Not just niche products any more

Search engines mean increasing sales and profit for once-obscure items

Cambridge, Mass. — Internet search engines not only make it easier for consumers to find that partridge in a pear tree, but it has made it both practical and profitable for companies to produce, market and sell such niche products, according to new research by MIT Sloan Professor Erik Brynjolfsson.

“More and more people are shopping on line, and as search costs also keep getting lower, relatively obscure types of products are becoming a bigger share of overall sales,” said Brynjolfsson, who is also director of the MIT Center for eBusiness. “And as technology further lowers search costs to find obscure items, it creates even more incentives to create such niche products in the first place.“

While the Internet is typically cited for helping consumers find products at lower costs, Brynjolfsson found that consumers actually benefit far more — by up to ten times as much — from increased product variety than from lower prices. Sellers gain as well. By using increasingly sophisticated search technology (such as recommended products, which are based on a particular shopper's product search history), online merchants are able to help consumers find, evaluate, and buy a far wider variety of products than can be found either in actual stores or traditional catalogs. Sometimes, search engines successfully steer Web shoppers toward products they weren't even initially seeking.

Brynjolfsson analyzed consumer purchase data from a retailer that offers similar products at similar prices via both the Internet and a catalog. He found that while the top 20 percent of products accounted for more than 80 percent of all catalog-driven sales, the same top products represented barely 70 percent of Internet sales.

“This provides further evidence that a lower search cost can lead to a less concentrated product sales distribution,” he said.

It can also lead to new — or extended — life for products once seen as too unprofitable to market or distribute.

“It makes little economic sense for a brick-and-mortar bookstore to stock or even buy a book on a narrow topic, or for the author to write it in the first place,” he said. “But now, if enough people are able to find the same book on Google or Amazon, it can add up enough to make it a worthwhile economic venture.“

According to ComScore Networks, which measures Internet activity, Americans made 6.6 billion online searches in just one month (April 2006), and Page Zero Media estimates that paid search advertising will total $15 billion in 2006. In the United Kingdom, said Brynjolfsson, more than half of all online advertising spending now goes to search-based products.

“It's moving in that direction in the United States as well,” he said. “The Internet has changed the incentives for people to produce and market. Traditional mass branding strategy is becoming less important and targeted search marketing is becoming more significant.”

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