September 26, 2003

Amazon.com Inc. is invading Google's turf with a new online search engine company that hopes to pluck some of the profits pouring into the rapidly growing sector.

Seattle-based Amazon has dubbed its search startup "A9" and set up offices in Palo Alto, not far from Google's Mountain View headquarters. A9 hopes to launch in October with 30 employees and grow much larger as it develops a search engine that will be licensed to other Web sites, said spokeswoman Alison Diboll. "This is part of Amazon's ongoing evolution from an online bookstore to a technology services company," Diboll said.

Unlike Google, A9 isn't trying to develop an all-purpose search engine that indexes billions of Web pages. Instead, the startup is focusing on a search engine sweet spot -- e-commerce. As more consumers become comfortable with the Internet, a growing number are using search engines to review products and compare prices. The research frequently results in online sales, prompting more advertisers to pay for prominent listings in the commercial sections of Google and other search engines.

Privately held Google won't provide details about its finances, but the company is believed to be profitable, with revenues this year expected to range from $700 million to $1 billion. Emboldened by its success, Google said Thursday it is opening its 21st office, in Madrid. Google also provided the latest evidence of its search engine's moneymaking power with a Thursday disclosure that 150,000 advertisers have paid to be included in its paid listings program.

The figure reflects an increase of 50,000 advertisers in the last six months and broadens Google's lead over Overture Services Inc., a search engine about to be acquired by Yahoo for $1.7 billion. Pasadena-based Overture boasted 95,000 advertisers in its last quarterly update in July. Those advertisers should generate about $1 billion in revenue this year, Overture spokesman Al Duncan said.

Industry-wide, search engines this year are expected to collect $2 billion for paid listings, a niche also known as "pay-for-performance" because the fees on based on people clicking on advertising links. Some analysts expect the market to swell to $8 billion annually, but other observers think the potential is being exaggerated.

"A lot of advertisers who are paying a lot of money to be listed under certain keywords are going to be wondering if they got their money's worth a year from now," predicted Chris Winfield, president of a Web site design firm that helps businesses get ranked higher in search engines.

Amazon hasn't disclosed how much it is prepared to spend on A9. A Google spokesman declined to comment on Amazon's expansion. The two companies have long enjoyed a good working relationship; Amazon even uses Google's search engine on its home page.

But business relationships have been changing as more companies enter the search engine fray. For instance, the once-close ties between Yahoo and Google have been fraying as they compete for advertising revenues. Yahoo has been using Google's search engine on its site since June 2000, but recently has been de-emphasizing the Google technology as it builds more resources internally.

It's unclear how much overlap there will be between A9's and Google's search engines. Diboll declined to answer questions Thursday about how A9's search engine might work. Amazon decided to launch the new search engine company in Silicon Valley because the area is home to many of the sector's pioneers, Diboll said.

Besides Google, previous search engine leaders AltaVista and Inktomi also have Silicon Valley roots. Sunnyvale-based Yahoo bought Inktomi earlier this year and is about to take over AltaVista as part of the Overture deal. Two of the Web's leading shopping-comparison companies, Shopping.com and NexTag, also are located in the Bay Area.

Source: Silicon Valley

        

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