Deal Radar 2008: Mercado

Mercado started ten years back and is the first search engine especially for ecommerce. The company provides search, navigation and merchandising solutions that supposedly lead to sales, revenue growth and profitability for their customers. The technology behind Mercado brings the final shopper closer to the seller with every click of their mouse through a series of searches and navigation, thereby helping the shopper hone in on the appropriate product on the correct site.

Mercado provides these solutions to companies through a variety of methods. It provides advanced linguistic functionality that includes spelling correction, word stemming and product synonyms, thereby correctly deciphering and understanding their queries. It also provides dynamic refinements into the site’s navigation allowing the site to behave like a sales associate and guide the buyer to the correct product. It allows buyers to search through millions of products and grows as the size of the company grows. Mercado offers companies customizable options and various solutions to fit their needs.

Some of Mercado’s bigger clients are Macy’s, Sears, Guess, OfficeMax and B & H Photo. It also has several smaller companies in its list of clients which is made up of more than one hundred online retailing brands. After using Mercado, customers often report 3 to 5 times conversion rate increases. Mercado has grown to 115 employees in four countries and is headquartered in Pleasanton, California. It was founded in 1998 by Efi Arazi who previously started Scitex and Electronics for Imaging.

In September 1999, Mercado received $12 million from Eucalyptus Ventures and Access technologies. In May 2000, the company secured $30 million in “mezzanine” round of funding from Star Ventures and HarbourVest Partners LLC in anticipation of an unmaterialized IPO. Also participating were previous investors Eucalyptus Ventures and Access Technology Partners, Polaris Venture Capital, The Walden Group, Mofet Venture Capital Management and private investor Roger Sipple. In September 2004 the company received investments from Pitango Venture Capital, Star Ventures and Mofet, bringing its funding up to $55 million. In December 2006 Mercado received $11.5 million from the Challenge Fund and Consensus Group as well as previous investors.

According to Bill Martin, then VP Sales, the company had reached profitability by 2005, although financial figures are undisclosed. The potential for Mercado is tremendous. Reports from Internet Retailers survey of 195 online retailers revealed that 78.2% plan to increase their spending on e-commerce in 2008. According to comScore, spending on e-commerce rose 19% in the second quarter of 2007 reaching $47.5 billion. US online spending was expected to reach $200 billion in 2007. (StorefrontBacktalk.com) In 2007, KMWorld listed Mercado as one of the 100 companies in Knowledge Management that matter in 2007.

Mercado is interesting because of its decade-long journey through nuclear winter in Silicon Valley between 2000-2004, and subsequent survival, while still maintaining a strong value proposition for its customers. I suspect, earlier investors have had to take a bath, but the company survives.

This segment is a part in the series : Deal Radar 2008