In search of clicks that make cash

Filed as News on April 23, 2003 9:12 pm

by Duncan

vnunet.com> Consolidation among internet search engines continues. In a fortnight, Google acquired Pyra Labs, one of the driving forces in web logs or ‘blogs’, and Yahoo cemented a deal to acquire the search business of Inktomi, one of the grand old aunts of the internet indexing game.

And Overture, one of the companies taking a lead in the pay-for-hits business, acquired two internet search services: Alta Vista and the AllTheWeb.com service from FAST Search & Retrieval.

The upshot is that Google now has another large content domain to complement its directory, newsgroup and news services.

And, in Inktomi, Yahoo now owns a company that provides search results to other services, whose clients have included Microsoft Network and America Online.

What is interesting about these acquisitions is that it signals a shift in each companies’ business strategy in 2002.

A year ago, Overture was content to generate $600m (£380m) in revenues from its pay-for-traffic business, in which it auctions words in an eBay-type environment. Anyone wanting to ‘buy’ the word ‘travel’ on Overture sites pays money.

Usually the pay-for-traffic hits, which look like typical website listings, appear with a label or some graphic indication that the listings at the top of the searcher’s hit list are advertisements.

And because most casual searchers usually only look at the first page of hits, the advertiser gets traffic.

With these two acquisitions, at a cost of $250m (£160m), Overture is now in the web indexing business, and it seems to want to compete with Google.

Overture has also filed suit against Google for infringing on its pay-for-placement patent.

In 2002, Yahoo was trying to generate money. And, under new management, it seems to be having some success.

It dropped Inktomi as a provider of the internet hits that appeared at the bottom of its results page when users wanted listings from outside the Yahoo directory, and it turned to Google to provide these results.

In fact, the announcement that Inktomi lost the Yahoo contract has been identified as one of the straws that broke its financial back, forcing the sale of its corporate search business to Verity and finally leading – conveniently – to Yahoo’s purchase of Inktomi’s search technology at a reduced price.

To underscore the new importance of pay-for-traffic at Yahoo, the company hired Overture’s Tim Cadogan to become its vice president of search. It is hard to get precise figures for how much Yahoo pays Overture for traffic, but the figure has been gauged in the low hundreds of millions of dollars a year.

Yahoo sells advertisements and subscriptions, and appears to be jockeying for pay-for-traffic services.

Its offerings now include subscription services, user-generated content in its groups and matchmaking forums, its directory and a web-indexing utility.

In 2002, Google showed that it was making a solid commitment to generating revenue from advertising.

The company expanded its advertising programmes and began to offer its licensees Google technology with tools to influence which hits appeared on a page.

You can see this technology in action by navigating to the bbc.co.uk page and entering the term ‘travel’ on various pages in the site. Different hits appear at different locations.

Now Google is adding to its content arsenal with the acquisition of blogs. Many blogs are rich in links and, in Google’s algorithmic universe, the more links a site has, the higher its ‘value’.

The actual number of blogs is difficult to pin down, with estimates ranging from 100,000 to more than one million. Blogs are grassroots internet publishing in its purest form.

Pyra Labs produces tools to allow anyone to easily create their own blog. Blog information is not easily searched, although structured blogs are becoming more common. But there is revenue potential in selling advertisements on blog search-result pages.

And the content is useful too. One industry observer said: “The most important links on a topic are the ones that get the most mentions in the blogs.”

Combining this new link-rich content with its advertising technology, Google can move more aggressively into the same markets served by Overture and Yahoo.

Google seems to be recognising that it needs content like the Open Directory, news and blogs to make Google more than clever technology and a fast spider.

As these three services become more alike, the question becomes: ‘Which can searchers trust?’ And it will be interesting to see how they implement their services.

With the economy in a downturn, you can expect strong competition for available advertising pounds, dollars and euros.

Traffic translates to clicks, and clicks must be monetised. Successful monetisation is one step on the path to market dominance.

At this point, the three companies still have their differences. Overture is anchored in advertising and it has fewer ties to traditional internet search culture.

But its acquisition of Alta Vista and AllTheWeb.com give it new search technology and a high-traffic site, and it may find a new way to deliver search results.

So far, Overture has been looked upon with gentle toleration by many search experts.

Indeed, one expert working at a major consulting firm in the US said: “Directories have always had paid listings. Overture is a directory. Everyone understands this and takes it into consideration when reviewing results.”

Yahoo, with its advertising and for-fee upgrades available for electronic mail and video content, may emerge as the major challenger to Microsoft’s MSN online service.

Its emphasis on content has shifted from the costly human-edited directory listings to a leaner, more automated directory with a pay-for-placement twist.

The revamped management at Yahoo wants control over web search and seems interested in selling advertising linked to search results.

Whether Overture’s fees were $2 or $200m, Yahoo wants to keep that money in its pockets and stuff its customers’ money in too.

Fortune magazine headlined its 2002 story about Terry Semel, the former Warner Bros kingpin hired by Yahoo, with the line: ‘Yahoo should grow up already’. See here for the full story.

With Yahoo’s December 2002 revenue hitting $285.8m (£180.2m), and with an unaudited net income of $46.2m (£29.1m), Yahoo is already maturing along the path identified by Semel.

Google is a technology and content company that sells advertising. It has an excellent reputation due largely to the way in which its relevance algorithm produces on-point hits consistently. Regardless of topic, Google delivers relevant hits.

Google has solid traffic and a way to monetise clicks. But its unbiased approach to web indexing still needs further integration with the pay-for-placement model, and it may find that it must take decisions that generate revenue at the expense of the objectivity that has become part of its brand.

The need to capture blue-chip advertising may be stressful for the Google culture. Google now provides its index of websites, the newsgroup content from the former DejaNews, the agent-built digital newspaper, and the Froogal price comparison and product finder service, and the new blog content.

Its clear vision of its content competence is its distinguishing feature.

Which of these companies will be the winner? The answer is that there may be more than one. There may be one winner in terms of defining a next-generation model for subscription-based services. Yahoo seems to be the front runner in that market.

Which will be the winner in blending advertising with web search? Overture appears to be the leader here.

It is likely to build on its $600m-revenue base and continue to deliver traffic to advertisers hooked on its bidding system.

Which will be the winner in indexing web-centric content? Google looks as if it will continue to maintain its position as the ‘best web index’ for the foreseeable future. If it makes a mistake, it is likely that Overture and Yahoo will capitalise.

Which service will professional searchers use? The savvy searcher uses multiple search engines.

With the surging popularity of metasearch systems such as Vivissimo (www.vivissimo.com), ez2WWW (www.ez2www.com), and KillerInfo (www.killerinfo.com), the battle for online search supremacy is far from over. But for the average searcher, it will be a ‘battle of the brands’.

The pay-for-placement services are still likely to provide good results for someone seeking a travel bargain.

Advertisers, not searchers, will decide the outcome of this battle. Over time, these three conglomerates will drift into the comfortable oligopoly that characterises scientific, technical and medical information publishing and professional information for solicitors and accountants.

The outlook then is that they will come into conflict. And when giant conglomerates fight, the grass gets trampled. So who will be the grass as Yahoo, Google and Overture contend for clicks and advertisers’ money?

Well, almost everyone who uses the web will be Yahooed, Googled or Overtured in the coming months.

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  1. By null posted on August 13, 2004 at 12:47 am
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