Pam Phillips isn't the most aggressive shopper. She hates haggling over a car and would never dream of asking for a special deal at the corner store. But when the Hampton (Va.) engineer heard about NexTag.com, a new Web site that lets shoppers bargain with merchants, she couldn't resist. "It's a killer," says Phillips, who snapped up a digital camera and memory card on NexTag.
It's one of the Net's golden promises--creating a global marketplace where buyers can negotiate the prices they're willing to pay. But upstart NexTag.com Inc. isn't just one more Web auction site, like eBay or Yahoo! Auctions, where bidders drive up prices by competing against one another. And it isn't another priceline.com Inc., which requires buyers trolling for airplane tickets to commit to a purchase without any say over which company will fill the request. Instead, NexTag pioneered a novel approach where buyers say what they're willing to pay for a product and then merchants vie for the business. Ultimately, cybershoppers wind up haggling and picking the merchant, and, potentially, driving prices down.
There are more surprises under the hood. NexTag supplies software to participating merchants to help them figure out how low to go on a bid. Through programs that track inventory and wholesale costs, merchants can instantly calculate a sale's margin and decide if it's worth their time. They also can use the software to make a different deal, say, eliminating shipping costs or offering a free camera case. "This is unique," says analyst Barry Parr of International Data Corp. "It's so attractive to both merchants and consumers that NexTag has a strong possibility of actually changing people's behavior."
That's why NexTag is getting ready to expand beyond just the computer equipment it now offers. Starting in November, the San Mateo (Calif.)-based startup plans to add consumer electronics, followed by books, music, and videos. That will push the site's number of products by yearend to nearly 2 million from 150,000 now, and the number of merchants from 12 to several dozen.
Rapid expansion, though, could mean speed bumps. Analysts are intrigued by NexTag's approach but are skeptical that it will work for low-ticket items such as books or CDs where buyers may not want to dicker. And NexTag execs are anxious that priceline.com--which already has sued Microsoft's Expedia site for treading on its name-your-own-price patents--might try to slow them with a lawsuit. While priceline execs won't talk about NexTag, insiders say that there doesn't appear to be any legal problem with NexTag's business model.
COMMISSIONS. Such concerns haven't slowed NexTag down. It was launched in June by CEO Purnendu Ojha and co-founders--as well as Stanford business school classmates--Rafael Ortiz and Frank Schmidt. They nabbed $4.1 million in funding from Menlo Park (Calif.)-based Morgenthaler Ventures, and have since raised another $10 million.
Their goal: to make money by collecting a small percentage of each sale. Merchants say the commission is worth it. NexTag helps attract new customers, provides price analyses, and encourages the kind of interaction that keeps shoppers coming back. "It brings the human element, the merchant-to-consumer contact, back," says Daniel DeVries, executive vice-president for sales and marketing for Creative Computers Inc., which runs the PC Mall and MacMall computer shopping sites. Using NexTag, DeVries estimates he can close a deal with 10 customers in five minutes--far better than the average four-minute phone call involved each time a customer wants to try bargaining directly.
But it's the reaction from shoppers that may be the best indicator of NexTag's potential. "It's like a great game, this haggling for a better price. It's fun," says Norm Lew, a Florida consultant who has bought nine products on NexTag. It's the "fun" quotient that may end up making hagglers out of even timid shoppers--and making NexTag a hit.