The business of search engines : understanding how Web advertising, partnerships, and the race for market dominance affect search tools and search results - 1 - Cover Story

Information Outlook, Feb, 2004 by Rita Vine

Introduction

Now more than ever, users rely on the Internet for information and news. With well over 8 million distinct websites (2) and billions of individual Web pages, finding high-quality information is increasingly challenging. Providers of information and services know that their website is a key component of their business and that, in a crowded information marketplace, searchers must be able to find it using search engines.

Search engine advertising has grown tremendously in the past two years, and prospects for continued growth are strong. (3) Information providers and marketers know that Web users seek information on the Web prior to making a major purchase or information decision, (4) and that users rely heavily on commercial search engines for most of their searches.

Why Is Search So Hot?

Web search now represents a significant portion of Web activity. Google searches average 250 million searches per day, and the total daily number of Web searches is estimated at well over 600 million. (5)

At least a portion of searching is for products or services that the searcher will eventually purchase. Research has shown that higher-income users spend more time on the Internet and buy more online. (6) This marketplace of high-income earners is intensely attractive to marketers and much harder to isolate in traditional media such as TV or magazines.

Technological advances have enabled advertisers to track the success of their Web-based ad placements. The availability of this technology--along with specialized ad-buying programs where payment is made only if a link is clicked--has enabled advertisers to ensure greater return on investment of their Internet ad purchases in ways not offered by traditional media.

Research has shown that brand advertising works on the Web. (7) Initially it was used as an alternative advertising medium by a few early adopters who placed banner ads on search engine pages. Now many more advertisers, including many small businesses, have embarked on advertising purchases after several major players-and probably their competitors--adopted the medium as a main marketing stream.

Advertisers know that they fare better with search engine ads than without them. In a survey conducted during fall 2003 with 20 online advertisers, half said that paid advertising in search engine results listings made visible, sometimes critical differences to their traffic. (8) In the advertising industry, where return on investment is often elusive, that kind of claim can make companies race to bid for search engine keywords.

What Business Are Search Engines In?

Searchers believe that search engines are in the search business. They count on free, commercial search tools to help them find the relevant information they want quickly and easily, regardless of type of question, complexity, or language. Search engine companies focus their own marketing initiatives heavily on perpetuating this idea among searchers, asserting that they deliver the most relevant or comprehensive information and ensuring that the searcher returns to conduct additional searches. (9)

In reality, commercial search engines are in the advertising business. They earn the vast majority of their revenue by delivering context-sensitive advertising using a variety of means, but principally by leasing search keywords to purchasers. Virtually all commercial search engines (Google, Alltheweb, AltaVista, Teoma, MSN, Lycos, and WiseNut-Gigablast is the current exception) and major portals (About.com, Yahoo!) rely on this model for most of their revenue. (10) And of those, Google remains the only search engine that still keeps paid results out of its main listings.

The Big Three: Traffic, Relevance and Monetization

Commercial search engines require three key elements to ensure ad placement success. Traffic represents the flow of Web users to a search site. The search site must attract as much traffic as possible in order to maximize the possibility that some of that traffic will turn into a revenue-generating activity. Relevance represents the capacity of the search engine to deliver meaningful results to satisfy the user's keyword query. Relevance is made possible by the creation of mathematical algorithms. When executed, these algorithms define how search results are ranked for presentation to the user. Relevance algorithms vary across different search engines and are regularly tweaked in order to improve the user experience. For example, Google uses PageRank[TM], a set of algorithms that rank order results by the number of links to those pages. (11)

To improve Google's relevance and to combat the negative effects on relevance of a robust search engine optimization industry, some tweaking to the PageRank[TM] algorithm is used in addition to the raw link analysis. For example, some linking pages receive greater weight than others in the algorithm. Other search engines use a variation of link analysis methods and may combine link analysis with other ranking methods, including frequency of occurrence and proximity of words to each other. (12)