Corporate Focus

Building a Smarter Search Engine: Talmadge O'Neill, Co-Founder of Smarter.com

Talmadge O'NeillSmarter.com announced last week the dual launch of their Chinese and Japanese comparison shopping search engines for the respective country markets. With all the recent focus on search technologies, we asked Smarter.com co-founder Talmadge O'Neill about how he plans to tackle the Chinese online market.

1) How old is Smarter.com and what is your corporate background?

Mezi Media–the corporate parent–was founded in late 2002. We loved saving money when we shopped online, and the principal goal of Mezi Media is to help online consumers save money when they shop.

We do that today through three internet divisions including comparison shopping in 3 countries (Smarter.com), online coupons in 10 countries (CouponMountain.com) and cash-back rebates (MoreRebates.com). We have offices in Shanghai, Tokyo and Los Angeles and have more than 90 employees. The company was self-financed, and has been profitable every quarter since inception.

Smarter.com was launched in July 2004 in the U.S., and our first international expansion was into Japan and China in November 2005.

The two co-founders were previously at Overture Services.

2) When was the decision to come to China made and how long did it take to finally get on the ground and launch a product here?

We established an office in Shanghai in August 2003, and have built a wholly owned engineering center with more than 70 employees here in Shanghai.

In May 2004, we launched our first Chinese website at dahongbao.com as part our of our online coupon division. This was a test to identify the online potential in China.

In November 2005, we launched Smarter.com.cn. We believe that it is relatively early for Chinese ecommerce, but since we already had a presence in China, we felt that it was important to launch our product.

3) What have been some of the obstacles to opening your business in China? How and where is the company registered in China? Why did you choose that location?

Mezi Media is a U.S. company with a Wholly Owned Foreign Enterprise in Shanghai. The decision to locate in Shanghai rather than Beijing was based largely on our network of contacts here in Shanghai.

4) What are your revenue creation plans on the Mainland? Please elaborate.

Merchants pay us on a per-click basis for traffic that we send to their sites. If we send merchants high-quality clicks where consumers have already made a decision on which product to buy, and chosen that merchant from a list of many, then the consumer is more likely to convert into a buyer and be a much more valuable lead than a click from a search engine.

Over 50,000 advertisers participate on Baidu.com – a portion of those are online stores that should advertise on Smarter.com.cn. And if our leads convert at a higher rate than Baidu, merchants will compete for attention on Smarter.com.cn and pay more for a lead from Smarter.com.cn than they would from Baidu.

5) How do you see the search scape in China and what sort of competition will be coming in the next year?

We believe there are more searches in China than in the U.S., and that the Chinese market is growing much more rapidly than in the U.S. In the U.S., there are about 200-400 million searches a day (this is about 1-2 searches/person per day as there are about 200 million internet users in the U.S.).

In China, Piper Jaffray has reported 360 million searches a day (this is about 3-4 searches/person per day as there are about 100 million internet users in China). Piper Jaffray suggests that this will grow to over 800 million searches a day by 2007.

Given that internet penetration in China is about 8% while it is about 68% in the U.S. We don't seem a major catalyst in the U.S. to significantly increase search volume, but in China any increase in internet penetration results in growth in internet searches.

Competition will grow as the market matures, and as the economic potential of each search vertical becomes more apparent. At the moment, it appears that everybody can grow and that only as growth slows will there be a fight for market share.

We suspect that there will not be a substantial number of foreign entrants into comparison shopping in China at this stage. Recently Become.com publicly announced that they thought it was too early to enter China.

6) For the Chinese product searches, about how much of the content is scraped and how much is provided through feeds from Chinese partners? How many Chinese sites will you be canvassing and providing to your users?

At launch, we are taking data feeds directly from merchants, and crawling and indexing other merchant websites. Our intention is to create an index of quality tier 1 merchants in all of the major Chinese cities for our online users. The number of merchants in the index will grow as we launch additional categories outside the 3C categories.

7) Are there any technical differences between operating a comparison search site in China from Japan and North America?

The biggest difficulty revolves around double-byte search, and nobody has really perfected a Chinese search engine. Because of the nature of the language (similar problems in Japanese), it is incredibly difficult and most foreign companies have to completely rebuild their search technology to launch in China.

8) Globally, how will you continue to differentiate?

One level of differentiation has been to build an international presence in Asia (currently Japan and China). A second level of differentiation will be technology as we roll out additional products and features that will help consumers better decide what products to buy, and where to buy them.

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