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Epinions.com Aims to Change Online Shopping

by Hal Plotkin
Silicon Valley Correspondent

Start-up Epinions.com Inc. is hoping to change the way people shop online, just in time for the upcoming holiday shopping season. While some analysts are skeptical, others say the company could quickly become a major force in the e-commerce sector.

“Third-party intermediaries, relationship mediators, such as Epinions. . .are going to be very important,” says Blaine Mathieu, an analyst at Dataquest, based in San Jose, Calif.

After months of operating in tight secrecy under the mysterious moniker Round-One Inc., Mountain View, Calif.-based Epinions.com stepped out of the shadows last week to launch a skeleton version of its flagship product, the Epinions.com Web site.

“We expect to have a compelling offering by Christmas,” says Epinions.com cofounder Nirav Tolia. “We’re already well on the way to making it happen.”

Epinions.com is developing a free online shopping guide with a unique twist: a searchable archive of informed consumer opinions about thousands of products. The company’s goal is to create a personalized, interactive database of expert consumer opinions about a wide variety of goods that can be purchased online. Epinion.com’s founders say consumers will choose to check out their Web site first to find reliable information about products rather than try to navigate the increasingly bewildering array of merchant Web sites.

Epinions.com expects to derive revenue from commissions for referrals to online merchants, by selling advertising, and by syndicating its content to other Web sites.

Hoping to create a dynamic, constantly evolving service, Epinions.com pays consumers and other experts who provide the best, most useful opinions about different products. The utility of each opinion is determined by the votes of other consumers who visit the site.

If a given opinion is ranked highly useful by enough consumers, it moves to the top of the list of opinions for that product, which means more people are likely to read it. And the more people who read a review, the more Epinions.com pays to the person who wrote the review.

“There can be a great deal of value in that kind of guide,” says Kevin Werbach, managing editor of Release 1.0, a leading high-tech industry newsletter based in New York. “The strength of e-commerce is also its weakness: It can be overwhelming. What Epinions has is an elaborate system for evaluating trust. It lets the best opinions, the cream, rise to the top.”

One hurdle the company faces might be called the “chicken and the egg” problem. The Epinions.com Web site needs thousands of highly rated opinions on different products to draw the traffic required for success. Without that traffic, though, it could be hard to generate a sufficient number of useful opinions.

“I think they have a pretty cool concept, but the execution might be a little tricky,” says Ken Cassar, an analyst at Jupiter Communications, based in New York. “The question is whether they can get reliable reviews on such a wide variety of products.”

David Cooperstein, research director at Forrester Research, based in New York, is even less optimistic. “This is part of a phenomenon of companies trying to create a wedge into the online shopping world,” he says. “But at the end of the day, the branded retailers are going to be the ones that win.”

Tolia, who reportedly walked away from several million dollars worth of stock options when he left his job at Yahoo! Inc. {YHOO} earlier this year, says he takes the skepticism seriously. “Ensuring the quality of our content keeps us all awake at night,” he says about his 43-person firm.

Tolia says that’s why Epinions.com seeded its early offering with solicited opinions from about 100 of the “most passionate professionals” in a variety of areas and has also included links to other leading sources of product information in different vertical markets.

Although the site only went live last week, Tolia says it’s already receiving about one new product review per minute. “Our top film reviewer, a film student at UCLA, has already written 70 reviews for us,” he says. “He earned $15 the first day we were up.”

As for the question of whether Epinions.com can compete with sites run by branded retailers or sites that specialize in just one product area, Tolia says he has market research that backs up his firm’s approach.

“Yes, there might be online retailers, or other online services that have more information about one particular area,” Tolia says. “But our research tells us that consumers can’t remember all those names. Right now, we have eight product categories. Even if there are eight sites that cover each of those categories in greater depth, we don’t think consumers will be able to remember all those names. In the future, they’ll want to go to just one place to get started.”

Andrew Bartels, an analyst at Giga Information Group based in New York, says he is cautiously optimistic about the growth of the overall market Epinions.com has targeted. “We call them hub sites,” he says. “We see a pretty good potential for these sites. Someone who doesn’t know a lot about a particular product might very well want to see if anyone has an opinion about it.”

Overall, though, Bartels says the Epinions.com approach “remains unproven. They still have a lot to do to show it can work,” he adds.

Epinions.com raised $8 million in start-up capital from a group of investors that includes Benchmark Capital and August Capital, both based in Menlo Park, Calif. Tolia says he expects Epinions.com will receive a second round of private venture-capital funding sometime in the next few weeks.

The company has not yet filed for an initial public offering although one could be scheduled as early as next year — that is, if consumers adopt a favorable opinion about the company’s new service.

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