As rivals branch out, the Web's hippest search engine claims it can make money from a few big clients -- without pay-for-placement or the clutter of banner ads
PREMIUM SEARCH Search by job title, geography and build a list of executive contacts
It's probably the only company in the world with a former Stanford University neurosurgeon on the payroll, a man who would rather punch code than wield a scalpel. In the reception area of its headquarters in Mountain View, Calif., lava lamps change colors to match the site's many hues. Two-year-old Google (www.google.com) is surely the hippest search engine around. And it has the tech to back up its bravura. This year alone, Google has amassed more than a dozen awards from computer and business publications such as PC Magazine and Upside.
Google, which performs 23 million searches each day, has a rabid following among computer geeks, who rave about its amazingly accurate results and clean looks -- uncluttered by banner ads. In short order, the company has captured 25% of the search-engine market, says consultancy Gartner Group. And it has some brawny backers in Silicon Valley venture-capital notables Kleiner Perkins Caufield & Byers and Sequoia Capital. That potent duo has collectively bet $25 million on the still-private company.
LIMITED BUSINESS. But how will Google ever make money? There's the rub. The company's adamant refusal to use banner or other graphical ads eliminates what is the most lucrative income stream for rival search engines. Although Google does have other revenue sources, such as licensing and text-based advertisements, the privately held company's business remains limited compared with its competitors'.
Northern Light (www.northernlight.com), which matches Google in many search-engine competitions, sells archived articles from hundreds of publications and builds intranet portals for companies. AltaVista (www.altavista.com), another competitor, has integrated its search engine into a broader portal strategy. "There isn't really good evidence, frankly, that companies focused purely on search, as Google has been, can support themselves with that model," says Northern Light Chief Technology Officer Marc Krellenstein.
The brainchild of Stanford computer-science grad students Larry Page and Sergey Brin, the company's CEO and president, respectively, Google pioneered a now-popular technique that counts the number of links pointing to a site as a gauge of its importance. According to the theory, every link to a site is a vote of confidence that the content matter there is useful.
SPARTAN AND FAST. The beauty of the Google search engine is that it keeps frivolous links, so common on other search engines, to a minimum. And the company claims Google's massive database of 1.2 billion Web pages is the world's largest. The result: Not only can Google judge the importance of sites but it also has the capacity to drill down into minute topic areas for hard-to-find information. Brin boasts that the competition can't match such performance. And Google's spartan look -- a simple search bar on a white page with minimal text and graphical pollution -- enables faster downloads, according to search-engine expert Greg Notess.
So, where's the business model? To this end, Google has started to diversify its revenue stream. It boasts 100 co-brand partners, such as The Washington Post and Netscape, that have selected Google as an embedded Internet search engine on their site. Most of these co-brand partners pay the company from $8 to $10 per thousand queries and from $600 to $2,000 per month in licensing fees. Google also has a program offering free search capabilities to smaller Web sites, with the caveat that it might begin inserting advertisements on search-query pages at a future date -- but no banner ads.
The company has also instituted a pay-for-play scheme called Adwords that allows an advertiser to purchase a word and place a small text ad on the page whenever that word is mentioned in a query. But Google is making the most money from customized intrasite search functions, built for a dozen select clients, such as router giant Cisco Systems and Linux provider Red Hat.
YAHOO! POWER. An even bigger stamp of approval came in June, 2000, when portal Yahoo! replaced Inktomi's (www.inktomi.com) search engine with Google. "If they can hold on to the Yahoo business, it may prove as powerful for them as it proved for Inktomi initially," says Gartner senior analyst Whit Andrews.
Even though Google is seeing queries grow at a rate of 20% a month, Brin and Page admit that the company makes less cash per search query than AltaVista or Northern Light. Supporting a research staff of 100, including 30 PhDs, might have something to do with this. But Google has spent less money developing an ad-sales staff than other search engines.
Still, the company says its burn rate is decreasing and that it should be profitable sometime after the third quarter of next year. According to Google spokesman David Krane, the company also saves money by using Linux, the free operating system, on its network of 6,000 desktop PCs. While Page admits Google doesn't yet make a penny per search in revenue, he's upbeat. "We do more than 20 million searches a day, so it works out to $80 million dollars a year," he claims.
"MORE DIVERSIFIED." Competitors question the accuracy of such high revenue numbers. Furthermore, Google's pure-search strategy has thus far garnered fewer unique visitors than more developed portal competitors. AltaVista, for example, ranked eighth among portals in September, with 20 million visitors to its site, according to Media Metrix, which measures Web traffic. Google ranked 48th, with 5.7 million unique visitors. Says AltaVista President Greg Memo: "Our model is much more diversified." As evidence, he points to AltaVista's recent launching of sites for 10 different European countries and the sale of the AltaVista engine as a piece of enterprise software to more than a thousand businesses.
Now comes Google's big test. Can it keep forswearing pay-for-placement deals that allow commercial sites to buy high rankings in searches? Yahoo has begun cutting these deals in droves, matching lesser competitor LookSmart. But Brin says he isn't worried: "When somebody searches for 'cancer,' should you put up the site that paid you or the site that has better information?" Brin is betting better information will win the day.
But when the whip comes down and shareholders start to demand a return on their investment, Google may have to swallow its scruples -- particularly if it hopes to keep banner ads off its pages.
By Kalpana Mohan in San Jose, Calif. Edited by Alex Salkever
[an error occurred while processing this directive]
Copyright 2000, Bloomberg L.P.
Printer-Friendly Version
