Epinions: An E-Commerce Success That Almost Wasn’t

Early in 2001, Epinions.com faced the same choice as scores of other dot-coms: Adapt or die.

While the shopping information site, founded in 1999 by former Yahoo, Excite and Netscape executives and funded by some of the best-known investors in Silicon Valley, had attracted millions of repeat users, it was wholly dependent on advertising revenue. It had already laid off two-thirds of its staff, shrinking from nearly 100 workers to less than 40.

However, the company managed to secure a round of venture funding in the difficult market of early 2001.

Within several months Epinions had realigned itself, adding a price comparison feature to its staple of product reviews. The new feature meant that Epinions could charge online retailers directly when it referred shoppers to those retailers’ sites.

‘Bet the Company’

“It was a pretty hard summer,” Epinions CEO Nirav Tolia told the E-Commerce Times. “We bet the company on being able to quickly add what other companies had spent years developing.”

Fortunately for Epinions, the new feature was ready for release by September, and more than 250 merchants agreed to pay for referrals or a commission on sales. By December, the company had stopped losing money.

Although Epinions still faces a difficult competitive environment, its rescue from the brink of doom may serve as a useful case study for other dot-coms.

Find a Market, Stick to It

From the start, Tolia said, the plan that he and co-founder Naval Ravikant had for Epinions was to combine the best features of the two biggest e-commerce success stories, eBay and Amazon.

Epinions tried to blend Amazon’s content model, which is heavy on customer reviews, with the sense of community that eBay has mastered.

And although the market required Epinions to rethink its revenue model, it never strayed from its original purpose, according to Tolia. “We didn’t reinvent the company in 2001,” he said. “We just expanded what we were already offering.”

One Task at a Time

Now that Epinions has stemmed the outflow of cash, according to Tolia, it can turn its attention to the next task at hand: growth.

Epinions wants to grow in several directions. Tolia said he thinks the biggest challenge is to convince users to visit the site for all their shopping information needs. People still associate Epinions with product and service reviews, he noted, but they may not know it has added price comparison features.

Meanwhile, the site, which already offers reviews of numerous products — from online banks to travel destinations, electronics to new cars — is eyeing new areas, such as products for parents and children and home and garden items.

Epinions will be growing internally as well. According to Tolia, the company’s board of directors, which includes several of its venture backers, has approved the hiring of as many as 12 people.

Tech Still Rules

Tolia said Epinions was able to shift to a new revenue model so quickly because of its strong technical team.

“In the end, every company in the Valley comes down to how good the technology is,” he said. “All the other stuff doesn’t matter if you can’t get that right.”

Another reason Epinions has succeeded, Tolia admitted, is that it competes in a fractured market. Shoppers apparently are still figuring out how to find what they want to buy online, he said.

The search engine market continues to expand and grow in new directions as paid listings, many placed by online retailers, become increasingly common. Shopping robot sites that scour the Web for prices and listings have fallen out of favor but are still drawing users. And for those willing to pay, there is always Consumer Reports, which has become one of only a few unquestionably successful subscription-based content sites.

Forget Price

While Epinions has created a band of loyal users, Tolia said it also has convinced merchants of its value. He claimed that 98 percent of firms that sign up for a three-month trial period renew the referral service.

In the end, analysts said, convenience is likely to be the winning formula online.

“For consumers who buy on the Internet, the biggest poverty is of time, not of money,” Gartner research director David Schehr told the E-Commerce Times. “The reason shoppers turn to the Web is because it’s faster and more convenient.”

Tolia said he hopes his company can win by playing the convenience card.

“We want people to see that in the end we can save them time by bringing them right to the product page on Amazon.”