Is Amazon being hurt by comparison shopping?

Since comparison shopping sites make it easy to find the best prices on a product, they'll drive traffic to the cheapest stores with the best service and reputations. Traffic to the comparison shopping sites is up sharply this year: Nextag reported a 70% increase in year over year traffic, Shopping.com announced that it expects revenues to rise by over 30% this quarter, and traffic to Yahoo! Shopping and Froogle are also strong.

So owners of Amazon stock need to know whether Amazon is benefitting or losing from this trend, particularly since comparison shopping is growing in popularity.

The WSJ's recent article on comparison shopping for books
(paid subscription required) suggests that Amazon is a net loser from
comparison shopping. As well as the broad comparison shopping sites,
book-specific comparison shopping sites are also gaining in popularity,
including Fetch-Book.info, BookFinder.com, Isbn.nu, Add-All.com and AllBookStores.com.
The general and book-specific sites reveal that Amazon is clearly not
the cheapest online retailer for books. According to the WSJ, Amazon
was more expensive than Buy.com, Overstock and Wal-Mart.com on five
new, popular books. The comparison shopping engines generally take
shipping costs into consideration, though not other ways of reducing the cost of buying from Amazon.

Amazon has been criticised by sell-side analysts for its declining
margins. It looks like comparison shopping will exacerbate this
problem. Amazon will be forced to chose. It can use its efficiency and
scale to undercut the competition but at the cost of lower margins. Or
it can boost its margins, but at the cost of loosing increasing amounts
of revenue as comparison shopping becomes more and more popular.

The comparison shopping sites clearly benefit retailers whose
business strategy is to sell at lower prices than other retailers.
Overstock, for example, advertises that it's cheaper than Amazon "99%"
of the time. According to the WSJ, Overstock expects to sell 500,000
books this month, versus 200,000 a year ago.

Full disclosure: at the time of writing I'm long SHOP.