Of search engines and stock markets

• Jun. 5, 2003

You may have seen me mention that I have a stock ticker running on my computer to get the latest stock information.  It's not for me, and I only have 5 or 6 stocks showing.  I keep track of the publicly traded search engines (AOL, Yahoo!, Overture, Looksmart, AskJeeves and Microsoft).  I do this primarily to see how the markets react to news the engines release. 

For example:  Overture, whose main goal is to make money, took a beating when they bought Altavista and Alltheweb.  The deals cost Overture about $140 million in total and shareholders were outraged.  Overture's share price dropped to the lowest it had ever been, trading at around $11/share.

While shareholders rebelled, we sat here thinking they were really smart.  Overture took a look into the future and realized that they needed to expand their search portfolio to remain competitive.  After all, Google already has spider based, algorithmic search results (which both Altavista and Alltheweb can soon supply for Overture) and they had recently announced advancement of their AdWords program, offering targeted AdWords.  The premise is that their spider will crawl the page and then place ads that match the content of the page.  Overture will bounce back once investors see that this was a good purchase.

Next is Yahoo!  Back in December they bought Inktomi for $235 million.  Shareholders again reacted unfavorably and their stock price remained stagnant for the next month.

Now, let's look at Google.  While it's not publicly traded yet its worth a mention because it should become a public company in the next year or so.

On the surface Google will look like a very smart stock to buy.  Currently they dominate search with approximately 80% reach globally.  They are making deals all over the world to supply search results or AdWords and seem to be unstoppable.  Had they had an IPO this spring I would have said buy.

Next year, if and when they do offer shares I think I would be hesitant to invest in them.  While their share price will go through the roof in the first week or so of trading, I think you'll see the price slowly start to decline.  It won't be because Google isn't worth the money, but by that time there will have been a significant change in the search engine market.

Microsoft is testing a spider, which is a precursor to the announcement they made about developing their own brand of search.  I would expect to see version one of this search engine before the end of the year, or early in the new year.  Remember that Microsoft is the default browser for about 90% of the computers out there, and it defaults to MSN search when a query is incorrectly typed, or typed into the address bar.

As I mentioned above, Yahoo bought Inktomi therefore it's only a matter of time before they start to display their own results, rather than Google's. 

And, as mentioned above, Overture will have a bundled search service by the end of the year.  They will then begin aggressively marketing this new bundled product to regain ground they lost to other providers, including Google.

Combine all these facts and Google's effective reach drops from 80% to about 25-30%.   Therefore, Google may not be the hot property that everyone is expecting it to be.  I mean, I haven't even discussed the other engines that are making an impact on AskJeeves/Teoma or Looksmart who are also making great strides in the market.

I guess this too kind of falls into the old adage of don't put all your eggs in one basket when it comes to Google, because if you think you're going to get rich investing in Google, you are probably wrong (unless you are Sergey Brin or Larry Page - the founders). 

But all my speculation probably won't translate into fact for Google.  Their IPO will be huge, and they will sell millions of shares.  Stock price likely will remain high for some time, but unless Google does something amazing in the next few months, the price won't accurately reflect the value of the stock.  But I guess that's what the markets are all about right?  Casting the appearance that the stock is worthy, and hope the shareholders don't revolt.  Kind of ironic when you think about it.  Google's search results are all about relevance, but how relevant will the share price be to the actual value of the company?

Rob Sullivan
Production Supervisor
Searchengineposition.com
Search Engine Positioning
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