ShopBots can truly help consumers find the lowest prices for products, but it turns out that not all online merchants are happy with the use of agent technology, or its effect on electronic commerce. In theory, agents can bring all market information within the reach of an online buyer. That is, an agent can report the list price from every available merchant who stocks a particular item. This can be merchant’s worst nightmare because it forces them to be more competitive.
Merchant Secondary Revenues
Online merchants tend to make additional profits by selling advertising space on their Web pages. This appears to be an adequate business model, as long as the pages are accessed by humans. Agents, however, are unwelcome customers because they are not influenced by advertisements. As a result, agents are either intentionally blocked, or barely tolerated. Plus, some ShopBots want merchants to pay them for providing information to potential customers, therefore creating the proper incentives for welcoming new business. But, once ShopBots begin to charge for pricing information, it would seem natural for merchants (the actual owners of the desired information) to also charge the ShopBots. The merchants can use another form of ShopBot (PriceBot) to dynamically price this information. PriceBots are economically-motivated agents that set prices in order to maximize the profits for companies, just as Shopbots seek prices that minimize costs for consumers. Pricebots can be used to combat the growing community of Shopbots, and it illustrates how an entire economy of software agents could be created very quickly.
The profusion of shopping sites has created a demand for providing information from multiple merchant sites. Some merchant sites do not want ShopBots accessing their sites, claiming that universal search functions are an “unauthorized intrusion” that places an unnecessary load on it’s servers, violates intellectual property rights, and misleads users by not returning the full results of some searches. The claim is that it’s prices and the details of the merchant offers to sell, are protected by copyright, trade secret, or other intellectual property law. There are current government proposals to change the law in a way that might make the claim more plausible in the future.
So far, the discussion has operated on the basis that merchants would have an incentive to block ShopBots if they are charging higher than normal prices. Merchants who block ShopBots tend to charge higher than normal prices because they are able to take advantage of consumer ignorance of other less expensive alternatives. Some stores are gouging buyers by taking advantage of relatively high costs of search (time, energy, etc.). Perhaps stores blocking ShopBots tend to charge higher than normal prices because they provide additional service or convenience. Strangely, some merchants may have had an incentive to block it if they charged lower than normal prices. As we all know, merchants sometimes advertise a “loss leader,” and offer to sell a particular good at an unprofitable price. Merchants do this in order to lure consumers into the store where they could be attracted to more profitable versions of the same products and services (leading, in the extreme case, to “bait and switch”), or in the hope that the consumer will buy other, more profitable, goods to round out the market basket. Plus, it increases traffic to the site and increases advertising revenues.
Ironically, not many merchant sites actually block agents. This is for three main reasons: Agents have become more commonplace, they drive traffic to the sites, and companies recognize that comparison-shopping goes with the cyber territory. Also, because ShopBot users are pre-qualified as buyers with intent on making a specific purchase, the traffic driven to retailer sites by ShopBots has a much higher conversion rate than traffic from banners ads. Online merchants that offer strong selection and good prices may see significant increases in traffic and purchase volume due to ShopBots. Increased volume leads to increased leverage with suppliers, additional advertising revenue, and further reduction of fixed costs. Therefore, merchants who successfully use ShopBots to increase volume will be able to survive the increased price competition.
Author: David Jurus