Searching for Money

One of the higher growth industries over the next few years is going to be

the business of search on the net.

Estimates of its size in the year 2007 range from a pessimistic $5 billion

world wide to an optimistic $8 billion up from $2 billion in 2003 (source

eMarketer December 2003). Before the Internet there was no need for search.

After the Internet there is no way you can live without it. The Internet search

business uses information technology in a big way. Its revenue streams are more

like media— advertising and subscriptions. So is it media or is it information

technology? The fact that it is neither and both at the same time makes it

interesting.

Where is this growth going to come from? Advertising revenues, subscription

services, e-Commerce services and technology services.

Advertising revenues is the big chunk. Search sites flash ads at visitors in

different ways. The distinguishing feature of advertising on the net is the

performance-based models that it allows. Advertising in other media is mostly

the one beam covering all kinds of stuff. On the net, advertising is targeted

and more measurable. Technology can match the user and the advertiser closely in

different ways. Consequently the payment to the media vehicle—in this case the

search site—in many cases is transaction oriented. Each time the company

delivers a click or a purchase or a lead or a download, money gets paid to the

search site. Payments are therefore linked to quality of audience delivered. The

amount paid can be fixed or a percentage of the transaction. There are other

models of the more traditional kind where the fee is based on the number of

impressions delivered. In any advertising medium the quality of the creative and

the product specifications are equally important parameters for eliciting

consumer response and the media (the search company) cannot be responsible for

it completely. Hence what is likely to evolve are hybrid models.

Shyam MalhotrA

Since search engines bring in a large amount of traffic, they could become a virtual shopping mall and get revenues by sales of products and services

Another revenue stream is from sponsored links. When a customer searches for

a topic the paid for URLs pop up first. This model does throw up credibility

issues. The search site cannot be an honest broker and a sales agent at the same

time.

The other source of search site revenue streams is visitors. If the search

results are authentic enough, there is a possibility of subscribers paying money

for them. The present search capabilities are coarse. They give hundreds or

thousands of matches while what is needed is tens of relevant matches for people

to pay. This will need many improvements. The first generation search engines

focused on ‘my search is bigger and faster than yours’. The second

generation is starting to look at ‘my search is more relevant than yours’.

As this develops, the revenue streams will grow.

Since search engines bring in a large amount of traffic, there is a

possibility of e-commerce revenues, ie the search engine becomes a virtual

shopping mall and get revenues by sales of products and services.

The last revenue stream is lateral offerings of technology services. Since

search involves identifying, indexing and retrieving information on a huge

scale, the underlying technologies can be used by other sites or applications.

Many search companies have sought to offer this type of service.

To see how advertising is happening on search sites I tried searching for

Microsoft on various engines. Here is a quick view of the first page results.

Alatvista: 25,837,868 results. Sponsored results on top. Some news

about Microsoft interspersed between other results.

Yahoo: 120,000,000 results. Sponsored results on top and side and at

bottom of page. Most results from Microsoft site. No reference to other

Microsoft related material.

Google: 77,000,000 results. Sponsored results on side-bars. Mix of all

types material about Microsoft.

The fact that every site had sponsored links clearly indicates that free

search times are coming to an end. In the future someone will pay—you or the

advertiser.

The author is Editor-in-Chief of CyberMedia, the publishers of Dataquest. He

can be reached at shyamm@cmil.com