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

In the area of relevance, Google currently handles more than 75 percent of all Web searches, (21) but that number may change when Yahoo! converts its search index from Google to Inktomi. Yahoo! is working to increase relevance of more commercial searches that are shopping and commerce related, indicating that it may seek a different--and possibly more commercial-market niche than Google. (22)

The third major player in search engine advertising is--or will be--Microsoft. Although it has, at this writing, only the search engine MSN.com, a modest traffic generator, and lacks ownership of monetization properties, this situation is expected to change dramatically in the coming months as Microsoft starts to compete directly with Google and Yahoo! Journalists and analysts covering the Microsoft move into search engine advertising generally agree that Microsoft will capitalize on its dominant position in operating systems and will embed searching into the operating system, quite possibly without the need for a browser. (23) During the past year, Microsoft has been building relationships with paid content providers such as the Gale Group (24) and LexisNexis (25) to build pay-per-view content download options into new versions of Microsoft Office. Designed to enable users to quickly identify and purchase paid content based on a contextual search of currently open applications, it is only reasonable to assume that this contextual search could easily extend to include a Microsoft-owned search property filled with paid listings.

Google's Split Personality: Search Savior, Ad-monger

In making an ethical issue out of paid listings in search results, Google brilliantly established itself as a trusted search tool, the lone savior of Web searching. Google plays both relevance and monetization sides of Web search in an inspired way. It draws users to its search tool through finely tuned relevance and the promise of pure search results, yet it is one of the largest ad agencies on the Web. (26) In addition to its large partners (like AOL), Google serves up ads to thousands of smaller websites through its AdSense program, which compensates host sites when Google's context-sensitive ads are clicked on.

The Future of Search

What would happen to searching if Google either were bought or went public, and when could that happen? In such a rapidly growing and changing search landscape, it is hard to predict. The topic has made headlines in the technology press for several months--which is itself often an indicator that a company and its investors are testing the waters to ensure that the timing is right for a public offering. There have also been rumors--largely unsubstantiated, it appears--of Microsoft being a possible suitor.

Companies go public for two reasons--to enable the principals to maximize their investment (essentially "cashing out" when the going is as good as they think it's going to get) or as a means of raising capital to enable additional growth. There is no particular reason to think that Google is short of cash and with no burning capital investment requirement going unfunded. But with Microsoft clearly planning a major entry into the search marketplace, Google has good reason to be worried, particularly because Microsoft can use its dominant position in the operating system market to fuel its use of search within the operating system. Many of Google's 1,000 or so employees will become instant multimillionaires, even billionaires, if Google launches an initial public offering and if that offering carries anticipated valuations. Moreover, the company has grown so large that the Securities and Exchange Commission may require Google to begin publishing its financial statements even if the company remains private. So why not capitalize on the loss of secrecy, cash out when the going is good, and raise billions of dollars in the process? (27)