I spoke with Stephen Imbler, NexTag’s CFO, a couple weeks back. While NexTag is a private company, I felt that Stephen was surprisingly open in our conversation. Stephen worked at a number of large corporations (KPMG, Oracle, and Hyperion Solutions) before joining NexTag in 2004, but also holds a BM in piano performance.

What is happening at NexTag?
“When you have multiple categories, you can’t be the best in everything and you can’t expand all the time. This last year, we haven’t expanded, but we’ve [filled some] holes.”

“We started TruePrice [Launched in August 1999, TruePrice comparison includes price + tax + shipping] but that doesn’t differentiate us anymore. Price history does differentiate us. RSS feeds and our Toolbar do differentiate us, but those tools are more for a ‘techno-geek’ crowd.”

“We’re improving the efficiency of our catalog – importing feeds, % of products with images, etc – and because of this, the site works better and the user will be happier on the site. We’ve worked on hard on normalization in hard products like technology, but also in soft categories to make it a faster and more efficient shopping experience for consumers.”

Why did you develop the Toolbar? As you know, I’ve been quite critical of toolbars.
“The original idea was that if you wanted it, you’d always see it, but it’s probably not what people want. I save NexTag as a favorite, but with the toolbar, you don’t have to launch a new browser or open a separate window. It allows for someone to do a quick, same window search. It’s going to be of limited value, and we’re not expecting to be predatory. We wanted to make sure we understood how it impacts consumers. We doubt it’s going to be immediately impactful.”

How many merchants are on your site? Do all your merchants submit feeds?
“We have over 5000 merchants and that number has grown from aproximately 3000 merchants last year. However, we’re not focused as much on the number of merchants; it’s not like someone needs to see 500 merchants selling a Nikon camera.”

“We crawl the web for real time travel information, and we have agreements with those merchants, but almost everything else is submitted through a feed.”

Since you’re private, you can’t discuss revenues, but how about revenue growth? Even Q3 to Q4 growth?
“Seasonality is much less pronounced with us as a lot of things naturally offset it. The refinancing business is great in the summer and early fall, but after Thanksgiving, people aren’t looking to refinance, so we tend to see financial services take dip, but that’s when the product side spikes up. Travel has it’s own peaks. That’s one of the advantages of having multiple categories; is it smooths things out. We grow every quarter.”

How do you size up in comparison to Shopping.com and Shopzilla?
“We passed them both in Q1 & Q2. In Q4 they will be bigger because they concentrate mostly on products. We’re about the same size in terms of revenue, but higher in earnings. NexTag is cheap. I presented at a conference and paid just $100 for a hotel room. As we like to say, genius is 2% inspiration, 98% execution. This company is unbelievably focused on earnings and Purnendu [NexTag's CEO] is extremely metrics oriented. We think about every process, automate it, and focus on execution.”

“We’ve been profitable every month since October, 2001. We’re cash flow positive. The investors put $12.8m in the company and right now we have $36m in the bank. The worst thing about the earnings is that we have a high tax rate.”

A number of mid to senior level employees have left NexTag in the past 9 months. Employee turnover sounds extremely high.
“The NexTag culture is one of aggressive accountability. We’ve made substantial progress on attrition. My HR role can be somewhat more important than my CFO role. When I came here, I was concerned because the office was very quiet; I wanted more of a buzz. We’ve spent a lot of time doing the little things, but without the excesses. We give out tchotchkes, go to baseball games, go bowling, etc., but we’re not irresponsible.”

“In the end, employees want things [and want an environment] they can boast about to their friends. We’re making NexTag a place where there’s a higher quality of life and doing more things like career counceling.”

Most everyone in the comparison engine space is accused of doing search arbitrage, but NexTag gets picked out more because of its lead gen services. What are you doing to build relationships with your users vs. just buying keywords?
“One of my fears when looking to join NexTag was that this is an arbitrage business. This is clearly not an arbitrage business. A user doesn’t have to click on the merchants. You’re generally only clicking through when you’re deciding to buy. And at that point, it’s a much more qualified lead.”

“Traffic comes from a variety of sources; unreferred, SEM, banner advertising. All are important components and every category [products, travel, mortages] has a mixture.”

“We make money the old fashioned way. We don’t depend on affiliate revenue or Google [Adsense] revenue so we’re forced to make our paid traffic model work. We don’t do anything that doesn’t make money.”

How many registered users do you have? Is this a focus?
“Registered users are slowly growing, and we have very consistent unreferred traffic. We have a long term growth model. We make sure people who come on the site have a good shopping experience. We don’t just want the mortgage lead. And you can see that in the ads that we run; ‘NexTag’ is becoming more prominent in our banner creative.”

With Scripps buying Shopzilla and eBay buying SDC, does that change your game plan in any way?
“Mergers are very messy and take a couple years to sort out. In the short to mid-term, there’s going to be a lot of focus on merging and it gives us an opportunity.”

“I don’t think eBay bought Shopping.com to get into the comparison shopping business; eBay wanted the traffic. Shopzilla looks like it’s going to be very successful, Shopping.com is a little more of a question mark.”

“We’re not out trying to shop ourselves around, but if someone makes us an offer we have to consider it. We’re focused on the company and improving the business. We’re not going public next month. We toyed with the idea of an IPO, but we made the decision that we don’t want to comply with Sarbanes-Oxley, so we’re taking the Google approach.”

I’m starting to buy into the rule of three – the idea that 3 companies will emerge as the leaders in an industry and all other companies will end up being specialty players. How does NexTag become one of the top 3 companies as opposed to just an ancillary player in the comparison engine market?
“We’re remaining horizontally focused. So you have to ask, are we competing with Pricegrabber and Become or are we competing with a much larger universe. For some markets, it takes time to sort out what the market is. It’s Purnendu’s goal to build one of the top 10 consumer companies on the internet. This is a long term strategy.”