Betting on the Real-Time Web

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This is an entirely new body of data from sources outside the search engines and more static sites that have dominated the Web. That's why the real-time Web presents a big challenge to some Internet leaders—especially Google. Real-time streams are slippery for its computers to track. Google algorithms favor sites that attract many links from other sites, a proxy for importance. But such links can take days or weeks to build. Google has increased how often it indexes leading real-time sites, and Twitter activity is showing up more often in search results. But because Facebook and Twitter keep much of the data on this activity private, search engines can't index it all.

NEW TRAFFIC DRIVERS

Real-time services also may soon give advertisers another way to reach prospective customers besides search engines. Already, Google is no longer quite as dominant a driver of traffic to some Web sites. Twitter has become the second-largest source of outside traffic to the TechCrunch blog, behind Google, for instance. For now, ad agencies say they have no plans to slow spending on Google. But if real-time sites start generating significant audiences and data that advertisers can use to target them, ad dollars will follow.

One of the hottest areas in real-time is search, thanks to its proven business model of matching ads to queries. Boulder (Colo.)-based OneRiot, one of more than a dozen real-time search services, mines not just what people are saying but what links they're sharing on Twitter, the news-sharing site Digg.com, and other social sites. Chief Executive Kimbal Musk notes hot topics such as "Michael Jackson" or "G-Force" should provide many more opportunities to show ads because people often repeatedly search them in a short period of time. "Traditional search is like going to a library," he says. "Real-time is the right search, right now."

Established search engines have no intention of falling behind. Udi Manber, Google's vice-president of engineering for core search, says the company is now indexing the Web, or at least the most important parts of it, in as little as minutes today vs. every few months five years ago. Google plans to move even faster in the future, says Manber. "If something is written on the Web that's important to you, we should bring it back in seconds," he says.

The man trying the hardest to realize the disruptive potential of real-time is Borthwick. The 43-year-old West London native early this year wrote a blog post titled "Google Next Victim of Creative Destruction?" in which he suggested Twitter could turn the search giant into an also-ran if the upstart can become the go-to place for searching breaking news and conversations. A former Time Warner (TWX) executive, Borthwick co-founded betaworks two and a half years ago with onetime AOL colleague and venture capitalist Andrew Weissman. They raised $10 million that they're using to create and build a few companies and co-invest in many others with angel and venture investors.

Besides Twitter, betaworks' portfolio is a who's who of nascent real-time stars. Betaworks sold Summize, a search engine just for Twitter, to Twitter itself last year. Current companies include bit.ly, which shortens Web addresses to fit into Twitter's 140-character tweet limit, and StockTwits, a real-time stock discussion site. Borthwick aims to create an ecosystem in which real-time and social data can move freely among the services, compounding the data's value.

It's not yet clear where that value will emerge. With Twitter still working out how it will make money, the startups around it haven't been able to cement their own business models—besides selling to Twitter or another firm. The uncertainty is keeping some investors on the sidelines. Jeffrey M. Crowe, general partner at Norwest Venture Partners, says his firm has looked at several real-time companies but hasn't pulled the trigger on funding. "The jury is still out on how much value gets delivered beyond Twitter itself," he says.

Many investors, however, are happy to take the risk. "There will be too much investment," says Peter Hershberg, co-CEO of online marketing firm Reprise Media (IPG). "But there will also be a handful of winners."

Hof is BusinessWeek's Silicon Valley bureau chief.

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