October 27, 2003

Seeking an Edge: Internet users are estimated to execute more than 550 million Web searches globally each day as they quest for information ranging from the whereabouts of old college boyfriends to the latest English premier soccer league standings or The Matrix: Revolutions "spoilers."

And, of course, porn. Of those half-billion queries, about a third use Google--far more than rivals Yahoo! (21 percent), MSN (18 percent), and America Online (11 percent). So it's no wonder that Google is in the cross hairs of some big-time Internet players who think search could be a hugely profitable business. In July, Yahoo! bought Overture for $1.6 billion in a cash and stock deal that included search outfits AltaVista and Fast (the company behind alltheweb.com, which Overture had itself purchased in February). Those moves follow Yahoo!'s purchase of specialty search-provider Inktomi in March.

Then there's Microsoft, the 800-pound gorilla of tech (or whatever its $49 billion wad of cash weighs), which announced in April the creation of its own search technology for the MSN site. A prototype "MSNbot" can now be detected crawling around the Web as the company works to develop an index of sites.

Win-win? The three companies "are now all squarely competitors," says Safa Rashtschy, E-commerce analyst at US Bancorp Piper Jaffray. "And with the way the industry is growing, it may be a win-win scenario. But it might also be winner take all. And this is why everyone is concerned about Google. It could be the one." Even so, it's not clear how big a win it will be. Just because something is popular doesn't mean it will be profitable--as buyers of Internet stocks found out to their dismay. Yet even as the overpriced issues fell to Earth, Internet usage kept going up, led by omnipresent E-mail. The next most popular online activity: Web searching.

What has changed the landscape is the realization that search, once an unexciting business and a mere loss leader to help bring in business to portals such as Yahoo! or MSN, is now making money. Overture led the way in 1998 when it figured how to make money from search by charging advertisers to be included in a directory of paid-only links. Each time an advertiser's link is clicked, it pays a fee to the search provider. Instead of a shotgun advertising approach, businesses can laser-sight consumers who are interested in their product. "There's now a business plan in place that makes it possible for search to be profitable," says Yahoo! Chief Operating Officer Daniel Rosensweig.

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