Search for Tomorrow
In April 2002, The New York Times (NYSE:NYT) anointed Google (NASDAQ:GOOG) "the king of search." It's impossible to argue with that today. Google, which is headquartered in Mountain View, California, conducts 48 percent of all online searches in the United States, compared with Yahoo's (NASDAQ:YHOO) 28 percent. And although Google's sales growth has slowed ever so slightly, it is beyond impressive for a company that is already huge. In the most recent quarter, Google reported revenue of $3.2 billion, a 67 percent increase over the same period in the prior year.
Yet despite Google's dominance, there are dozens of companies working to bring new search tools to market. Last year alone, 68 search-oriented firms raised venture capital, according to VentureOne, and countless others have been self-funded or backed by angel investors. Yahoo and other members of the old guard are also showing signs of life.
What's behind the renewed competition? The upstarts believe there is more than enough opportunity to go around. The market for search advertising is expected to hit $11.1 billion by 2011. And Google's reputation has taken a pounding. Keyword prices for valuable terms (example: "medical malpractice") are skyrocketing, crowding out smaller advertisers. Those who can afford keywords can be the victims of click fraud, by which they are charged for meaningless traffic. They must also compete for traffic with sham websites called sportals, splogs, and flogs, which divert users to irrelevant sites. To fight these scam artists, Google constantly tinkers with its algorithms, but that can sometimes frustrate the legitimate efforts of advertisers to optimize their rankings.
Besides these shortcomings, some competitors sense that Google is increasingly distracted by its ballooning portfolio of products. There's the plan to scan the world's books, the digital medical records, the no-frills office software, and even a map of the moon. Viacom's (NYSE:VIA) $1 billion YouTube lawsuit, filed in March, is seen by some rivals as a portent of headaches to come.
In public, Google is sanguine about the rise in competition. "We've always said that small companies should be buying ads on Google and other search engines," says Sheryl Sandberg, who oversees the company's online advertising sales. "But we think we offer the highest quality of information to our users."
Few would argue that Google is set for a fall anytime soon. Still, the bets being placed against it offer a fascinating menu of options for business owners in any industry who want to upset the status quo. Here's a look at five ways of taking on Google.
Google became Google in part because its technology was better than everyone else's, but it's been more than a decade since Sergey Brin and Larry Page began developing it. Many software developers believe the world is ready for something new.
To that end, Powerset and Hakia, start-ups based in San Francisco and New York City, respectively, are developing "natural language" technologies that aim to absorb the human nuances of a user's query. Both companies are well financed: Hakia has raised $16 million, Powerset $13 million. Using artificial intelligence technology from Xerox's (NYSE:XRX) famed Palo Alto Research Center, Powerset will debut later this year. The beta version of Hakia is already online, and it seems to work as promised. Type in "Which club does Tiger Woods use?" and Hakia provides equipment-related results and serves you an ad for Callaway (NYSE:ELY). Google responds to the same search terms by offering you information on Tiger Woods video games.
Natural language technology raises some questions. A site that handles searches better than Google could end up processing fewer of them. Would fewer searches yield less ad revenue? Plus, both Hakia and Powerset acknowledge that natural language sites are expensive to build and chug processing power. Are they doomed to lower profit margins? "The short answer is we'll take them," says Powerset founder and CEO Barney Pell. Last year, Google's net profit margin as a company was 29 percent. If Powerset or Hakia make less on their searches, Pell says, they will still have viable businesses.
The People Powered
Scott Jones is relying on a business-world version of the time-honored "ask your teenager" approach. His site ChaCha employs more than 31,000 workers, half of them college kids, to serve as guides for stumped online searchers. The guides chat online with users for three minutes on average, and then provide them with a list of results. They work part time from home and earn between $5 and $10 an hour.
The approach is expensive, but Jones hopes to bring in revenue by running video ads for users while they wait. Then there's the bigger prize. Data collected from ChaCha's conversations will serve as the backbone for an automated search engine that will one day compete directly with Google. At least one Web pioneer thinks Jones is on to something: Amazon's (NASDAQ:AMZN) Jeff Bezos is one of Jones's lead investors.
The people-not-machines approach also underlies Wikia, a company started by Wikipedia founder Jimmy Wales. Plans remain under wraps, but the gist is that users will edit automated search results for relevance. Like Wikipedia, Wikia will allow users to track changes and identify who is making them, undercutting efforts to manipulate search results. "Someone can do something bad," says Wikia CEO Gil Penchina, "but at least it will be transparent."
Unlike Google, "vertical search" companies don't rely on fancy algorithms or indexing technology. Instead, they specialize in a topic or industry and use rudimentary search means, such as collecting links to relevant sites or charging companies a per-click fee for a listing.
A handful of consumer-oriented vertical search engines--Zillow.com in real estate and Kayak.com in travel--have already garnered significant attention and Web traffic. The category also contains many business-to-business sites. For example, TopTenWholesale.com helps distributors source industrial-sized merchandise. (One recent posting offered a case pack of 200 laser pointers.) "Vertical search engines know their industries in a way that Google or Yahoo never can," says founder Jason Prescott, who reports sales of $1.5 million last year. That may sound small, but the market will top $1 billion in ad spending by 2009, according to Outsell, a Burlingame, California, research firm.
The Comeback Kids
In a bid to grab market share, Google's major rivals--Yahoo, Ask.com, and Microsoft (NASDAQ:MSFT) --have been on a rebranding binge. Microsoft and Ask.com have introduced spare homepages that resemble you-know-who's. (Ask also retired its Jeeves butler mascot.) Not to be outdone, Yahoo recently unveiled Panama, which is intended to bring its system for placing ads alongside search results into parity with Google's system. None of these changes is revolutionary, but they could make these also-rans more attractive to companies that advertise online if Google's keyword prices continue to rise.
The Adsense Assailants
Most people associate Google with search, and yet 39 percent of its revenue (or $4.2 billion) comes from the AdSense network, a service that allows website owners to display Google ads in return for a share of revenue. Some of Google's new rivals are bypassing search and instead going after this business. The problem with AdSense, they say, is that Google refuses to reveal the actual revenue split to its partner sites. A firm called ContextWeb is now offering sites more control over how much they are paid. Another upstart, Quigo, is letting advertisers be more choosey about where their ads are displayed; Google has promised to follow suit.
Whether or not the challengers gain a foothold in the market, their efforts are good news for all companies that rely on search-engine optimization and online advertising to boost sales. By challenging Google, they help to ensure that it doesn't become complacent. "Everyone thinks Google is great, but we don't have any reference point for what search can be," says Riza Berkan, founder and CEO of Hakia. "Search is not yet a solved problem."
Staff writer Max Chafkin can be reached at email@example.com.
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