to Google's expectations, but that doesn't mean you can't try to sell to your friends, family, and fans via social networks. Buy.com thinks they have the best way, with their Garage Sale application for Facebook. The best part of this option, though, may be the irony of their intro video which calls eBay a "thing of the past" -- apparently Buy.com's top brass didn't get the memo... they closed a huge product listing deal with eBay last month.

Your Own Storefront

Sellers with an adventurous spirit may opt to set up their own storefront. There are a number of free or open source projects, such as osCommerce, that can be used to power an online shop. There are also all inclusive small business hosting solutions, such as Yahoo! Merchant Solutions, that can get sellers up and running with their own stores with a lot less headache. We like Shopify, an all in one hosted ecommerce suite that has become one of the showcase apps for Ruby on Rails (don't worry -- we've never heard of anyone having trouble scaling their store on the service).

How else do you sell online? Let us know in the comments.

Today Zlio announced an agreement for their US site to partner with Shopping.com, an online shopping comparison service that is owned by eBay. This will allow Zlio "shopkeepers" to generate revenue every time someone clicks on a product in their shop. In other words, Zlio users can now be paid per click as well as per sale on their ZlioShops.

This 'per click' revenue share system already exists on the French version of Zlio, via a partnership with Kelkoo/Yahoo.

Zlio was in the news in May, when US e-commerce giant Amazon clamped down on Zlio and told them they could no longer promote Amazon products in the United States. Amazon's own aStore product functions very similar to Zlio, except that it only promotes Amazon's products. But Zlio soon hit back, by partnering with US chain book store Barnes & Noble - giving Zlio 1.5 M more product items for their catalog and essentially replacing all the Amazon stock they were forced to remove.

This is very smart partnering by Zlio and certainly an effective way to hit back at Amazon.com, by joining forces with one of Amazon's biggest rivals (B&N) and another big Internet co (eBay).

Also see Read/WriteWeb's full review of Zlio.

How this works is that you scroll along either the blue dotted line (representing price) or the bottom line (showing product images), until you find a product you like that fits your budget. The scrolling is very reminiscent of using the scroll wheel on your iPod - it's the same kind of interface theory of being able to scroll through hundreds of options easily.

The green dots signify TVs available with larger screen sizes for a lower price.

After you've chosen a suitable product, it displays more details and popularity measures:

There is plenty of data available if needed: product reviews, ratings, pricing details, etc.

Conclusion

There's a lot going on in the interface, but it all seems to work very smoothly. The green dots were probably the only thing that needed explanation when I tested it. Note that the product also uses the Yahoo Shopping API.

Right now ShoppingPath is hoping to be a meta shopping engine, pointing users to retailer websites to complete purchases. It's not clear to me what the business model is, other than contextual ads. Certainly this kind of technology would be superb at Amazon.com, so long term an acquisition of the technology could be the play. Or maybe white labelling it to various retail websites.

The competition

More than 35,000 shops have been opened in the last 5 months in France and Zlio is hoping for similar success in the US. Right now they have competition in the form of MyPickList, a slick widget-based online shopping app. Loomia is similar. Also there is aStore from Amazon (only amazon products) and Shoplinc from Chitika (for people who already have a website). CafePress.com is kind of in this market too, although their focus is on customizable goods and services.

So in September 2006 Zlio totally changed its market positioning - now Zlio is a service that "allows any internet user to create his own online shop even if they have nothing to sell."

Usability

Zlio has a nice wizard-type sign-up process. It took me just a few minutes to sign up, select a template, and 'open' my store. The control panel for adding products is slick and easy to use. My one complaint is that I couldn't see any way to add bulk products, or a whole category. I had to individually add each product, which is time consuming. It would be great if I could tell Zlio to add "all microsoft office products" or "all Apple iPod products"; even better if I could say "add any Apple iPod product that has at least 4GB of memory" etc.

There are also some useful promotional tools, such as creating a video to show on "Zlio TV" and a widget to display on your blog. There's also an area called "boosting tools", which includes a wizard to help you copy your store into your blog.

Business Model

Zlio has two business models: CPA & CPC (in France). For the US launch, it is CPA only for now - but CPC will be introduced in the US soon. The CPA model means that when someone buys a product through a shop, the shop owner makes money via a commission (they are paid through PayPal). The company is based in France, but half the team is in Israel and they are planning to open a US office in the coming months.

Conclusion

All in all, it's a nicely designed app and very well positioned in the market. It kind of reminds of Swickis, which are custom search engines. Having a niche custom online shop will be an attractive (and possibly profitable) proposition for a lot of people. It nicely plays into the need for specialized and focused online properties, which are increasingly the success stories on the Web. In other words, if I am a Woody Allen fan then what better way to shop for his products than on a dedicated Woody Allen shop? So I like what Zlio enables and I'll be watching to see how much uptake it gets. Also I need to work on that R/WW shop! :-)

In October last year, Netflix launched an unusual contest. The online movie rental company is offering 1 million dollars to anyone who can improve their recommendation engine by 10%. Netflix is known for its innovation and bold moves and in the grand scheme of things, $1M is not a lot of money for such a business.

The competition is still running (it "continues through at least October 2, 2011"), so is this a publicity trick or an attempt to do research on the cheap? Is better recommendations something that Netflix really needs or is it just nice to have? Today Netflix is facing a challenge from the awakened giant BlockBuster, so it is certainly looking for a competitive edge. A great recommendation system can retain and attract users to the service. For example when a user returns a movie, he/she is recommended another movie they might like - which increases the likelihood of return business.

Browsing and Recommendations

A good recommendation engine can make a difference not just for Netflix, but for any online business. This is because there are two fundamental activities online - Search and Browse. When a consumer knows exactly what she is looking for, she searches for it. But when she is not looking for anything specific, she browses. It is the browsing that holds the golden opportunity for a recommendation system, because the user is not focused on finding a specific thing - she is open to suggestions.

• Personalized recommendation - recommend things based on the individual's past behavior
• Social recommendation - recommend things based on the past behavior of similar users
• Item recommendation - recommend things based on the thing itself
• A combination of the three approaches above

We will now explore these different approaches by looking at old-timers like Amazon and newbies like Pandora and del.icio.us.

Amazon - The King of Recommendations

Amazon is considered a leader in online shopping and particularly recommendations. Over the last decade the company has invested a lot of money and brain power into building a set of smart recommendations that tap into your browsing history, past purchases and purchases of other shoppers - all to make sure that you buy things. Lets take a look at various pieces of Amazon's recommendation system to get an insight on how they work. Here are the sections that are shown in the main area of my Amazon account when I login:

The section above shows Social recommendations. Notice that it is very analytical, giving me a statistical reason for why I should buy this item. Also note that this recommendation is also a Personalized recommendation, since it is based on an item that I clicked recently.

The section above shows Item recommendation based on New Releases. Clicking on the Why is this recommended for you? link takes me to a view of my purchasing history. So this recommendation is also a Personalized recommendation, since it is based on my past behavior.

There are four more sections offered on the page and each of them leverages different combinations of the personalization mechanisms described above. We summarize them in the table below:

Not surprisingly, the system is symmetric and comprehensive. All recommendations are based on individual behavior, plus either the item itself or behavior of other people on Amazon. Whether you like to buy something because it is related to something that you purchased before, or because it is popular with other users, the system drives you to add the item to the shopping cart.

Beyond Amazon

The Amazon system is phenomenal. It is a genius of collaborative shopping and automation that might not be possible to replicate. This system took a decade for Amazon to build and perfect. It relies on a massive database of items and collective behavior that also "remembers" what you've done years and minutes ago. How can new companies compete with that?

Surprisingly, there is a way. The answer is found in a subject that has little to do with online shopping - genetics. As you know, this science studies how pieces of DNA, called genes, encode human traits and behavior. For example, members of a family look and behave alike because they share a certain subset of genes. Genetics as a science has been around for over 150 years and has been a powerful tool for both medicine and history. But on January 6, 2000 things took an unexpected turn - Tim Westergren and his friends decided to apply the concepts of genetics to music.

Pandora - The Recommendation System Based on Genetics

The Music Genome Project was launched to decompose music into its basic genetic ingredients. The idea behind it is that we like music because of its attributes - and so why not design a music recommendation system that leverages the similarities between pieces of music. This kind of recommendation engine falls into the Item recommendation category. But what is new and profound here is that similarity of an item like a piece of music needs to be measured in terms of its "genetic" make up.

After years of struggle and processing massive amounts of music, the project accumulated enough data and launched the service called Pandora. Pandora became a hit because of its precision and low cost of entry. The user just needs to pick one artist, or a song, to create a station that instantly plays similar music.

This kind of instant gratification is difficult to resist. The fact that Pandora understands what makes music similar allows it to hook the user without having to learn what this user likes. Pandora does need the user's tastes or memory, it has its own - based on music DNA. Sure, sometimes it might not be perfect, as the user's taste might not be perfectly addressed. But it is rarely wrong.

The natural question is can this genes-based approach be applied to other areas - like books, movies, wines, restaurants or travel destinations? What constitutes genes for each category? For example, can we say that for wine, the genes might be things that describe how wine tastes: blackberry, earthy, fruity, complex, blend, etc. And for a book, can the genes be phrases that describe the plot? So if the genes are the attributes of the object that make it unique in our mind, we should have no problem coming up with genes for various things. In the past few years we have been doing this a lot online. It's called tagging!

Del.icio.us - Can Tags Become Genes?

Pandora had a big startup cost, because thousands of pieces of music had to be manually annotated. The social bookmarking phenomenon del.icio.us took a different approach - let people annotate things themselves. This self-organizing approach has worked really well, and del.icio.us quickly became popular among early adopters. Today, del.icio.us is considered to be more than bookmarking destination - it is also a news site and a search engine. But is del.icio.us a recommendation system?

The answer is yes. There is a basic recommendation system based on one gene - a single tag. For example, in the picture above we see popular links for the linux tag and we also see related tags like open source and ubuntu. But a much more exciting recommendation system is based on matching multiple tags. Unfortunately, the current heuristic does not always work, which is why it is not obvious. But luckily, it did work for the Read/WriteWeb page and generated a great list of similar blogs (see "related items" below):

So the del.icio.us approach holds intriguing possibilities of self-organizing classification and recommendation systems. With enough users and more tweaking, social tagging can result in a system that works equally well for books, wine and music. Provided, of course, that tags are so good that they become genes!

Conclusion

Recommendation engines are important pieces of online commerce systems and their user experience. Retailers have a big incentive to provide recommendations to those users who are "just browsing", to drive them towards a transaction. Amazon.com, the leader in the space, has a very compelling personalization offering. The problem that other retailers face is lack of user information and infrastructure.

Recent approaches to recommendation engines, like the genetics-inspired Pandora and social tagging pioneered by del.icio.us, are intriguing. These approaches hold the promise to provide instant gratification, without asking the user to reveal her preferences and past history. Regardless of how things unfold in the future, Amazon, Pandora and del.icio.us are examples of extraordinary recommendation technologies. We commend them and are watching in fascination for what is coming next.

For the textbooks app, Ugenie has aggregated textbook information from more than 150 universities. The user selects his/her university from a pull-down list, then they review the textbooks they need for each class. Alternatively the user can search by book metadata such as Title, Author or Keyword.

The idea is a simple one: that students can find the cheapest prices for all their books in one click. Students are generally thrifty sorts by necessity (at least that was the case for me back in the day), so saving tens or even hundreds of dollars on textbooks is a pretty compelling thing for students.

Ugenie's user interface is fantastic - very smooth and a lot of useful filter options to find the right bundle. The problem, as we noted in our November post, remains that you need to purchase each individual item separately. The last mile of the Ugenie shopping experience is not automated. But still, it's a very good value proposition for students wanting to save money on textbooks. I can also see potential partnerships here, with the likes of Facebook and other sites where students hang out.

Choose textbooks

Filter bundle

Purchase - the 'fetch' buttons take you to the individual retailers to complete purchase

At the NewTechMeetup on Tuesday, I saw a presentation from Robert Chea, Founder and COO of PowerReviews. PowerReviews is a new startup that provides free Amazon.com-like user reviews to web retailers. Amazon.com reviews are one of the main reasons why the giant retailer is considered the premier product research site on the Internet. Also, these user-generated product reviews have contributed to Amazon.com’s spectacular revenue growth.

PowerReviews creates a central repository of user reviews collected from its retailer customer base. If a retailer doesn't want to share the reviews generated on its site, PowerReviews will charge a monthly fee. Otherwise it is a completely free service. When a retailer signs up, they get access not just to their own user reviews - but to all user reviews in the system. By leveraging this distributed model of collecting and displaying reviews, PowerReviews provides web retailers with many more reviews than a small retailer will typically have. This allows small retailers to compete with Amazon.com, by providing shoppers with extensive user-generated information at the point of sale. In addition, PowerReviews provides several interesting features that make it easy to use the user reviews content - like PowerTags, PowerSummary, TagSuggest.

Example user review

As we mentioned, PowerReviews provides the reviews service for free. The business model is based on monetizing the review content through advertising and pay-per-click mechanisms from their shopping portal (not yet launched, but you can get a sneak peek). The popularity of the shopping portal will probably hold the key to monetize PowerReviews services, so a lot hangs on its success when launched.

This distributed user review model might just succeed in breaking Amazon.com‚Äôs stranglehold on user-generated product reviews. No wonder other players ‚Äì e.g. Bazaar Voice and Mwave ‚Äì are also active in the market, albeit with different monetization models. 

Potential Issues

The devil though might be in the details. To sign up retailers, who are focused on pushing products and generating revenue, PowerReviews has to provide flexibility for retailers to pick and choose reviews (imagine a review which recommends a product that the retailer does not carry!). This means that PowerReviews has to maintain a custom set of data for each retailer and a process for handling all new reviews, on a day-to-day basis. Which potentially increases the cost of providing the service.

User Reviews Aggregation

Another significant issue is likely to be UI and data integration. Web retailers are usually very concerned about developing a site that is easy to use and has a consistent look and feel. As such, embedding PowerReviews content is going to require significant customizations. For example see the depth of integration needed at RitzCamera (a PowerReviews customer). 

Also, retailers are expected to have slightly differentiated products and bundles in order to provide unique value propositions to their customers - and to retain some pricing power. Indeed, beta users can already see some duplicate products being displayed on the shopping portal (see Cameras). To address this, PowerReviews will need to maintain a master catalog of all different products and bundles, with information about which products and bundles map to each other. The need for this kind of data integration and UI integration is going to impose significant costs on PowerReviews and the retailers.

Review quality

Any business that provides product reviews as its core value is likely to only be as successful as the quality and credibility of those reviews. Now, ensuring the quality and credibility of reviews generated by users in such a distributed environment -- is going to be a tough task. Even Amazon.com, despite having a unified site, struggles with ensuring the quality of its user reviews.

To address the issue of credibility of reviews, PowerReviews has introduced the concept of ‚ÄúVerified Purchaser‚Ä?. A ‚ÄúVerified Purchaser‚Ä? is a person who a retailer identifies as having purchased the product under review. While this mechanism is likely to address some credibility issues, it still might not be effective - as retailers might be reluctant to share information about the reviewer‚Äôs purchases with PowerReviews. Since most retailers allow anonymous users to post reviews, it is easy to see how people might go about gaming the system. To address this potential issue, PowerReviews moderates each review (some of it is delegated to the retailers). Again, this could be a very expensive process and might introduce unforeseen biases in the data. A potential solution here could be to build a reputation system for reviewers (similar to Amazon.com‚Äôs top reviewers) that incentivizes and rewards reviewers for submitting quality reviews. But again, such a system is going to be hard to setup and manage, in a distributed environment.

Conclusion

In summary, PowerReviews sounds like an interesting startup with a lot of promise. They are likely to run into a number of marketing, burn-rate and data quality issues – none of which seems insurmountable though. It’s going to be challenging, but if they pull it off then they will be a significant player in a big money segment.

Written by Alex Iskold and edited by Richard MacManus

It's no accident that Time magazine choose YOU as their Person of the Year. In 2006, the Web was all about the social. User generated content was king this year - and the Time editor in chief is betting that the impact of this will be felt for years to come. In this article, just in time for last minute holiday shopping madness, we look at how the social aspects of the Web are transforming online shopping.

Online shopping has traditionally been one of the big activities online. Jeff Bezos recognized that a long time ago when he created Amazon.com - now the biggest online retailer in the world, by a long shot (according to Mary Meeker's stats). Nowadays most major offline retailers have websites too - and rightly so, because more and more people are buying products online. According to a comScore press release last week, this year's xmas holiday online retail spending is expected to be 25% up from the same period in 2005. comScore estimates that online retailing is running at upwards of $610 Million per day in this holiday season - and the heaviest day was expected to be sometime during the week of December 11, with sales that should approach $700 million. 

The Traffic Chart

Based on the Alexa chart for our 5 companies, we see that Kaboodle is leading the pack - while MyPickList is substantially behind. Of the other three, Stylehive appears to be slightly ahead of ThisNext and Wists - but overall it's quite close. As our readers have pointed out many times before, Alexa traffic charts do not show the whole picture. So we also did a search for the term/tag 'ipod' to get an idea of the relative sizes of these sites. Here are the results, with the figures indicating how many times 'ipod' showed up:

Search for 'ipod':

The results support that Kaboodle is ahead. But why? 

Each of these sites offers a combination of unique features - and ones that are common to all. What is it then that makes a user choose one site over another?

Kaboodle

Ever since CEO Manish Chandra proclaimed from the DEMO stage that shopping needs to be social, Kaboodle's popularity has been on the rise. When Kaboodle had only 20K active users, it managed to secure a partnership with eBay - and it became clear that this company was going to be a major player in the world of social commerce. Kaboodle offers a robust and simple set of features. Users can collect shopping items from many sites using the Kaboodle toolbar. The items can then be organized into collections, reviewed and shared with other users.

Each collection can be viewed as a list, grid, slideshow and collage. Of these, the first two are very useful - while slideshow and collage are more like eye candy. 

Kaboodle nails the usability for key social features: it is really easy to copy a single item or a whole list, and it is also easy to rate items or the entire list. Finally, the search on Kaboodle works very well - making the service simple, yet complete.

Stylehive

Stylehive is geared more towards fashion. Surprisingly the site is not as clean as Kaboodle. The index page is bulky and it is not obvious what to do. However beyond that first page, Stylehive does a good job on the UI. There are views of Web Sites, Items, Tags and People that are compact and quite useful. Each view focuses on an aspect, such as person, but also offers quick links to other aspects like recent items, tags and visited sites. Particularly notable is the view of popular sites, which does not seem to be available on Kaboodle.

Stylehive search has a vertical flavor to it. After the user types in some text and runs the query, the results are displayed as a layer. The results can be refined by tags, text, sites and other criteria - making the search useful and easy.

We did not notice other compelling features on the site. The entire experience seems more disconnected than on Kaboodle. There are definitely interesting elements and ideas here, but they need to be glued together better to create more of a flow for the user.

MyPickList

MyPickList launched in early May with a focus to help people make money on the items they like. Based on the traffic chart, it has not really picked up. We spent time on the site in order to understand what is going on there. The first thing that stood out is that the data capturing capability is inferior to that of Kaboodle. Users are asked to enter everything manually. In addition, once the item is captured for the user - it is not obvious where it actually ends up.

The social features offered on the site are few compare to Kaboodle. The search feature is simple and practical, but there do not seem to be enough users on the site to make it useful. The biggest feature is supposed to be the widgets, which can be embedded into blogs and social networks. This is done nicely. The widgets can be customized in a number of ways: colors, skins and layouts.

Despite the fact that widgets are done well, the site feels empty and under-developed. Perhaps refocusing it and doing widgets only is the way to go. As it stands, we have to conclude that the low traffic is probably an indicator of low usage.

Wists

Wists is another site that we visited for this faceoff. It has a very clean look and a very basic (perhaps too basic) set of features. The index page has a nice overview of the latest popular picks and draws attention to the search box. The search works well, as it is easy to look things up.

Next, we created an account and tried adding an item. This is where the site stopped being exciting. When clicking to add an item from Amazon, the user is asked to choose from around 100 images that appear on the page. Kaboodle chooses the most appropriate one automatically and it makes a big difference. However back at the site, the interface for managing the list is fine. One feature that we found interesting is the ability to publish a single item on a web site. This is basically the same as a widget, but the packaging and presentation of this feature on Wists was nice. Other features amounted to a subset of what is offered on Kaboodle - and did not seem that impressive or innovative.

ThisNext

ThisNext, our final contender, is hitting the market with a gorgeous all-flash site. The site itself is very snappy and inviting. It is not, however, as fast as Kaboodle - particularly the search function. Still, the design of the site and the presentation of the items compensates for this.

Another notable feature at ThisNext are the badges. They are great looking and easy to assemble. But beyond a nice design and pretty badges, we did not see anything groundbreaking. It seems like the site needs to innovate more to stand out from the pack.

Conclusion

Not surprisingly, Kaboodle leads the social shopping pack with a clean UI and the most comprehensive feature set. It is difficult to see how the others can catch up to it. Perhaps Stylehive and ThisNext appeal to more artsy types, but they will need more than just flare to lure Kaboodle's users away. 

Most notably, there is still big room for innovation in this market. Kaboodle has nailed the basic feature set, but much more can be done based on the power of masses and technologies like RSS. We expect to see many more innovations in 2007, such as personalized recommendations, product alerts and interactive chats based on where you are shopping.

"During the early years of the Web, before content had semantic meaning, sites were developed as a collection of “pages.” Sites in the 1990s were usually either brochure-ware (static HTML pages with insipid content) or they were interactive in a flashy, animated, JavaScript kind of way. In that era, a common method of promoting sites was to market them as “places”—the Web as a virtual world complete with online shopping malls and portals."

So I have to admit it is surprising that the virtual shopping mall, as a concept, is alive and well in 2006. Lately we've heard that Boo.com, an infamous 3D shopping website of the late 90's, is making a comeback later this year. But one that has actually launched already is The Mall Plus, where users navigate a virtual shopping mall in a 3D environment. All of the shops are a part of the The Mall Plus, rather than being external sites. Geekzone quotes The Mall Plus CEO Nigel Kirkpatrick as saying it's "the next generation of retail, through a virtual environment".

Perhaps if you could interact with other shoppers in The Mall Plus, then that would be a killer feature - e.g. if it became like a social networking / shopping experience. But currently the 3D people inside the mall are "lifeless and static", as one NZ 2.0 commenter noted. Another point made on the NZ 2.0 list was that virtual 3D shopping actually slows down the user experience - whereas with Amazon and other e-commerce sites, the idea is to make online shopping as efficient as possible.

I can actually see a long-term future for 3D virtual shopping, so I applaud The Mall Plus for tackling this. However I don't think it's a viable idea right now, as the likes of Amazon and eBay - along with new meta services like uGenie - are much more Web native in the year 2006. But in 2016? Who knows, maybe it will be a 3D virtual shopping world. What do you think?

A few weeks ago we were briefed by the co-founder of vFlyer, Oliver Muoto, about the changes and new features in their upcoming release. Oliver gave us a great overview of the service (which we will talk about a bit later) but he also shared with us an interesting map of the entire classifieds landscape. The map shows a lot of activity in the space and lots of players in different niches. And this is not surprising, since classifieds is a volume business. If you can attract and retain customers, then you will make money because the margins are there. So in this post we look at what is happening in the different corners of the classifieds landscape - and try to figure out who is doing well and where this market segment is heading overall.

Source: vFlyer

General Marketplaces

We begin with an overview of the general marketplace - i.e. those companies that provide end-to-end service to sellers and buyers. All of these web sites allow you to both list and search for items in various categories. However the mechanisms and approaches of each are quite different.

Known for its extreme simplicity, code-of-honor, self-governance and great customer service, Craigslist has attracted the power users - at least in the metropolitan areas. However, the company has not made a major push to grab all it can. According to a recent article in the SF Chronicle, craigslist is not focused on maximizing revenues (25M in 2005), despite the fact that it attracts almost 10M visitors from the US monthly. Bottom line, Craigslist is leaving some money on the table. This is not, however, easy money to take - but others are certainly trying.

Next we look at Google Base - the web giant's foray into the world of classifieds. When it first came out a year ago, there was speculation it would force eBay and Craigslist out of business! But even this six month old article by Hitwise proves that rumor to be bogus. Google Base has not taken off, at least not yet. Why not? There are perhaps several factors. First it simply may not be obvious how general users get to the site. And once on the site, it may not be obvious what to do.

There are definitely unique and positive things about Google Base. The bulk upload feature is great for power users. Perhaps Google's smartest play with the base to date was the recent release of an API. Any application now has an easy way to publish classifieds to the base. Since the listings are instantly available via RSS and are searchable on Google, this is a very compelling proposition.

And what about the economics? Since Google makes money via context sensitive ads, it does not need to charge listing or transaction fees. Can this ultimately sway people away from Craigslist? Perhaps, but it seems that for this to happen Google needs to do more marketing and more UI work.

edgeio (Alexa 17,500) calls itself a distributed marketplace for classifieds. Publishing is always free of charge and can be done in a number of ways. Here are a few very handy ones: a blogger can create an instant listing in a post by using a special tag, people can submit listings by pointing edgeio to existing web sites or RSS feeds, and large enterprises can request a data pull via an API. But edgeio is not only creative when it comes to the consuming of data, they do a great job on distribution as well. The edgeio content is syndicated on blogs and websites in a variety of ways, from straight RSS to embedded widgets.

How does edgeio make money? There are many revenue streams. For example, if you do a search on their web site you will get context sensitive ads. Also, there is an option for advertisers to bid on the placement of the ad - based on the number of clicks. There is also an option to do the same but based on a fixed, one time fee. 

Overall, edgeio is an interesting, evolving service. The key question is whether it can attract enough users. The traffic chart from Alexa shows there is no definitive growth, so we will have to wait and see on this one.

Vertical Marketplaces

From an infrastructure point of view, there is no reason to have a vertical marketplace. If you can list houses, you can just as easily list jobs and cars. But there is value from the user interface, semantical and specialization points of view. 

Vertical marketplace sites can also offer domain expertise and value add. For example, Rent.com (Alexa 2,800) allows its users to find roommates - but also offers value add services like estimating and booking the moving. And Auto Trader (Alexa 800) offers an array of services, ranging from assessing the value of the car, to listing it, to getting a car loan.

In a sense these sites are more portals, than just marketplaces or search engines - since they strive to deliver an end-to-end experience. Despite that, Alexa traffic patterns show an overall decline in traffic for these sites over the past half year.

Vertical Search Engines

We have written before here about the rise of vertical search engines. The classifieds market is no exception, perhaps even a vivid illustration. The chart at the top of this article lists a range of vertical search engines ranging from generic classifieds to a narrow specific vertical.

In the jobs market, Indeed.com (Alexa 1,900) and Simply Hired (Alexa 6,300) offer a very similar feature set. Both have two initial search boxes for position and location, then allow the user to refine the search results based on various criteria.

The contenders that we looked at in the housing market were PropSmart, (Alexa 48,000) and Trulia (Alexa 4,500). Despite a big difference in traffic, both of these sites offer a similar interface. The initial search is done by geographic location, then the search results are displayed via a list and a map. Both sites offer nice ways of customizing the search results to help the user find what he/she is looking for. There is a feature on Trulia, which is nothing short of amazing, called "city guides". By typing in a city and the state, you get a report card which ranks the real estate activity and gives a ton of useful information.

Finally, we looked at two generic classifieds search engines - Oodle.com (Alexa 5,200) and Vast.com (Alexa 38,000). Again both are very similar, however we were not overly impressed with the results. Vast did straight text search, which defeats the purpose of a vertical search engine (hint: it needs to understand the semantics). Oodle did better, but was not as clean an interface as Indeed.com. Overall, both sites seemed a bit overwhelming because of the number of different tabs. Breaking it down to a refined vertical, adding more semantics and making results more relevant - would make these engines more appealing.

vFlyer - make it once, post everywhere

To come full circle, now we review vFlyer (Alexa 41,000). vFlyer claims to do the heavy lifting in classifieds. Publishing a classified to the vFlyer service instantly makes it available on many major classified sites and search engines. It is not an easy job, but in our tests we found vFlyer to be comprehensive and easy to use.

Conclusion

The Classifieds market is complex and rich. There is plenty of money to be made and, as the above players show, plenty of room for innovation. 

So what really stands out? Craigslist has certainly been doing a great job. In a way, you can argue that their approach is perfect - just let the users fill in the ad. But things start to get interesting with the rise of the vertical search engines, which are able to "parse" and "understand" the semantics of the ads fairly well.

But should users input classifieds using structured forms? We believe so, since people get impatient when search engines don't deliver what they are looking for. So we think the semantics work being put in by classifieds services is well worth it - since it leads to more precise results and therefore faster transactions.

I asked Harish what he thinks is the market potential for ugenie and 'bundles' in general? He told me that bundles are obviously useful for "anything that we buy which requires us to have multiple items to achieve one goal" - for example a desktop computer, travel, home theatre system. Less obviously perhaps, Harish said that bundles can be "things that on the surface seem unrelated but are linked through our interests or situations" - e.g. an Amazon Wish List, or a shopping list.

uGenie seems to be a classic middleman, but for the Web age - i.e. it aggregates and filters other middlemen (online retailers like Amazon and BestBuy). In order to get real time prices and accurate transactional data such as shipping, taxes, coupons and discounts; uGenie scrapes prices real time and their system has the ability to calculate most coupons and apply them real time too. Harish also told me their algorithms "can crunch through millions of options in milli seconds".

However as of now uGenie is not an entirely automated process. Once the best pricing for a bundle is found, the consumer then has to manually complete the transaction. In other words, the consumer needs to go through the check-out process at each vendor's website. The best uGenie can do now and in the forseeable future is to give the consumer a step-by-step list of things they need to do to complete their bundle purchase.

So I asked Harish what some of the challenges of getting shopping sites to auto-process bundles - will this be possible in the near future? He told me:

"For now we guide the user through the checkout process in terms of buying different items. The user can click on the buy now clicks and a new window opens up for each merchant. We are working to streamline this process so that user does not need to reenter information on multiple sites. We also closely monitoring efforts on the universal shopping cart taken by other merchants."

What it comes down to is that the big online retailers - Amazon, Barnes&Noble, BestBuy, etc - have little incentive to automate bundle transactions. If consumers could do that, then why not just go to the wholesalers directly to source items for their bundles? The retailers are already essentially middlemen, so uGenie - as a meta-middleman - is a threat to the existing e-commerce retailers.

Future directions for uGenie

I asked Harish where they're headed with the product over the next few years. He told me their core focus on "true price discovery" will be strengthened by expanding their merchant set and continuing to improve the accuracy of prices. They are also working with merchants to "create more efficiency into the commerce supply chain so that we can deliver extra savings to our customers" - translation: trying to get retailers to cut them some slack!

uGenie will soon be launching more new categories for bundling. They will also push the use of tags and voting to "help us build the community around shopping". The idea here is that users can discover new bundles by searching on what others have tagged their bundles - e.g. if you purchase a birthday gift for your Mom, then others can search on the tag "mom" and perhaps find an appropriate pre-packaged bundle. Harish says "this is a massive shift from an editorial driven categorization of products, which in our opinion is myopic."

Summary

uGenie is currently a slick product, with a lovely user experience. The only sticking point is that 'last mile' of the bundle purchase. Having to manually complete the process and making transactions at 3-4 different retailers is a lot of effort for consumers. If uGenie or any of its competitors can solve this issue, then I can see such a product being a huge success. For now it remains a promising, well-designed solution that gets consumers 75% of the way to online shopping nirvana.