The perfect holiday shopping guide(ster)
Guidester's online product recommendations can make shopping for the perfect plasma TV easier. One day, they could even help Junior find a college.
By Matthew Boyle, Fortune writer

(Fortune Magazine) -- In hindsight, perhaps it wasn't the best time to launch a Web startup.

But in the early months of 2000, with the dot-com bubble poised to burst, Joe Chin and Art Abeleda - next-door neighbors in a downtown Manhattan apartment building - left their tech industry jobs and scrounged up some angel investors to form Decidia, a company that offered Web-based decision-making tools for online retailers.

Six years later, the company has a new, catchier name - Guidester - and a new business model inspired by online search titan Google (Charts). What hasn't changed, though, is the need for the company's software, which helps online shoppers comb through e-commerce sites to find the best product for them.

Whereas Guidester once sold its tool to retailers, the company switched gears two years ago and started offering it up for free. Why? To take advantage of the booming market for paid search.

In the first six months of 2006, Internet advertising revenues hit a record $7.9 billion, up 37 percent over the same period last year, according to the Interactive Advertising Bureau and PricewaterhouseCoopers. Paid search constitutes about 40 percent of that total.

Here's how Guidester works: Let's say you're on Circuit City's Web site, looking for a digital camera. On the main digital camera page there is a link that says, "Need help deciding?" (Unfortunately, there is no link from the home page yet.) Click on that link, and you're then asked some questions about how you plan to use the camera, how much you want to pay, what brands you like, how many megapixels it has and so on. The more questions you answer, the more precise the search becomes. Technophobes, don't fret: You needn't answer every question for the search to work.

Next to the questions is a winnowing list of products that fit your criteria. Under Guidester's new business model, the top-ranked selections are those that not only fit your specs, but have paid Guidester for featured placement - anywhere from 5 cents to 30 cents a click. After those sponsored matches, the selected products are listed in any order the retailer wishes. If a shopper wants products sorted by price, no sponsored matches are listed.

One can quibble with Guidester's recommendations. For example, if you tell Circuit City's Guidester site that you prefer to buy a digital camera with "the best technology," the list is immediately culled from 196 to 160 digital cameras. Does that mean that 36 of Circuit City's cameras represent mediocre technology? Also, if the perfect camera for you is not sold by Circuit City (Charts), good luck finding it on that retailer's Guidester site.

Overall, though, the tool is easy to use and valuable, especially for products like flat-screen TVs that are loaded with confusing techno-jargon. (DLP, LCD, HDMI, HDTV - you get the picture. Or, sadly, perhaps not.)

Those products in high demand - digital cameras, camcorders, plasma TVs, iPods and other gizmos - will account for 25 percent of all holiday gift spending this year, according to the Consumer Electronics Association (CEA).

Overall, consumers are projected to spend $21 billion on consumer electronics gifts this holiday season, CEA says, up from $17 billion last year. To bypass long lines and high gas prices, a good chunk of that spending will come online.

In a meeting with Fortune earlier this year, Circuit City CEO Philip Schoonover raved about Guidester. And for good reason: Chin says retailers' "conversion rates" - meaning, the number of window shoppers who make a purchase - typically rise 50 percent or more when using Guidester.

It also cuts down on product returns, which are very costly for retailers. "In our minds there is no reason any retailer shouldn't use this," says Chin. (A competing product is available from Active Decisions, which was purchased last month by Knova Software (Charts).)

Besides Circuit City, Guidester operates on about 60 Web sites, including electronics purveyors CompUSA, Buy.com, TigerDirect and Ritzcamera.com. Increasingly, though, it is dealing directly with product manufacturers like Sony (Charts), Hewlett-Packard (Charts), Olympus and Lexmark. So far, it has a dozen advertisers on board. "They want the tool to increase sales and build loyalty," Chin says.

Chin, however, sees Guidester going far beyond the consumer electronics world. "We're branching into autos, appliances, apparel, baby products, travel and cell phones," he says. Why not a Guidester guide to colleges? Chin says that's under consideration as well. "Our mission is to help people make better decisions," he says - be they about Panasonic or Princeton.

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