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Business: Net Profits, Finally
Jay L. Abramoff
Dan Ciporin panicked momentarily the first time he saw the offices of his new company, DealTime.com, in the Netanyah industrial park, some 20 miles north of Tel Aviv. "The place was the size of a closet, jammed with the full staff of eight. And since there was no air-conditioning, the aroma of schnitzel from the shop downstairs was wafting in through the open windows," recalls Ciporin, who at the time, in January 1999, had given up a secure, high-paying job as New York-based senior vice president at MasterCard International to become DealTime�s ninth employee -- and its CEO. His task: to lead an Israeli start-up seeking to create a niche for itself in e-commerce, the then-emerging Internet marketplace for consumer goods.
The ensuing three and a half years have been even more of a struggle than the 44-year-old New York-based Ciporin had expected. Yet DealTime has managed to contend with a world economic slump, an Israeli recession, armed conflict with the Palestinians and the dot.com crash of hundreds of highly touted Internet business companies to not only survive, but prosper. In fact, it has become one of the world�s most popular Internet comparison-shopping services. In a recent survey, Ciporin points out proudly, DealTime was ranked as the No. 5 shopping website in the United States -- behind industry giants eBay, Amazon, MSN and Yahoo!, but ahead of the Internet operations of conventional retailers like WalMart and Sears. And despite the hard times, DealTime has begun turning a profit. The firm currently projects that revenues in 2002 will hit $30 million, more than double its income of $14 million in 2001.
From the shopper�s point of view, DealTime works very simply. At DealTime.com or its co-branded sites, including the shopping channels at the Lycos, Alta Vista and Ask Jeeves Internet portals, the customer simply chooses what he or she wants to buy -- clicking his or her selection by brand name, such as Palm, Olympus or Gallo, or product category, which could be anything from a tech-rich item like a digital camera or DVD player to conventional merchandise like jewelry, garden furniture or wine. Next, a table listing a number of on-line retailers who are offering the product, a product description, plus price and other charges pops up on the PC screen.
DealTime officials attribute their company�s survival in a hostile environment -- which saw RUSure, another Israeli company with a similar technology, disappear -- to several key factors. Already in late 2000, DealTime anticipated an upcoming shortage of funding for developing companies, and moved forward its target date for producing substantial revenues that would finance continuing operations and obviate the need for additional investment cash. Beyond that, DealTime was realistic enough to start cutting back its staff and operations early, avoiding heavy debts and a cash crunch.
Perhaps most important, says Michael Eisenberg, of the Jerusalem-based venture capital firm Israel Seed Partners -- which provided about $1 million in initial capital to get DealTime started -- was the fact that Ciporin and most of the firm�s other key managers had experience in traditional retailing rather than the still hazy electronic marketplace. Getting such a proven manager, Eisenberg indicates, was a matter of luck. During a late 1998 talent search, he recalls, "Our headhunter gave us five r�sum�s. Ciporin, who was included to �calibrate� our thinking, was presumed to be not available. Still, his experience with merchants, branding, and transaction-oriented business made him the ideal choice to run the company," Eisenberg says.
In any event, the headhunter was able to arrange a meeting between Ciporin, Eisenberg and DealTime.com co-founder Nahum Sharfman. "After that initial meeting," says Ciporin, who had no previous connection with Israel but had visited as a tourist, "I was hooked. I was so excited, I couldn�t even sleep."
Ciporin quickly signed on. "The company was founded on the premise that the Internet would allow shoppers to harness the power of information, enabling them to make the right purchasing decision," he says. "I thought that this was an enormous business opportunity. In addition, the company was most aligned with my own background in credit cards, which also link buyer and seller, and serve as a potential mediator."
Still, Ciporin was at work for more than a year before DealTime picked up its first big strategic partner, America On-line, in May 2000. The deal included both an investment in DealTime by AOL Time Warner, the U.S. firm�s parent company, and an agreement to incorporate DealTime�s comparison shopping service into the AOL customer package.
In the first two years of Ciporin�s tenure, DealTime was in an expansion phase, like much of the Internet and dot.com industry. But at one of the meetings between senior managers from Netanyah and those who work out of the Fifth Ave. offices in New York where Ciporin sits, there was a recognition that the times were changing. Ciporin says they first sensed trouble in late 2000, and at a management retreat in January 2001 began adapting themselves to the emerging reality. "Traditionally, venture capitalists expect a return on their investment in five to 10 years," he says. "We realized at that time that we would have to move our profitability timetable up significantly, to three years. So, we conducted a thorough review of all company activities, by both location and function."
One of the first cutbacks was to eliminate websites the firm was running in Germany and Japan, which would take too long to become profitable. "In Germany, a large number of people are not comfortable using credit cards, the predominant method of payment in on-line purchases, and in Japan, most people pay COD," Ciporin explains. Instead, the firm decided to focus on what he calls its "core" geographies, the U.S. and the UK. It also decided to do away with some services with dubious commercial viability. First to go was a price-comparison program that users had to download and install on their computer, and concentrate on a service that was accessible by simply calling up the DealTime.com website. Discontinuing the PC-based program, their first "baby," was particularly difficult, observes Eisenberg, who says he keeps in close touch with Ciporin and speaks to him three or four times a day. But it made good business sense to focus limited resources on the website and on building strategic partnerships that would increase DealTime�s user base and make it attractive to merchants. The firm also dropped development of a program that filled in on-line forms automatically for the user, which was too labor-intensive to justify the necessary investment.
These development cuts, necessarily, involved contraction of staff. From a peak of about 350 employees at the end of 2000, the company now has a little over 100 workers in Israel, the U.K. and New York. And while its headquarters are still in the Netanyah industrial park, it has moved to a different location, which has air-conditioning -- and no schnitzel being fried downstairs.
To shoppers who look for a product and a price on the Internet, DealTime is a free service. The tab is picked up by merchants who pay to have their wares listed on DealTime, in addition to revenue from more traditional advertising on the website. According to one key company official, the balance between the two streams, once about 50-50, is now heavily skewed toward merchant listings, which currently produce about 90 percent of DealTime�s revenue. Indeed, he points out, the number of merchants who offer their products in the price-comparison tables on DealTime websites has more than doubled in the past 18 months, while ad income has contracted. Merchants usually pay for their listing on DealTime.com according to how many times surfers click on a link to them.
The firm -- which over the years has raised $115 million from a list of investors that in addition to Israel Seed Partners and AOL Time Warner includes such well-known names as Bertelsmann, the German publishing giant, Bank of America and Singapore Telecom -- is planning to enhance its website with a service that calculates approximate tax and shipping charges for each item, according to zip or postal code, and e-mail alerts to notify shoppers when a particular item is available at a pre-designated price. It has also developed a way to charge merchants for the service when the customer orders by phone, instead of clicking onto the merchant�s website.
And DealTime now feels sufficiently secure to cut back on another expensive item -- promotion of itself and its services through advertising. "Placing banners and pop-ups in a million different places all over the Internet has proven to be a waste of money," says one company source. "When we conducted our own �branding� or brand awareness campaign, which included millions of dollars and television advertisements, we did not see a significant long-term impact, at least not enough to justify the expense. Maybe Coca-Cola can afford that kind of advertising. We can�t."
But while it may never aspire to be a Coca-Cola-like brand name in e-commerce like Amazon or eBay, DealTime.com, simply by surviving the tough times, may have established itself as a longtime player in an Internet industry where so many others have failed.
September 23, 2002
Business
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