REUTEMAN: Lessons in e-commerce

By Rob Reuteman, Rocky Mountain News (Contact)

Published October 27, 2008 at 12:08 a.m.

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As Rich Barton navigates the world of e-commerce, there are certain principles he follows, and they probably are worth hearing.

After all, he founded the highly successful travel site Expedia.com in 1994 as a Microsoft venture. When it was spun off as a public company in 1999, Barton became its CEO for four years.

In February 2006, he launched Zillow.com, one of the largest real estate Web sites with 5.4 million monthly visitors. Though it has yet to turn a profit, Zillow is one of the most heavily funded Internet startups in Seattle, having raised a whopping $87 million in venture capital.

So let's assume Barton's learned a few valuable lessons along the way. At Liberty Media's NetLeaders forum this month, Barton shared his commandments with a who's who of Internet retailers in the audience:

If it can be known, it will be known. If it can be rated, it will be rated. If it can be free, it will be free. Those three are true now, Barton says. Throw in a couple more that he thinks will be true before long: Everyone will be connected all the time, and everything will be videoed all the time.

Let's take these precepts one by one, adding Barton's commentary on each:

If it can be known, it will be known

Whether your business involves customers buying a house, finding a job or pricing a mortgage, "if you are hiding something from your consumers or suppliers they will find out," Barton said.

"The history of the Web is about empowering consumers who will spend endless time researching products," he added. "That fact has completely transformed industries."

The example he knows best is Expedia. When dealing with a travel agent, "you used to talk to someone on the phone who had access to a mainframe computer," Barton said. "Expedia got rid of that person."

Sixty percent of personal travel is now booked individually over the Internet. Expedia will book $20 billion in travel sales this year.

"That's empowerment," Barton said.

Another example: Charles Schwab.

"I'm an active trader ever since I was in high school," Barton said. "In the late 1980s, they came out with a revolutionary service called Telebroker, where you had a phone interface and traded stock on a keypad. I was one of those young people trading with Schwab. Without talking to anyone, I could buy or sell shares. I loved it, loved the control, I was insatiable."

What Schwab did transformed consumer trading, he said. When the Web came along, customers were able to work with "a full-on trading platform, just what any trader has."

Now of course, anyone can research a business and trade on the Web. You don't need a broker, and commissions have effectively gone to zero.

If it can be rated, it will be rated

Barton has become involved with several Internet startups that rate different services for consumers.

He is co-founder and nonexecutive chairman of GlassDoor.com, which helps job seekers by rating companies and CEOs, and reviews more than 11,000 employers.

Reviews are based on internal salary surveys that employees have shared on the site and personal experiences shared by current or past employees.

For instance, Barton said, there are 158 reviews of Amazon.com as a place to work.

"They are very meaty, very balanced," he said. "We're very sensitive that we don't get competitors putting up bogus reviews. Each review is looked at by a human with a hair-trigger response if he smells a rat. About 70 percent of the reviews get posted."

Barton is an investor and adviser for Real Self.com, which rates and reviews plastic surgeons in different cities around the country. It features real reviews by clients happy or unhappy about what was done to them. You can find rankings for Denver, Boulder or Colorado Springs plastic surgeons or dermatologists.

"People are really interested in taboo subjects like cosmetic procedures," Barton said.

Avvo.com rates and reviews lawyers by city and specialty.

"It's way better than the Yellow Pages for finding a good DUI lawyer," Barton joked.

Asked how his teams police the ratings, Barton said, "There are different rules, regulations and oversight for each marketplace. We screen things out robotically and with humans. Each review, each rating has to pass the sniff test. But the best policing comes from the community itself. Users are really good at flagging bogus stuff. It's true for Avvo, GlassDoor, Zillow. With Zillow's mortgage lenders, if a bogus loan offer is made, the folks who call it out first are consumers. It works beautifully."

If it can be free, it will be free

"Isn't consumer Internet a big fat race to zero?" asked Barton. "There are only a couple words in marketing that work every time. Free is one of them. It's really fricking hard to compete with free."

For example, Yahoo launched a video service to compete with YouTube, the free vid Web site that garners 70 million to 80 million users a month.

"But Yahoo was front-loading ads you had to watch before you got to the video," he said.

Not many users were willing to sit through the ads, and Yahoo dropped the idea.

Craigslist, the free classified service, gets 9 billion page views a month and only charges for a few ads in a few cities. You can't compete with free.

Barton pointed to a free online dating site - plentyoffish.com - "that is taking over the dating world because it's free," he said. Match.com, eharmony.com and other online dating sites charge handsomely for the same thing.

How do these free sites make a buck?

"Targeted, relevant advertising," Barton explained.

For instance, John Deere advertises its rider mowers only on Zillow Web pages with homes that require rider mowers. State Farm Insurance also is a targeted Zillow advertiser, he said.

Google mixes its search results with ads that somehow align with the search. Fifteen percent to 20 percent of Google visitors purposely click on a Google ad "because they are targeted and relevant to that person," Barton said, resulting in about $81 million in annual revenue for the company.

But he admits that "free" doesn't work unless a Web site "reaches scale." In other words, Google gets about 13 billion page views a month these days, so the percentage of people who view its advertising is mind-boggling. Barton's Zillow may get 5.4 million monthly visitors, but it has yet to profit.

Obviously the history of the Internet is littered with ventures that never reached the scale they needed to turn a profit.

"You can mis-execute free," he said. "But there are the certain gravitational things I believe in. People are becoming increasingly empowered because of the tools they have to communicate and to access informational truth. These megatrends have been progressing for quite some time and they are in our favor."

Business editor Rob Reuteman can be reached at 303-954-5177. To comment on this column, go to RockyMountainNews.com/business.

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