Google's Search Gold Mine Could Tap Out

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Recently, Google has been making a further bid to control a vertical search category. In mid-2010, Google got serious about travel. Given that over half of travel sales are consummated online, Google wasted no time with DIY solutions. It went shopping and bid $700 million in cash to buy ITA Software, a Cambridge (Mass.)-based travel software company that was founded in 1996 by scientists at MIT to provide search services for airlines and other travel operators. If the acquisition goes through, Google's first commerce-oriented vertical search initiative would represent a serious assault on Orbitz, Expedia (EXPE), and Travelocity.

Google's property and travel forays signal an important shift in strategy.

Vertical search wins share and earns dollars. Horizontal search protects share, but earns little. Don't get me wrong: Hundreds of millions of Web users have an ongoing love affair with Google Search. Search Engine Land recently reported that nearly 90 percent of Web users were "satisfied" with their online search experiences. Dissatisfied users were scarce. User satisfaction, however, is not the issue. It's the viability of the business model. When people use Google to find a news item; a viral video showing a cat stuck in a tree; or a dictionary definition of a word, horizontal search is magnificently effective. The problem is that this kind of search is a loss leader. Real value lies in attracting users who search with serious and focused purchase intent. That's where the money is made.

Centralized Retail, Vertical Search

For example, there was a time when e-commerce as a category was highly fragmented. By sorting through a super-abundance of choice, search creates value. Now, Amazon (AMZN) and others have steadily consolidated online commerce. The more consolidated online retail becomes, the less useful Google is to retail. On its site, Amazon provides powerful forms of verticalized search: a simple retail query delivers a focused and relevant array of product results, enhanced by user reviews, third-party content, and e-commerce functions. There's a minimum of spam because Amazon provides a largely curated retail environment. In other words, why use Google when you can go straight to Amazon for a complete solution—both search and e-commerce?

Other search engines tailored to perform specialized search and transactions are building momentum. In corporate recruitment, there's Monster (MWW). Shoe shoppers have Zappos (AMZN) and Shoebuy. Music and movie fans have Apple's (AAPL) iTunes, while Netflix (NFLX) dominates movie rentals.

As online users grow more sophisticated, impatient, and demanding, horizontal search may prove steadily less compelling than vertical search—at least for the kinds of search advertisers will bid against and the kinds of queries that result in sales. If that's the case, Google must find ways to verticalize big search categories fast—or bring commercial potential offerings such as Android and YouTube to scale in a big hurry.

Jeffrey F. Rayport is founder and chairman of Marketspace LLC, a digital strategy and customer experience practice, and an operating partner at private equity firm Castanea Partners. Rayport was previously a faculty member at Harvard Business School.