I spoke with Dan Ciporin by phone on May 9th. I met Dan quickly at the first Shopping.com merchant summit which the company hosted near its headquarters in Brisbane, CA April 20-21. As I was at the event as a merchant*, I will not report on the content of the merchant summit, but I will say that I was impressed with the quality of the Shopping.com team. Here’s what Dan had to say.

My comments are indented.

On click fraud: “Click fraud is definitely an issue with PPC search engines, and there is a lot of it out there. However, we got a jump on it years ago. At this point, we have lots of mechanisms in place to catch it, and we’ve implemented measuring tools that we think are accurate. If anything, we may over-filter.”

I pointed out that click fraud has been estimated at up to 20% of all clicks on PPC engines and that Yahoo! Search Marketing (formerly Overture) and Google have a team dedicated to loss prevention.

Dan wouldn’t comment on specific activities or resources dedicated to this issue, but said “Shopping.com is driven by conversion to sale. ” Click fraud would bring down this metric, so Shopping.com is obviously addressing the issue.

On rising online marketing costs:

Many analysts were critical of the significant increase in online marketing expenditures in the 1st quarter [Motley Fool wrote a representative piece] and concerned with the guidance for the 2nd quarter. In the April 27 conference call reviewing first quarter 2005 financial results, though, the company pointed out that the increases came mainly from the addition of Yahoo Search Marketing (YSM) as a marketing channel. Truthfully, I was less concerned with the rise in marketing costs (they basically just increased spend on a marketing channel - Google Adwords was working, it makes sense to also use YSM) and more concerned with the company only adding YSM in the 2nd quarter of last year when many companies had been using the service for years.

In response, Dan said that “Shopping.com was in the midst of working on a deal for sponsored ads. After we selected Google Adsense as our partner, we decided to utilize Google Adwords since we were already working closely with the company. In the end, it was just a timing issue in terms of rewarding the sponsored listings contract. We later went back to Yahoo and started working with them. There are many online marketing channels available and maybe MSN’s new PPC program, when it fully launches, will be another important channel for Shopping.com.

On having to pay for traffic:

Rising PPC costs seem to be a general problem for a lot of online marketers. However, a company like eBay has built a community around the site which leads to increased lifetime value and therefore might offset increased PPC costs. At the same time, Amazon has built a strong brand and there are high switching costs associated with moving to another merchant (because of features like a wish list, one-click checkout, etc.). How can Shopping.com compete and afford the high PPC costs?

“The differentiating factor is that Shopping.com is building a best of breed product with better categorization than its competitors. This will lead to increased retention. At the same time, the Cash Back program [launched six months ago] enables us to increase both retention and conversion to sale metrics. We’re building lifetime value for both shoppers and merchants. The reality is that we believe in the value we deliver to our merchants compared to the general search engines and therefore don’t expect to see declining margins. We are also increasing our PR spend to build up the brand and make it more of a retention vehicle than it is today.”

On search engines building out their own comparison engines: “Shopping.com will be one choice among many. Just look at the results now. [We performed a couple searches on Yahoo! and Google] Most people get to Yahoo! Shopping and Froogle directly and even though Froogle is featured on Goolge’s homepage, traffic stats for Froogle are not a big deal. People go to Yahoo! intending to shop for something and there are lots of references, ads, call outs, and web results. Just because Yahoo! Shopping might be near the top of the results, doesn’t mean that Yahoo! Shopping will get all the traffic. You’ll go to Yahoo! Shopping as much as any other result on the page.” In terms of managing a strong shopping comparison engine, Dan said “it’s hard to build out a strong merchant base as you need the products and the merchants. [As an example] Why hasn’t MSN built out an Overture competitor yet? In the end, merchants are agnostic about marketing channels, but no one is going to want to manage 20 campaigns. They are going to choose on scale and volume. There will be some niche players, but there is not room for 10+ significant shopping comparison engines.”

On the new Hotel vertical:

I tried to get specifics on how the hotel comparison engine would work in terms of a feed, scraping, or partnership, but Dan wouldn’t release that information. The interesting point of discussion, though, had to do with tying in Epinions.com information.

“There are a lot of reviews of travel destinations on Epinions, but no way to monetize them. There will be a very strong link between Shopping.com’s hotel comparisons and Epinions reviews. We also will bring our proprietary assets - structure, organization, productization - to the hotel category. We will look at a specific room at a specific hotel as a product. No one else is doing this, but this is the way people like to comparison shop.”

On the beta launch of Mortgages: “We’re very happy what we’ve seen to date, but the offering has only been live for 5 days, so there is no meaningful data yet. However, mortgages is a massive, trillion dollar market. “

On PriceTool.com:

In preparing for the interview, I found out that the unique users on PriceTool.com, one of Shopping.com’s sites, has grown from 737k in October to 6.1m in March.

When asked about this increase, Dan commented “We’ve been experimenting on the online marketing side. We look at PriceTool as a lab/experiment and have tried a couple things in terms of presenting the information differently on the site and how it works from a user perspective. However, this [the rise in traffic] is not something that you should expect to see on an ongoing basis.” During the same October to March period, MySimon’s traffic decreased 30%. Dan commented “This business requires a lot of ongoing investment – you have to conitunue to put a lot of R&D effort into the business. Maybe that’s not been the focus of MySimon. Also, they are focused on the tech side and don’t have the non tech offerings that Shopping.com does.”

On what’s next:

Dan will remain Chairman, but steps down as Shopping.com CEO on June 1st. He will be replaced by Lorrie Norrington. He is extremely happy Shopping.com has Lorrie Norrington on board.

In a April 6, 2005 prepared statement Dan said “I’m convinced that Lorrie’s track record of growing and scaling global enterprises is uniquely well-matched to the opportunity at Shopping.com.”

*see disclaimer