How BizRate.com Infomediates Between Shoppers and Merchants

In three years as an e-commerce entrpreneur, Farhad Mohit has built not one business but three, all operating simultaneously under a single roof. He set out in 1996 to open BizRate.com as a source of customer-driven feedback about online shopping. His plan was to rank merchants according to customer satisfaction, providing shoppers with a guide to the fast-moving Internet retail landscape.

Mohit quickly saw revenue possibilities in the data collected, which led him to offer customized research and publish the results as a resource for publications such as The Industry Standard. Indeed, as a trusted, impartial infomediary, he was also able to license BizRate.com to other Internet portals and earn revenues from aggregated data that was sold to merchants.

After luring millions of users, BizRate.com itself has evolved into a portal and affinity group, which offers special discounts and rebates that reinforce the first two lines of business. The revenue ratio has gone from 90% research/10% commerce in Year One to 65% research/35% commerce in Year Two and is expected to reach 10% research/90% commerce next year, he says. Research itself has diversified from company, category and channel reporting to customized research and, even providing consulting to companies that want more services.

By December 1999, the BizRate.com site was getting more than 2 million unique visitors a month, ranking as the 12th-biggest e-commerce site, according to MediaMetrix, a web traffic measurement firm. BizRate.com has also partnered with MediaMetrix and with recognized players both on-line and on-land including Consumer Reports, America Online and Snap.com.

"A million vendors are competing for your attention, and we decided to be the trusted infomediary to help online buyers and sellers," says Mohit, who participated in a series of lectures about e-commerce at Wharton. "Vendors are geared to marketing themselves as the best, but it’s the customer who decides who’s good. Everyone is good at taking orders, but how are they at fulfillment? It’s all about getting confident shoppers to reliable vendors. Because if the consumer isn’t confident, he won’t come back."

BizRate.com uses a relatively simple method to track customers’ feedback about their shopping experiences on the Internet. When a buyer completes an online purchase, BizRate.com presents him or her with an electronic questionnaire that takes about two minutes to complete. Questions about pricing, delivery charges, ease of use and other criteria are then sorted to identify cuystomer preferences. Another 13 queries are sent via e-mail several weeks later to participants who supply an e-mail address. The follow-up questionnaire investigates whether the merchant’s delivery, use and after-sale support was satisfactory. This data allows BizRate.com to paint a picture of the performance of online merchants–based not on their own claims but on that of customers’ shopping experiences.

At the outset, BizRate.com had trouble getting merchants to sign on, since few wanted to subject themselves to public rankings. But within a year, Outpost.com joined and others quickly followed, not wanting to be left out. Today, the number of merchants who let BizRate.com interview their customers has grown to some 3,000. Over the Thanksgiving shopping weekend last year, BizRate.com was part of 8 million online transactions. Some one-quarter of such customers choose the opt-in questionnaire to provide their opinions about merchants.

All this has helped BizRate.com learn a good deal about customer shopping behavior on the web. On average, according to Mohit, only 1.5% of visitors to a website make a purchase, and the transaction averages $65. Yet 8.5% of visitors to BizRate.com make a purchase, with average checkouts totalling $98. For merchants, this means they are earning more per purchase and getting an 800% improvement in their customer attraction costs.

Mohit says he has been happy to work with other large audiences through portals such as Snap.com and America Online. Consumer Reports magazine and its online publication partnered with BizRate.com to provide research on Internet retailing. Participating retailers range from Office Depot to E-Toys, providing a spectrum of research that covers consumer purchases, office and corporate buyers, discretionary items as well as staples from supermarkets, drug stores and similar retailers.

Some shoppers consider price as their prime reason for shopping online. For others, it may be a more complicated mix of convenience, delivery speed, price and service. Based on consumer surveys, each buyer can select the sellers they prefer, ranked by those criteria. "The web is a comparison engine, but our system allows differentiation based on quality," Mohit says. "We contract with vendors to ask their customers what they thought of the transaction. Objective information will always remain objective, but we’ll give vendors ways to differentiate their services by providing special deals, free shipping or similar offers."

Mohit boasts that his competition can’t get the prime location he enjoys at the point-of-sale. And unlike public opinion trading posts such as deja.com, the research from BizRate.com is compiled in an objective, standardized format. Mindful of privacy concerns, BizRate.com reassures shoppers that only general data is shared with merchants and that no personal details are divulged.

Like most Internet start-ups, Mohit concedes, BizRate.com is not yet profitable, but he sees "light at the end of the tunnel." He hired former Disney executive Chuck Davis as CEO seeking to scale-up BizRate.com’s offerings. Now, as chief strategic officer, Mohit sees future developments such as a shopper protection guarantee, where the company could intervene on a buyer’s behalf to offer money-back insurance for some merchants. Another possibility is aggregated-demand buying, in which thousands of customers order items in advance, driving down the unit cost.

Financing for Bizrate.com started with a $4.5 million venture capital investment in May 1998, led by Mission Ventures, and a second round of $21.5 million in July 1999 involving Attractor, Hambrecht & Quist and a partnering agreement with VeriSign. Most of the second round was spent on marketing, Mohit says.

Mohit believes that every party to an Internet transaction benefits from having a trusted clearinghouse of information. Buyers learn what they need to know about sellers, and they find the shopping benefits that meet their needs. Sellers, in turn, get instant feedback from customers, in addition to market research on both customers and competitors. And Mohit says he feels a certain satisfaction that he has brought two often-adversarial trading partners closer together.

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