Price comparison websites are the darlings of many media companies’ investment arms, especially when they can invest with media-for-equity deals. Price comparison gives orientation in many different situations – whether you need a loan, want to book your next travel or a new mobile phone subscription. Hence, it seems to be a good way to monetize a media company’s audience. Plus, with decent EBITDA margins, this business often is highly profitable, e.g. Moneysupermarket.com Group – a finance specialist in UK – has an analyst-projected EBITDA-Margin of 40% in 2016.
Looking at the business models in price comparison we can identify three different types of players: services (insurance, bank loans, utilities, etc), structured goods (consumer electronics and others that have enough parameters attached in order to compare offers solely on price) and unstructured/soft goods (goods that are not easily comparable as they exist in too many variances, e.g. clothes; in this case it is rather product search than price comparison). For the sake of simplicity, we ignore similar concepts, e.g. meta search in travel. We observe that most price comparison websites can be described with either one of these types or in hybrid forms.
Similar to travel, where Google provides a new competitive product in meta search with Google Hotel Finder (now integrated into search results and Google Maps), Google also has competitive products for price comparison in the pipeline. For services, Google had launched Google Compare in the UK and parts in the US – however, has shut down the service in March this year. Since Google Compare has not really ever made it beyond minimum viable product stage, this might not be the end of Google’s interest in this area.
For structured goods, however, Google has aggressively entered the global markets already with Google Shopping Campaigns. For instance, in Germany an estimated 17% of all product-related searches already contain the Product Listing Ads. Since PLAs are integrated in the AdWords tool, it is not surprising that retailers are shifting their search budget towards this new performance marketing tool (based on cost-per-click). Our research suggests that in the US retailers spend 34% of their search budget on PLAs. And, while on similar CPC levels, PLAs outperform text ads for instance on average click-through-rates.
For soft goods, even Google has no specific solution. But Amazon does. In most markets Amazon is the dominant product search player. In the US, ca. 44% of Internet users start their product search on Amazon. The competitive landscape is rather regional, i.e. we find very different situations from country to country.
In our graph we show the specific situation for soft goods in Germany. In segments, where Amazon has not yet reached a strong position, it is well possible for players to build a brand and occupy a niche. For instance, we believe that Amazon’s platform is not very suitable for fashion – we can find strong respective players in many markets, e.g. in Germany Stylight or Stylefruits.
Overall, we believe price comparison websites will be increasingly under pressure in the future. Players with strong brands (that are translated into a large direct traffic shares) and niche-focused players with optimized user experiences (e.g. in fashion) will be survivors. However, growing against Google and Amazon as well as peers will be increasingly difficult. Depending on the ecosystem in the respective country, some segments might leave room for growth. As, for instance, Amazon is not yet present in every country (e.g. Sweden, Switzerland, etc.), there is also still some room for geographical expansion.