WebSideStory bounced around by Google acquisition

 |  Includes: GOOG, WSSI
by: David Jackson

WebSideStory's stock (ticker: WSSI) has bounced around over the last couple of days in reaction to Google's (ticker: GOOG) acquisition of web analytics firm Urchin Software. Does the Google purchase validate WSSI's business or dramatically increase competition?

Key points on GOOG's acquisition of Urchin Software:

  • Urchin Software provides two web analytics products: an on-demand solution for $495 per month, and a non-hosted solution for $895 that can handle analytics for up to 100 web sites.
  • Urchin is privately-held.
  • Terms of the deal not disclosed.

Key Urchin Software product features:

  • allows web masters to view metrics overlaid directly onto links so they can see the popularity and effectiveness of each link;
  • allows web masters to eliminate bottlenecks in checkout and conversion
    processes and reduce abandonment by pinpointing where visitors leave
    where they go;
  • customer segmentation by geographic location, new versus returning visitors.
  • tracking of visitor behavior, conversion metrics, and trends for individuals or groups of visitors.
  • performance summaries.
  • geographical targetting: discover where best customers are located, where visitors come from and which markets are the most lucrative. Compare conversion metrics and visitor value for geographic locations.
Key questions for investors:

1. Why does Google want to be a provider of web analystics?

Because the value of an ad to a merchant is defined by:

(1) how many people click on it,
(2) the rate of conversion to sale, and
(3) the value of a sale.

As online merchants become better at converting site visitors to actual purchasers, their return on investment on keyword ads rises and they are therefore willing to pay more for keyword ads. This explains why keyword prices are likely to rise in the long-term, and why it's in Google's interest to help merchants improve their conversion-to-sales rates by providing web analytics software.

Google's purchase of Urchin therefore validates the web analytics market. But did WSSI need that validation? Not really, given the strength of its recent performance.

2. Competitive impact: will Google give away the product for free?

Google has said nothing about changing the price of Urchin's product. Current price for the hosted solution is $495 per month. But in the long term, Google can make more money by giving away the software (assuming extremely low marginal cost to Google) to fuel increases in keyword ad prices. That's potentially bad news for WebSideStory and other providers of web analytics.

3. Other implications

Bundling of web analytics is good news for merchants. True, in the long run it will lead to an increase in the price of online ads. But the overall improvement in conversion-to-sales rates will improve the profitability of e-tailers and improve their competitive position relative to offline vendors.

WSSI chart below.