The world of search is rapidly changing. Acquisition and merger announcements are becoming a common occurrence. As the search business becomes fully monetized, consolidation is inevitable. To be honest, it’s becoming increasing difficult to write a column on the current state of the industry, as it changes on a daily basis. So, rather than try to talk about what’s happening today, I thought it might be easier to focus on what the search biz could look like in 3 years. So damn the torpedoes and hang on as we fast forward into the future. Destination: July 30, 2006.

Yahoo

Yahoo is just emerging from a long and troublesome series of growing pains that came through the consolidation of a number of acquired technologies. Political infighting and turf wars have finally calmed down enough for Yahoo to unveil their New Yahoo!Search. This marks the first new step forward in search technology since Yahoo acquired Inktomi, and, via the Overture deal, Fast and AltaVista 3 years ago. After replacing Google as a third party search provider in late 2003 with a buggy combination of Fast and Inktomi, Yahoo has struggled through a series of quick fixes and band aid solutions over the past 2 years, never coming up with a search solution that seriously threatened Google’s hold on the search market.

Short Term Gain, Long Term Pain

Yahoo’s purchase of Overture did provide a better return on the paid search side, at least initially. The increased profitability that came from having the entire revenue stream resulting from Yahoo traffic going into one pocket rather than two (previously, Overture had to pay Yahoo 65% of revenue as part of their deal) gave a significant boost to Yahoo’s bottom line in 2004. This profitability eroded over time, however, because of two factors.

 First was the belated announcement from MSN in the third quarter of 2004 that they would be replacing Overture paid results with their own solution. Analysts were surprised that it took MSN this long to act, but this was due primarily to Microsoft’s delay in finding a suitable substitute (more about this in the Microsoft section later). MSN was Overture’s other big network partner and their leaving the fold cut Overture traffic, and revenue, by close to 40%.

The other big blow has been the slow erosion of Yahoo’s search market share. From a one time high of over 40%, Yahoo’s share number has dwindled over the past 3 years, due in part to their inability to provide a reliable organic search service. Yahoo’s share is currently about 15%. There are big hopes that the new Yahoo!Search will be able to turn this trend around.

Is Yahoo's New Search the Saviour?

According to a recent announcement from Yahoo, the new Yahoo!Search marks a dramatic step forward in search. True Geo-targeting will give searchers the option of sorting results both by geographic proximity and relevancy. The Yahoo Enhanced Listings offers advertisers the ability to catch a searcher's eyes with the addition of rich media images. An icon for an optional broadband advertising message can appear next to the listing.

Another innovative new feature is Yahoo’s Smart Search technology. Extensive user surveys have found that searcher’s feelings about sponsored links changes dramatically, depending on the type of search they’re launching. Generally speaking, the further away they are from a buying decision, the less they like anything that looks like sponsored search results. Yahoo’s new Smart Search uses the characteristics of each individual search and the searcher’s past history to dynamically build search results based on a user’s predefined preferences. If the search is a less commercial research type request, there will be few (or no) sponsored results showing. If a searcher is looking for the best airfare from St. Louis to New York, Smart Search launches a heavily commercialized search page, complete with instant links through Yahoo shopping for one click purchases.

Individual users can set the level of commercialization and additional features, such as geographical sorting, broadband advertising and locator maps.  Of course, Yahoo!Search comes with a fairly commercialized results page as the default.

Smart Search marks a continuing attempt by the search industry to keep the user base happy while not jeopardizing the search vendor’s ability to monetize their search traffic. Obviously, Yahoo would prefer to offer commercialized results for every search to maximize their advertising revenue, but Smart Search is Yahoo’s response to increasing customer demands to be in control of the level of commercialization on their search portals. To date, no other search portal has put this much control in the user’s hands, and everyone is watching Yahoo’s experiment to see how successful it is.

Contextual Advertising: Has Its Time Come Again?

The last area Yahoo is continuing to experiment in is contextual advertising. The initial program that started with Overture placing keyword relevant text based ads on a number of  partner sites has gone through a number of changes to try to maintain interest amongst an increasing fickle group of Internet users. In 2003, contextual text based ads seemed to be the next big thing in online advertising, with Google starting the trend and Overture quickly jumping on board. Click through rates dropped dramatically through 2004 as the novelty wore off with users, prompting advertisers to employ rich media. Soon, the entire process had come full circle back to banner advertising.

Yahoo will be employing its Smart Search technology again to try to present contextual advertising on content pages where there seems to be a greater likelihood that users will click on a link.

Google

Google has been courted a number of times, including a rumored tumultuous courtship with Microsoft in early 2004, but to this point, Google has continued to remain independent. Their ability to do this was enhanced greatly by a very successful IPO in the second quarter of 2004.

When it comes to Google search, precious little has changed over the past 3 years, at least not on the surface. The GUI is still very clean, almost spartan. In the background, Google has worked diligently to improve relevancy and to increase the size of their index by being able to include content from more and more file types commonly found on the Net.

Today, the World, Tomorrow, Your Town!

Google has continued to refine their Google AdWords platform, becoming the first search engine to offer advertisers the ability to geographically target their ads to users down to the regional or city level. This made Google a major competitor against the Yellow Pages, causing a major rush amongst local advertisers who had previously ignored online as a marketing vehicle. It also initiated what was perhaps the most unexpected acquisition offer to date, as Verizon, publishers of Superpages, came knocking on Google’s front door with offer in hand. Like many other suitors, Verizon was quickly shown the door again, this time on the way out.

Google has come out the winner against Yahoo/Overture in the battle to secure distribution partners for their pay per click listings because of Google’s continuing ability to supplement paid search for partners with the best organic results.  Google’s AdWords network now reaches almost 50% of all web searchers. Google has leveraged this market position to offer advertisers a number of add-on services, including conversion tracking, user trends and click stream research (gathered through an enhanced Google toolbar) and recommended keyword reports.

And Now..the Bad News

It has not all been rose colored success for Google over the past 3 years, however. Like Yahoo and Overture, Google has had a bumpy ride with their text based contextual ad products, suffering from whims of a fickle target market. Google is hoping that geo-targeting will breathe new life into the contextual market.

Google also had their day (make that days) in court over the past 3 years. Yahoo has stretched their IP muscle by moving to defend some of the patents they acquired through the Overture purchase. A few of these defenses have brought them head to head with Google. Decisions are still pending on these.

But Google’s biggest battle may be still to come. In typical Microsoft fashion, MSN has been making a lot of noise about their new, proprietary search platform which will be tightly integrated with the next release of the Longhorn Operating System. After a failed purchase attempt, it appears that Microsoft has taken direct aim at Google and is determined to take them out of the marketplace. And if Microsoft has you in their sights, you have to be a little concerned.

Microsoft Search

What Microsoft lacks in foresight, they make up for in resources and sheer marketing muscle. They announced they were throwing their hat in the internet search ring in 2003, after sitting on the sidelines for a number of years. And like their entry into graphic interfaced operating systems, the internet and browsers, although they didn’t get there first, they plan to be the last one standing.

The First Shot

In 2003, Microsoft announced they were starting development of their own internet search technology, because they said, “Nobody was doing it that well.” Further, they appeared to focus specifically on Google when a Microsoft Vice President was quoted as calling Google’s achievements in search “pathetic compared to what we’re envisioning”. With the gauntlet thrown down, Microsoft then stumbled through a series of blunders that must have caused a few chuckles at the Googleplex. The biggest of these was the failed Google acquisition attempt launched by Microsoft in early 2004.

Teoma/Ask Jeeves and FindWhat purchase

First, in late 2003, Microsoft quietly purchased Ask Jeeves and Teoma, as well as Findwhat. While Microsoft emphatically said the purchases were just part of their development strategy, giving them a faster way to secure some intellectual property and other assets, the first unveiling of Microsoft Search in mid 2004 looked suspiciously like a quickly thrown together combination of Teoma search results and FindWhat paid listings. Most agreed that it was a stopgap solution to allow Microsoft to ditch their agreements with Yahoo owned Inktomi and Overture to supply search results for MSN.

Beta testing of Microsoft search

Next came a repeatedly delayed beta debut of the new Microsoft search. The debut date was bumped from late 2004 to mid 2005 before users could actually get their hands on a Microsoft search tool. Integration into the first buggy version of Longhorn left much to be desired, causing a number of operating system level problems. After several patches, Microsoft Search limped to the starting line, only to be thoroughly beaten by Google in a couple of independent search relevancy tests. Microsoft Search seemed overladden with bells and whistles, but was notoriously short on actually delivering useful search results.

Never Bet Against Microsoft

But, give Microsoft enough time, and they will come to market with a product that will strike fear into the hearts of competitors. Based on recent announcements coming out of the Microsoft publicity machine, the time has come for Microsoft Search. First, a tighter integration with Longhorn effectively removes the distinction between searching your own desktop and searching the internet as a whole. A more intuitive interface allows easier searching for multiple file formats, including .jpg, .mpg, .avi, .qt, .pdf, .swf (Flash files) as well as standard HTML files. Microsoft boasts that their search index contains 10 times more searchable files than Google’s, gathered through spidering the internet since 2003.

Another huge advantage is that Microsoft Search is now incorporated into every single Microsoft program at the application level. Launching a search in Word is as easy as conducting a spell check.

Because Microsoft Search functions at the operating system level, the user has a multitude of ways to customize their search preferences and have them stored as user settings. From a user perspective, search has never been more intuitive or easy to use.

Marketing through Default Settings

Of course, Microsoft can’t restrict everyone to using Microsoft Search at the operating system level. But they can ship every copy of Longhorn and Office with the default settings conveniently set to Microsoft Search. As Netscape could tell you (if they were still around), it’s very difficult to push users away from default settings, especially if the competition can’t give them a compelling reason to change.

And Now, Let’s Make Some Money

Up to now, Microsoft has had their hands full rolling out the new Microsoft Search, which means they haven’t had time to refine the more marketable aspects of their search interface. They are still far behind Google and Yahoo in areas such as delivering geographically targeted ads, setting the commercialization levels of results shown and incorporating broadband advertising into search results.

Now, however, Microsoft has a huge advantage because of their integration with applications and operating systems. Theoretically, contextual rich media advertising could be incorporated into every office application. Imagine writing an email to a friend in Outlook, telling how you’re planning your trip to Hawaii, and up pops a streaming media message from Expedia with Hawaii Vacation specials. A frightening concept, but one that’s well within the realms of possibility.

Privacy vs Profit

Legislators have already looked at the many opportunities that Microsoft now has to peek in on its users and have started laying the ground work for more stringent privacy legislation. Results are guaranteed to be interesting.

And Now..Back to Today

Will any of the above happen? Who knows? I do know that the battle lines are being drawn and the game will continue to get more interesting. When analysts are predicting that search engine marketing will continue to grow as a multi billion dollar a year industry, you know the fight to gain a substantial piece of the pie will probably get bloody. There will be winners and losers. And right now, with Google, Yahoo and Microsoft, you have three pretty serious contenders. Let’s see what happens, shall we?