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Old 06-22-2004   #1
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Build First, Monetize Later? The Business of Search

Thinking back over the short history of public web search services, it's striking to look at how few of the business models have succeeded. Google is an interesting example, because they turned popularity into serious cash more quickly than any other, without (thus far) alienating users.

Recall not long ago when Google had virtually no revenues, just a popular search engine. Many in the company assumed that the money would just come from somewhere, or that they'd just sell out for a few million dollars to the highest bidder, or that the Google appliance (!) would be their cash cow.

Today, the AdWords program generates 96% of the $1 billion in annual revenues and S&P's "sceptical" valuation for Google is at least $33 billion. (Again, !) Who could have guessed?

Here's a brief catalog of search business models (in no particular order).


1. No business model at all (just hope for VC money, stock market investor money, greater fool theory);

1a. Modified version of #1 - take popular search brand name and turn it into a portal (Yahoo, AltaVista, Excite), promising to make money from other stuff;

2. (Extension of 1 & 1a) - "Monetize those eyeballs" through banner ads either on SERP's or throughout the portal;

2a. "Monetize those eyeballs" with a combo of ads and fees on services;

3. License the search technology (Inktomi etc.) -- this one turned out to be a big dud!

4. Paid inclusion (Yahoo Directory; Inktomi ... Yahoo Index)... still controversial and still important

5. Very similar to 2, with a twist: inobtrusive keyword-based ads near SERP's augmented by a pay-per-click auction system

5a. Run an ad network as a side business, leveraging investment in the tech that serves #5. (Google/Overture)

What is interesting is how poorly most of the attempts have worked, for a variety of reasons, *but* we seem to be seeing BOTH the portal model and the text-ads-near-SERP's model working. Some believe that the latter has saved the former, but nonetheless, after years of trying, companies like Yahoo and Google are very profitable both "as search properties" and (with Google now developing multiple products) "as portals."

Why do you think they're finally succeeding? What caused them to fail before? And do you see any bumps in the road or opportunities for the future in terms of such attempts to "monetize" the wild popularity of web search? Will there be new business models? Finally, will Google's portalization threaten their core strength?

Last edited by andrewgoodman : 06-22-2004 at 09:45 AM. Reason: Edited to include good ol' Architext
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Old 06-22-2004   #2
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Generally speaking, I believe that Google's success is attached to their focus on relevant search. As they develop more products and possibly go portal, I believe they'll continue to thrive as long as they don't loose sight of what made them popular in the first place.

Yahoo, on the other hand, is walking a narrow line with their pay for inclusion model and will probably continue to get bad press over it until they find a better way to package it or remove the cost per click factor all together.
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Old 06-22-2004   #3
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I agree with K.S. Katz that it was relevant results that made Google shine so brightly. Web search used to be an utterly torturous affair. You would use AltaVista, back when it was a Great Search Site, and you'd be thrilled to pieces if 4-5 of the first ten results were relevant to your search. Thrilled!

And then comes along G, and wow... 9-10 relevant listings for my search?! No crass banner ads or pop-ups? Mmmmm. Good stuff.

Quote:
bumps in the road or opportunities...

(snip)

Will there be new business models?
I'm quite concerned about search engines eventually ceasing to be a conduit between me and an information provider and actually becoming the information provider itself. The KnowItAll project at the Univ. of Washington is one example -- the "search engine" won't point you to sites that have the information you want, it will pull the information off those sites and give it to you. I believe MSFT has made rumblings about doing the same type of thing on various types of searches.

As a web site owner, that business model really concerns me. Where's the benefit to me if they take/use my content and don't send me a visitor in return? I don't know if this will be a bump in the road or an opportunity, but I suspect the former.

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Finally, will Google's portalization threaten their core strength?
I would think so.
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Old 06-22-2004   #4
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Google needs to focus on their core strength, which is search. There are still a lot of problems, and it's not as good as it could be. Moving towards a portal without fixing the search problem could be an issue for them in the future.
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Old 06-22-2004   #5
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Originally Posted by bhartzer
Google needs to focus on their core strength, which is search. There are still a lot of problems, and it's not as good as it could be. Moving towards a portal without fixing the search problem could be an issue for them in the future.
I think google is not willing to make any big changes right now with their algorithm because they have no need to make big changes. they are already synonymous with search and they have relevancy that at least matches their competitors.

I think what made them successful was the focus on a particular topic...search.

many of the old school portals failed because they focused on quantity over quality.

if you look at the branding strategy of google they are not necissarily trying to make everything portalized. you do not see much about Orkut on the google site and it goes by the name Orkut. they are smart at branding stuff.
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Old 06-23-2004   #6
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Thinking back over the short history of public web search services, it's striking to look at how few of the business models have succeeded. Google is an interesting example, because they turned popularity into serious cash more quickly than any other, without (thus far) alienating users.
The business model was based on proven competence, that showed examples that inspired popularity.

It was webmasters that passed word of mouth, and it was the people of Google that inspired us. It's important to understand that we supported Google because Google made sense.

Compared to AltaVista or Hotbot? At that time AOL, MSN and Yahoo were focusing on the aspect of portals, search for them was just an expense.

Meanwhile Google was raising the bar of search. At that time, AOL was depending on the ODP, and that is when the ODP became under attack, not just by submissions, but by their own membership. The motives of new members that applied and the members within became susceptible to the profit potential of the effect on an ODP listing. AltaVista became completely lost and overwhelmed by the spammers. Inktomi made gains using link count, but quickly compromised their gain with PFI.

The end result was fertile ground for the goodness Google offered and the academic endorsement that was past on to us.

Quote:
Why do you think they're finally succeeding? What caused them to fail before? And do you see any bumps in the road or opportunities for the future in terms of such attempts to "monetize" the wild popularity of web search? Will there be new business models? Finally, will Google's portalization threaten their core strength?
Yes, I see the threat coming from user behaviour. The few top results that currently power SEM, can not sustain us all. Engines will eventually encourage controls that limit search to the zip code level. What will save us is that many will look for the best deal, (product/service), and limit the query to a given economic area, for example North America, allowing both the US and Canada to compete. Or to What ever market and area that appeals to the customer/searcher.

Information web sites should be less important for such filtering, but products and services are going to need context beyond just the current keyword pattern matching.

Last edited by unreviewed : 06-23-2004 at 01:16 AM.
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Old 06-23-2004   #7
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Insightful comments, unreviewed.

As a result of the Internet phenomenon, people's habits are changing, and this is causing the whole economy to move into uncharted territory, IMHO. Big brands and monopolies are probably happy if we DON'T live our lives as "searchers." Yet in some cases the comfort of a trusted brand makes a lot of sense as long as the product consistently delights. (The more expensive laptop compensates by being better-engineered, better-looking, more rugged, or completely plug-n-play with some things built in that you would have to set up on a competitor's machine, for example.)

On one hand, you have the "thirst for choice" phenomenon. This will drive the continued growth of search engines (Google and others).

On the other hand, there is the "too much choice, help me decide" phenomenon.

Both are powerful and neither are going away anytime soon, but probably, the most irrational anti-choice Big Marketing models will lose considerably more ground to the nimble, edgy companies whose responsiveneness to "search-loving" consumers dovetails well with the functionality of today's search engines, shopping engines, etc.

Market research can be so much better than it was. Why would it take so many years for McDonald's to figure out that high-margin salads could make them profitable? Wouldn't a more modern company have made the leap years ago? Surely figuring out what people are searching for would be a big part of that kind of stuff. And much cheaper, probably, than traditional market research.

How many people would have paid double price TEN YEARS AGO for peanut butter that didn't contain a mixture of semi-rotten peanuts, hydrogenated vegetable oil, and icing sugar? Yet only today are we seeing more natural peanut butter as a staple on shelves (and house brands still want to slide in x% of the lower-grade peanuts, because they think they can).

Again, I'm pretty sure that the Internet / search / choice / knowledge / demand phenomenon will force companies to accelerate their adoption of such things, and those who catch on early to such trends can make a killing. It doesn't mean Google is going to take over the world, but it does mean that if they falter there is massive consumer demand for search out there to generate the VC funding for future competitors of Google.

The secular trend points generally to an increase in the importance of search, but ... in its wake, also an anti-search backlash type sentiment. Eg.: I am really happy with my new Sony digital camera, bought on the strength of a newspaper ad, a three-minute (not three-hour) online research session, and wandering into the Sony Store in the mall (of all places). Dumb, or just wanting LESS choice, because more choice can be jarring?

Because I think it truly is possible to search ourselves to death, there will always be a market for the "anti-Google" -- the portals and services that constrain choice, tell us what to think, show us only major brand offers, etc.

Likely then we are going to see growth in both categories of online property -- both "research tools" and "choice-constraining helpful environments" -- (Yahoo and Google are not the direct competitors they think they are, perhaps), and for new services to flourish it may simply come down to execution, timing, and flair.

If there is a takeaway here, it's that there is money in this search stuff. Lots more than many would have expected, and growth on the whole will be robust. It's shocking that the early leaders fumbled the ball as badly as they did, but that points to the irrationality of measuring success on the strength of how much money you can suck out of investors, I guess.
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