January 17, 2006

Pricegrabber.com - lighting in a bottle

Came across this analysis of pricegrabbers.com from Nial Kennedy's Weblog.

It is a must read for any entrepreneur:

The story of PriceGrabber part 1: Grabware

Successful companies can be formed out of the failure of a dream and a side project created for friends and family growing into much more. This is the story of the birth of PriceGrabber.com, a shopping comparison search company that grew from a side project into a half-billion dollar sale in about five years.

Grabware was envisioned as a software distribution company providing on-demand distribution of software through store kiosks. A buyer would approach the terminal, choose a few shareware titles or full versions of the software, and an in-store fulfillment service would burn a CD and print a user manual. The same hardware could also be repurposed for custom music selections.

I loved the idea because it allowed more developers a place on the virtual shelf, more frequent release opportunities through downloads to the kiosk, and no more wasteful display boxes the size of a large dictionary holding a 20 MB installer. Retailers could reduce their total software display area, or be more creative with their layout, while stocking a wider selection of titles.

We built a database of shareware titles and opened up shop online, selling custom collections of shareware and freeware CDs shipped anywhere in the world within days. The online commerce site was a demonstration of what in-store kiosks could do with the right retail and software partners.

The company set two pie-in-the-sky measures of success. If we could convince Microsoft to participate as a software manufacturer and CompUSA to sign on as a retail partner the business will have made it and all of the other companies in both spaces would soon clamor to do business with us.

After about 4 months of weekly calls we eventually had our first meeting with Microsoft. Unfortunately they were not as excited about our market-changing idea as we were. Microsoft's products are popular enough to command prime display locations in stores across the country. They essentially receive free advertising on the shelf, stocking bundles such as Office, individual programs such as Word and Excel, or games such as Flight Simulator. Why would any established retailer want to give up their free shelf advertising for a small spot on a 19" screen?

Electronic Arts had a similar answer, although the gaming industry did downsize their packaging a few years later and started including demo versions of games in compilation disks distributed with gaming magazines. CompUSA could manage to staff and maintain rows of cardboard boxes a lot easier than a new fulfillment device. It looked like the dream had died.

Grabware.com, the online marketplace and software showcase continued to do well. Software titles such as Winamp, ICQ, and Audiograbber became must have applications for every computer user. Linux desktops began to take off around the same time but the variety of distributions and extra bundles overwhelmed Internet connections on servers and workstations alike. Grabware was able to monitor the downloads of these hot pieces of software immediately after they were released and make them available to people around the world and take away the tiresome process of trying to get the right archive from the right server at the right time. Grabware was back, powered by the Web and the U.S. Postal Service.

A new business started to take off about the same time as software manufacturers turned down Grabware as a distribution platform. As a side project a few Grabware employees built a web spider designed to discover pricing information on thousands of items from online retailers. The project was called PriceGrabber because we were literally grabbing prices off of the merchant site and placing them in our own database.

It was time for a tough choice. Both Grabware and PriceGrabber had potential to succeed, but with the original Grabware vision dead PriceGrabber held a lot more opportunity and excitement for everyone involved. It was time to focus on just one product and do it really well.

Grabware was lucky enough to find another entrepreneur interested in taking on the business and acquiring our technology. It helps when your potential acquirer is in the same office building too! We moved out of our existing offices into a larger space in the same building, hired a few employees, and started working on building PriceGrabber and new shopping search features full-time.

The story of PriceGrabber part 2: Funding with a zip

This post is part 2 of a series about the early days of shopping comparison site PriceGrabber.com. You may want to read part 1 before continuing.

PriceGrabber was created in 1999, at the height of the Internet boom, with only about $1.5 million in seed money. The company was able to raise a sizable amount of capital using the tools it had created for the general Internet marketplace of expert users and enthusiasts. By tracking exceptional deals from merchant crawls performed multiple times a day PriceGrabber was able to turn bubble-worthy goofs of other companies into seed money for a company built with a founder's vision.

PriceGrabber's first feature retrieved prices from online retailers such as Buy.com or PC Mall and compared those prices against the prices charged by wholesale distributers Ingram Micro or TechData. Most online retailers simply drop-shipped from a wholesale distribution warehouse using automated fulfillment software. The business environment of the go-go 90s and the level of computing automation created pricing mistakes and mismatches throughout retail systems creating bargains at hundreds, if not thousands of dollars off regular prices.

The Internet Archive happens to have captured PriceGrabber's homepage the day I made a few thousand dollars in five minutes. A ViewSonic PJL855 LCD projector normally sold for over $3000 but on October 7,1999 Buy.com had five projectors for sale at around $300 a piece: 90% off the normal sale price. A few clicks later and the order passed through Buy.com's payment system and was passed along to Ingram Micro's warehouse for fulfillment. A week later a few of the projectors showed up on eBay and sold for a profit of about $2500 each. Not a bad day.

Our favorite discounted item was the Iomega Zip 250 drive introduced in 1999. The $200 Zip 250 was extremely popular and well-stocked by all wholesale distributors. It was not uncommon to discover Zip 250 drives for sale in large quantities for under $50 each and resold for a profit of about $100 each. The team bought Zip drives by the truck netting what must have been six-digit profits.

CompUSA -- the same company that had turned away Grabware -- had a very liberal return policy even if you did not purchase an item from their stores. We swapped a few Zip drives for computer workstations, commodity server hardware, and office supplies and sold the rest through auction sites.

In the beginning PriceGrabber did not charge merchants for leads as we were still growing our user base. The "best deals" feature of PriceGrabber.com was eventually pulled from the site as these errors and oversights caused too many embarrassing headaches for merchants paying PriceGrabber for thousands of click-throughs a day.

The name PriceGrabber was meant to represent a spider grabbing an item based on price. PriceGrabber's early days turned well-funded goofs into bootstrapped capital, allowing the founders to retain more control over the business and build for the long-term.

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