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Online Search _ the Battle for Clicks

VIEWS: 24 PAGES: 26

									              SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP





Google:
Online Search & the Battle for Clicks




May 1, 2005




                                                                 Prepared by:

                                                                    Priya Iyer
                                                              Brian Courtney
                                                             Sloan Fellows ’05



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                                SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




TABLE OF CONTENTS

1     INTRODUCTION..............................................................................................................................................1

2     SEARCH ENGINE INDUSTRY EVOLUTION .............................................................................................1

    2.1       INDEXING – FINDING CONTENT ...................................................................................................................2

    2.2       QUALITY OF RESULTS .................................................................................................................................2

    2.3       MARKET TRENDS ........................................................................................................................................4

3     STRUCTURE OF THE INDUSTRY ...............................................................................................................5

    3.1       PORTER’S FIVE FORCES ANALYSIS ..............................................................................................................5

    3.2       SYSTEM MODEL ..........................................................................................................................................6

4     VALUE CAPTURE IN THE ONLINE SEARCH INDUSTRY.....................................................................9

    4.1       VALUE CREATION VS. VALUE CAPTURE .....................................................................................................9

    4.2       CRITICAL FACTORS OF VALUE CAPTURE ..................................................................................................11

    4.3       VALUE CAPTURE ACROSS FIRMS - UNIQUENESS VS. COMPLEMENTARY ASSETS .......................................11

5     GOOGLE’S COMPETITIVE POSITION ....................................................................................................13

    5.1       VALUE CHAIN ...........................................................................................................................................13

    5.2       CREATING VALUE .....................................................................................................................................14

    5.3       CAPTURING VALUE ...................................................................................................................................14

    5.4       DELIVERING VALUE ..................................................................................................................................15

    5.5       COMPETITIVE RESPONSE ...........................................................................................................................15

    5.6       CREATION & CONTROL OF PROPRIETARY INDUSTRY STANDARDS ............................................................16

6     GOOGLE’S FUTURE STRATEGY ..............................................................................................................18

    6.1       GROW CURRENT CONSUMER MARKETS ....................................................................................................18

    6.2       PROVIDE UBIQUITY ACROSS DEVICES .......................................................................................................19

    6.3       EXPAND GLOBALLY ..................................................................................................................................19

    6.4       PENETRATE ENTERPRISE MARKETS ..........................................................................................................19

    6.5       BUILD NETWORKS & PARTNERSHIPS ........................................................................................................20

    6.6       CONCLUSION .............................................................................................................................................20

7     APPENDIX .......................................................................................................................................................21

    7.1       HISTORY OF SEARCH ENGINES AND DIRECTORIES ....................................................................................21

    7.2       VALUE CAPTURE STRATEGY OF FOLLOWERS ............................................................................................23





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                         SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP





1 Introduction
           Since the inception of the internet the user community has longed for complete and efficient
access to the vast array of content on the web. This gave rise to an industry for search engines with
players including Lycos, Yahoo!, Infoseek, AltaVista, Inktomi, Ask Jeeves, Google, and Northern Light.
Competition revolved around relevance of search results and total indexed content. To find and index
more sites, bots and spiders were created to tirelessly search the web. Search engines quickly learned that
the vast majority of searches were for retail products. Google leveraged this to become the dominant
channel for online advertisements. With billions of dollars at stake, search rank and ad placement became
critical and hence highly profitable. Google has evolved from being a best-of-breed search engine to a
destination site for a vast array of activities including eCommerce, email, blogging, maps, and much
more. When Google went public in 2004 they were generating over a billion dollars a year in adverting
revenue.
           In the battle for platforms, Microsoft is the unequivocal winner having crushed giants like IBM,
Apple, Lotus, Netscape, etc. In the post-PC era, control of the platform matters only to the extent that it is
one of the means of controlling the on-ramps to the Internet. The emerging battle is about capturing eye­
balls and mouse-clicks; where business models are based on on-line advertising revenue, sale of goods,
subscriptions to content, and bundled broadband access1.
           This paper looks at how the search engine market evolved and how Google is on its way to
become the dominant player. We will take a look at how value is created and captured within this market
and what the system dynamics are for growth. In looking at the value chain, we will explore how
competitive dynamics will evolve in the “battle for clicks”. Will Google win because its search-engine
technology makes it the Internet portal of choice? Will Yahoo! manage to gain an advantage by being the
most aggressive in acquiring content, e-commerce, and advertising properties on the internet? Or, perhaps
it is impossible to beat Microsoft with its monopoly in the operating system platform. With this we will
explore the future for the search market and discuss key factors for success.


2 Search Engine Industry Evolution
           The Internet and the World Wide Web (WWW) were radical innovations that sparked new
channels and new forms of businesses. Though the Internet has been around since the 1960’s, Tim
Berners Lee created the WWW in 1990. The WWW consist of two main components, a web server for
publishing content, and web browsers for accessing content. Both internet browsers and web servers have


1
    Battle for Clicks, Fuld & Company, 2005

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                          SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




been freely available since 1991. The evolution of the WWW was truly astonishing. From 26 known web
sites in late 1992 to today where there are millions of web sites and billions of web pages. During this
period of rapid growth many new products have been invented to help make the web easier to navigate
and use; one of the most meaningful of these is the search engine.

2.1 Indexing – Finding Content
           In the early days of the Internet, users shared files using FTP servers. To help facilitate the ability
to find these files Archie was written by Alan Emtage of McGill University in Montreal in 1990. Archie
provided script based data gathering with query capabilities, creating the first true web search. Based on
the success of Archie, alternative utilities were created, the most popular of which was Gopher. To search
Gopher, Veronica and Jughead were written in 1993. These represent the first S-curve in search evolution.
           The problem with these tools was
that the user had to manually maintain the
directory of sites that could be searched.           Indexability


They were limited in their reach and
quickly became outdated. Around this
time, Matthew Gray of MIT wrote the
World Wide Web Wanderer, the web’s
                                                                                           Spiders
first robot. Bots were a disruption to the                           Hierarchy

existing     state   of   search     technology                                  Bot Based Search
                                                                                   WWW Worm
allowing      computers     to     automatically                    Archie

index and re-index sites. While they                                1990                            2000      2010
                                                      Figure 1: Disruptive innovation in index-ability for search
significantly increased the number of sites
that could be accessed through automation of the indexing, result relevancy became the dominant issue.
However, over a period of time more generalized ‘bots’ emerged which searched different collections of
data. Spiders were another significant incremental innovation to bots - they not only indexed the content,
they followed page links and references to find new sites. In 1993, three search engines emerged that
leveraged spiders: JumpStation, the World Wide Web Worm, and Repository-Based Software
Engineering (RBSE) spider. Bots and Spiders represent the second S-curve in the evolution of search
engines.

2.2 Quality of Results
           JumpStation and WWW Worm simply listed results in the order they were found on the web.
This algorithm, a FIFO implementation, was not scaleable and these sites soon disappeared. RBSE



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                         SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




however implemented a ranking system, and though not successful, was a significant contributor to
improving relevancy of search results.
         Focusing on result quality, many university projects have led to the launch of new search engine
companies. The Architect project at Stanford used statistical analysis of word relationships to improve
search. A group of six graduate students spun this technology off into a startup called Excite. In early
1994, David Filo and Jerry Yang2 a couple of PhD students at Stanford started creating a directory of their
favorite web sites. As the number grew, they added a search capability to their directory and Yahoo! was
born. Soon after, Brian Pinkerton of the University of Washington launched WebCrawler3 which utilized
the first bot that indexed the entire content of a web page. Also in 1994, Lycos was founded. Michael
Mauldin the CTO was credited with the first use of word proximity in search results relevance. Infoseek
was also founded in 1994. Though they did not initially further search technology they were adopted by
Netscape as their default search engine giving them major traction in the market.
         Additional           incremental
innovation followed with natural                 Quality of
                                            Search Results
language queries from AltaVista in
1995. Up until this point bots would                                                          Clusters
                                                                                          Meta-Search
simply      follow    links   from   one
                                                                            Page Rank
document to another making it very
                                                                           Natural
hard for new websites to gain                                            Language
visibility. AltaVista began to allow
                                                                 Word Proximity
customers to submit links rather than
just relying on bots. This, coupled                       Archie

with massive bandwidth, pushed                                1990                      2000                      2010

AltaVista to an industry leading                       Figure 2: S-Curve for Quality of Search Results
position.
         In 1996 Inktomi was founded by two students from Berkeley. Looksmart was also launched in
1996 which became the default search engine for MSN until 2004. This was followed by Ask Jeeves and



      1991         1993        1994         1995    1996       1997      1998     1999              2001   2004
     Archie        RBSE       Lycos        Excite Looksmart   Go To MSN Search Go Network          Teoma   Snap
                WWW Worm      Yahoo!     AltaVista HotBot Ask Jeeves Google    About.com
                JumpStation WebCrawler    Inktomi         Northern Light       AllTheWeb
                             Infoseek    Megellan                               FindWhat
                                         Dej
                                         DejaNews                                 Snap
                                         InfoSeek

    Figure 3: Timeline of Search Evolution




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                      SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




Northern Light in 1997. In 1998, Google was founded by Larry Page and Sergey Brin, graduate students
in Computer Science at Stanford University. Goolge, initially called BackRub,4 gave precedence in search
results to sites that were the most frequently referenced or that were referenced by important sites. By
returning more meaningful search results, Goolge quickly became the number one search engine for the
web. It also became the default search engine for Yahoo! and AOL. The Teoma5 search engine, founded
by research scientist from Rutgers University in 2001, used a similar technique with clusters to organize
web pages into Subject Specific Popularity. Almost immediately after formation, Teoma was acquired by
Ask Jeeves to drive its search.
        In 2004 Snap6 was launched by Bill Gross, the founder of Overture. Snap pushed search
technology further, by showing users how many others have searched for similar terms. Snap shows these
in search count order, giving the user ideas for different and related search terms. Search results are
displayed with statistics like number of user clicks (how many times this result was selected), the average
page views, and the cost to advertise for this result and the conversion rate if you do.


2.3 Market Trends
        Search is moving from a web-based model, accessed by a browser, to the desktop. Tool bars were
created for Internet Explorer by all the major search engines. Google has also released a toolbar for the
Windows task bar. Both Google and MSN have
                                                                                Searches    Percent Of
added Desktop Search that combines web based              Company7
                                                                               (Millions) All Searches
search with search on the local machine. In addition      Google                     1,923           47.1%
to searching recently visited sites, Desktop Search       Yahoo                            868       21.2%
                                                          MSN                              523       12.8%
also searches past emails, files on the local file
                                                          AOL                              269        6.6%
system, and IM messages.
                                                          Ask                              208        5.1%
        Today, Google is the leading search engine        EarthLink                        37         0.9%
by more than a 2-to-1 margin over its nearest             Others                           258        6.3%
competitor. Eighty percent of all online searches are     Total                      4,086        100.0%

now controlled by the three largest search companies: Google, Yahoo and MSN. With oligopoly power
these firms are not content with the status quo. Intense rivalry exists to increase market share forcing each
firm to innovate or become marginalized.



2
  http://soe.stanford.edu/AR95-96/jerry.html
3
  WebCrawler was purchased by Excite in 1997
4
  http://www.google.com/corporate/history.html
5
  http://sp.teoma.com/docs/teoma/about/developmentteamhistory.html
6
  http://www.snap.com/about/about.php
7
  http://searchenginewatch.com/reports/article.php/2156451

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                       SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




3 Structure of the Industry
        Born in the early 1990’s, the search industry has begun to mature. Market leadership is defined by
the site with the best search results and the highest user satisfaction. Behind the scenes the technology has
evolved beyond just algorithmic competition. Today it takes hundreds of thousands of computers,
working together in a clustered grid to index the billions of pages necessary to return adequate search
results. Google leads the way with over 8 billion indexed pages serviced by an infrastructure of over
250,000 computers.

3.1 Porter’s Five Forces Analysis
        The search industry is a fast growth market with high spillover effects. The high growth,
especially in the B2B sector, helps firms continuously innovate and grow rapidly. However, the high
spillover allows followers to get into the market and gain market share. In addition, the capital cost for
entry is also low and infrastructure can be scaled as the user base grows. This makes operational costs
largely variable, increasing rivalry. On the other hand, it can be argued that revenue generation is mostly
through online advertising and a large user base is required to attract advertisers. The fixed cost for
generating any advertising revenue requires scaling of infrastructure and building a large loyal user base,
which can be expensive. This has led to significant market consolidation creating an oligopoly in the
industry with a few large players.
                                                                              This trend is expected to
                      Threat of New Entrants                         continue when Microsoft releases
                           is Moderate
                                                                     Longhorn,     the    next   version   of
                                                                     Windows.      In    Longhorn,   desktop
  Supplier Power
  Supplier              Intensity of Rivalry
                        Intensity Rivalry           Buyer Power is   search will be available from every
     Is Low                      High
                              is High                 Moderate       window, potentially eliminating the
                                                                     need to go to a web site to search for
                     Availability of Substitutes                     content. In addition, context and
                                is Low
                                                                     location information are expected to
                                                                     be available for more accurate and
Figure 4: Five-forces Analysis of Search Industry
                                                                     localized search.
         Traditionally search engines have differentiated themselves on comprehensiveness of the search
index, the currency of the index, the relevance of the search results, and usability factors such as
simplicity, advanced search features, etc. As the industry has matured the ability to differentiate through
features and functionality has become increasingly difficult. The switching costs are very low for search
engine users. The development of proprietary APIs, by some players, to allow integration with other


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                        SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




applications is an attempt at increasing switching costs for users. With no exit costs, market
consolidation, and high technology spillovers, competition in the industry is fierce.
          While entry barriers into online search are low, consideration must be given to the entry barriers
to compete for online advertising. The advertising industry is a “two-sided” market (you need an existing
audience to attract advertisers) while the search industry is a regular market (you attract customers just
based on your solution). Barriers to entry for any multi-sided market are higher in general. In fact the
numbers are very compelling for online advertising – only the top 10 players generate any meaningful
revenue in online advertising. However, switching costs are low which makes the threat of new entrants
moderate.
          The threat of substitutes for search is low in the online world. Possible substitutes exist in the
offline space to access print and other forms of offline media. Search is a “pull” technology in which the
user makes a conscious effort to locate particular content. Other “push” technologies that bring desired
content can reduce the user’s active search but even push techniques will most likely use search
technology behind the scenes.
          Suppliers for search engines are primarily the content providers. Content is plentiful on the web
and (mostly) freely available for search engines to index, hence limiting supplier power.
          Buyers can be divided into two categories: consumers and advertisers. Switching costs for both
consumers and advertisers are low which gives them moderate power. Both buyer types are rapidly
becoming more educated. Search spend is a small fraction of costs. Little threat of backward integration
exits.

3.2 System Model
         Another way to understand the industry structure is to look at the dynamic model, see Error!
Reference source not found.. Here there are a number of reinforcing loops that drive search engine
success. These include innovation, word of mouth, economies of scale and scope, attractiveness to
advertisers, and standardization.
         Innovation begins with investment in R&D. Search engines must innovate to drive user satisfaction
through new features and functionality and improved quality of results. Factors that lead to better Quality
of Results include the comprehensiveness of the search index, the currency of the index, and the relevance
of the search results. Additional factors driving User Satisfaction include ease of use, advanced search
features, suggestions for other searches, spell checking, and the availability of a tool bar. By increasing
User Satisfaction search firms retain customer and grow adoption through increased word of mouth.
         Word of Mouth is another reinforcing loop that drives customer adoption. An initial core base of
users is required to trigger adoption through word of mouth. Once this is established, the more customers



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                           SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




that use a search engine                                           Innovation

and   have       a     positive
experience, the more new
                                                          R
users become aware of it                                                  Quality of Results
                                                   Innovation                                         User Satisfaction
and           adopt            it.
Additionally, marketing                                                                                       Word of Mouth

and advertising of the                                                                                            R

search engine can assist                                                                                                Search
                                                                           Affiliates              adoption           Engine Users
in improving awareness
and further reinforce the                                                      Applications with
                                                   Web API
                                                                                   Search                             R
word of mouth loop.                                       R
                                                                                                                Attractiveness
       Advertisers          are                         Standards
                                            R&D Spend
                                                                     Ad Relavence
attracted to web sites that                                                                                           Advertisers

have a large user base.
                                                                                                                Economies of
The more users using a                                  Ad Costs                                        R       Scale & Scope
search engine, the more                                                                                      Number of
                                                                              Revenue                       Views/Clicks
revenue       can      generate                                                                                                  Marketing Spend

through       higher     click-
through rates and banner
                                                              Figure 5: Reinforcing loops for search engines.
ads that pay per thousand
views. In addition to these economies of scale, there are also economies of scope. Some search engines
include web portals and web applications as a way to draw in more adoption. Features like mail, Instant
Messaging, news services, classifieds and the like help make a site ‘sticky’, keeping users on the site
longer. This opens the door to more search advertisements and to alternative forms of advertisements like
rich media. In addition, with better quality search results, ads can be better targeted at the user. With 70%
of all searches focused on consumer goods, it is
critical to be able to place the right ad on the
right page.
      Search         engines         also   generate     more
adoption through affiliate partnerships - by
enabling third party sites to use their search
engine. APIs can provide programmatic access
to the search engine, generating more clicks.
Open but proprietary standards for search APIs


                                                                                Figure 6: Advertising and economic growth
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                      SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




can further drive adoption and hence the ability to sell more advertising.
        There is also a direct correlation between advertising spend and GDP, Personal Consumption
Expenditures and corporate profits. Research done by the Bureau of Economic Analysis at the University
of McCann has tracked this since 1971. This trend suggests larger market risk to publishers like Google
that generate all of the revenue from advertising spend compared to more diversified sites, like Yahoo!
and AOL that have other sources of revenue.
        Innovation in the search engine space has led to vast improvements in targeting technology and in
measurement technology. This in turn has improved the effectiveness of online advertisers. The more
effective online advertising becomes, the more advertisers will spend as a percentage of their overall
advertising budget. In addition, the more targeted the ad placement and the better the measurement
metrics the more price tolerant advertisers become.
                                                          Market consolidation in search engines and
                                                  portals has created a premium market for advertising.
                                                  Advertisers are willing to pay a premium for the best ad
                                                  location on the pages with the most visibility. This
                                                  creates relative scarcity for the premium locations. The
                                                  top four publishers (Google, AOL, Yahoo! and MSN)
                                                  represent 50% of all ad spends online.
    Figure 7: Ad spend skews to oligopolies               In addition, broadband penetration into the home
market has made rich media a reality. With advertisers able to create TV quality advertisements online,
the market for search engines to deliver rich and interactive ads has created more interest by advertisers.
These three combined factors: relative scarcity, ad efficiency and rich media, have driven up the pricing
for online advertisers. The increase in pricing has led to more revenue for search engines which has
increased R&D spend on innovation. The incremental innovations improve the drivers for price increases,
creating a reinforcing loop.
                                                                                                Competitors
                                                                            Technology
        The main balancing loop in the search engine                                            Technology

market is competition. The technology gap between any
                                                              Firm R&D Spend                                  Competitors R&D
                                                                                     Relative Search              Spend
two firms results in decreased search performance.                                    Results Gap

Decreased performance means less adoption which
                                                                                                         Competitor
decreases revenue and hence R&D investment. With less               Firm Revenue                          Revenue

                                                                                         Adoption
investment a firm is less likely to innovate causing the
results gap to open further. With high spillovers, IP
protection is of marginal value. Competitors quickly copy
                                                                               Figure 8: Balancing loops
each other, avoiding direct IP confrontation. The key to



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                         SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




minimizing this effect is constant technology innovation.


4 	 Value Capture in the Online Search Industry
          Online advertising began in 1994 when HotWired (now wired.com) launched its site with ads
from AT&T, Sprint, MCI, and Volvo. This sparked the interest of Roy and Jay Schwedelson, who started
WebConnect with the idea to sell banner ad placement. Soon after, WebConnect went live with an online
advertising media kit. Once they rolled out accurate measurement tools allowing customers to track click-
through rates and provided banner rotation8 web
advertising was born.

4.1 	 Value Creation vs. Value                                                                        •Google
                                                                  High
      Capture                                                                                         •Yahoo!

          Initially the Search industry was all about
                                                               Value                  •MSN Search
value creation with little to none in value capture.
                                                            Captured                         •Ask Jeeves
Early search engines were created as free utilities.
                                                                                             •Alta Vista
Yahoo! was one of the first companies to monetize                                            •Inktomi
                                                                      •WWW Wanderer          •Excite
on-line     search   through    advertising.   Yahoo!             Low •Gopher
                                                                                             •Infoseek
allowed advertisers to place banner ads on the                        •Veronica              •Lycos
                                                                      •Archie
search results page for a fee. Search engines were                         Low                     High
able to show different ads based on the surfing                                     Value Created
                                                        Figure 9: Value Created vs. Value Captured by Search Engine
habits of the individual user. For example, if the
user profile shows that that user frequently visits automobile related web sites, that user may indeed see
an automobile ad on the page.          As the search industry matured, several new strategies for value
appropriation emerged. These include ad dollars in flat-fee formats such as those used in traditional
media; e.g. print ads like Yellow Pages or newspapers, and analog media, such as TV or radio. Today's
online advertising allows both flat-fee approaches for static ad placement as well as interactive online
methods that are based on transactional charges. Most of the attention and success has been focused on
the new transactional advertising models, including:
1.	 Display Advertising: Advertiser pays an online company for space to display a static or hyperlinked
      banner or logo on one or more of the online company’s pages.
2.	 Sponsorship: Advertisers sponsor targeted Web sites or email areas (e.g., entire web site, site area, an
      event, parts or all of an email message). Sponsorship usually contains banner elements.



8
    Banner ad rotation allows banner ads to rotate between multiple sites for a single ad purchase.

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                         SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




3.	 E-mail:   Banner ads, links or advertiser sponsorships that appear in e-mail newsletters, e-mail
    marketing campaigns and other commercial e-mail communications. Includes all types of electronic
    mail (e.g., basic text or HTML-enabled).
4.	 Search: Fees advertisers pay online companies to list and/or link their company site domain name to a
    specific search word or phrase (includes paid search revenues). Search categories include:
        • Paid listings: Text links appear at the top or side of search results for specific keywords. The
        more a marketer pays, the higher the position it gets. Marketers only pay when a user clicks on
        the text link.
                                                             • Contextual search: Text links appear in an
                                                             article based on the context of the content,
                                                             instead of a user-submitted keyword. Payment
                                                             only occurs when the link is clicked.
                                                             • Paid inclusion: Guarantees that a marketer’s
                                                             URL is indexed by a search engine. The listing
                                                             is   determined     by    the   engine's   search
                                                             algorithms.
                                                             • Site optimization: Modifies a site to make it
                                                             easier for search engines to automatically
      Figure 10: Advertising Revenue by Category             index the site and hopefully result in better
        placement in results.
5.	 Referrals: Fees advertisers pay to online companies that refer qualified leads or purchase inquiries
    (e.g., automobile dealerships which pay a fee in exchange for receiving a qualified purchase inquiry
    online, fees paid when users register, or apply for credit card, contest or other service).
6.	 Classifieds and auctions: Fees advertisers pay online companies to list specific products or services
    (e.g., online job boards and employment listings, real estate listings, automotive listings, auction-
    based listings, yellow pages).
7.	 Rich media: Advertisements that integrate some component of streaming video and/or audio and
    interactivity, in addition to flash or java script ads, and can allow users to view and interact with
    products or services (e.g., a multimedia product description, a “virtual test-drive”). “Interstitials” are
    included within the rich media category and represent full-or partial-page text and image server-push
    advertisements which appear in the transition between two pages of content. Forms of interstitials can
    include splash screens, pop-up windows and superstitials.




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                         SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




8.	 Slotting fees: Fees charged to advertisers by online companies to secure premium positioning of an
      advertisement on their site, category exclusivity or similar preference positioning (similar to slotting
      allowances charged by retailers).


4.2 Critical Factors of Value Capture
          Some of the core components of a search engine's monetization approach have comprised a
combination of uniqueness and complementary assets including the following:
1.	 Relevancy before monetization: For some portals, search is their core business. For others, like
      Yahoo! or AOL, it is part of a much broader business. To achieve maximum benefit out of any
      monetization strategy, a search engine company must keep the priority on relevancy (and diversity) of
      results; an updated, user-friendly interface; ever-increasing inventory; and improving the search tool's
      understanding of the audience's query type.
2.	 Provide unique search technologies: A search engine has to consider what differentiates its search
      product from others, and whether or not it clearly provides a perceived value to both search users and
      advertisers. For example, AskJeeves' differentiates itself by allowing broader type queries.
                                                                                                     9
3.	 Encourage commercial search: Commercial search accounts for 30% of all search queries . These
      queries are just as complex as their non-commercial counterparts in terms of range of needs and
      required quantity of relevant results. For a significant portion of queries, users are expressing needs
      that businesses satisfy best.
4.	 Present a diversity of vendors, partners, products, and sales channels: All search engine companies
      have created paid inclusion or paid placement programs to obtain broader reach for more targeted
      advertising audiences.
5.	 Keep operational expenses cost effective: Infrastructure to carry for so much search traffic can be
      very costly if not carefully supervised. Search engine companies must regular monitor peak usage
      times on their Web servers; improve on their software efficiency with Web servers; and limit the size
      and complexity of database sizes and search nodes.


4.3 Value Capture across Firms - Uniqueness vs. Complementary Assets
          The 3 major search vendors, Google, Yahoo and MSN, have different strategies for competing
online using different combination of uniqueness and complementary assets. Understanding the
differences is important in understating the overall market.
          Yahoo! was one of the early search engine companies, developed in 1994. Despite all the
changes in the search space over the years, Yahoo! has remained one of the most popular search


9
    Source: Gary Cromwell, Search Engine Watch, December 16th, 2003.

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                      SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




destinations on the web. Yahoo! stood out from its early competitors by using humans to catalog the web,
thus building uniqueness into its directory system. Crawler-based results from its partners only kicked in
if there were no human-powered matches. That actually made search results by Yahoo! more relevant
than competitors, making uniqueness its primary strategy for value capture for many years. However, as
the industry matured, crawler-based results became both comprehensive and highly relevant. Yahoo!
caught up in October 2002, when it                                    Complementary Assets
dropped its human-powered results in                               Available            Tightly Held
preference to Google's results. The                         The Inventor’s Dream         The Big Win

Yahoo! Directory still exists and is
leveraged by the company, but today's             Easy to
                                                 Maintain
Yahoo! is a far different from what it
was in its early years.     Over time,
                                           Uniqueness
Yahoo!     had     developed     several                        Few returns to           Complementary
                                                                Innovation?              Assets play
complementary assets including one of                                               •Yahoo! (expanding portal,
                                                               •Alta Vista
                                                                                    brand)
the most popular customizable portals                          •Lycos
                                                                                    •Google (index, portal, brand)
                                                               •Ask Jeeves
                                                  Hard to                           •AOL (unique content,
with 25 international sites in 13                              •Infoseek
                                                                                    broadband, AIM,mapquest)
                                                 Maintain      •Inktomi
                                                                                    •MSN Search (Windows,
languages, a widely recognized online                                               Office, IE)

brand, personalized Web pages, e-mail,
                                                   Figure 11: Uniqueness vs. Complementary Assets
chat rooms, and message boards. While
most of its sales come from advertising, the company also charges fees for additional mailbox space,
personal ads, and other services. Yahoo! also provides Internet access through a deal with SBC
Communications.
         MSN was a late entrant into the search industry and has adopted a pure complementary assets
strategy from the very beginning. Until recently, it outsourced its search technology, providing a mixture
of results from LookSmart and Inktomi. MSN announced the first version of web search using its own
technology in 2005. Strong existing complementary assets, such as the MSN portal and the search feature
within its Internet Explorer browser, have made MSN Search one of the most popular search engines on
the web. Over time, it hopes to further integrate with other “tightly held” complementary assets such as
its Windows operating system and Office suite, creating value through “ease-of-use” and significantly
increasing switching-costs – both ultimately facilitating value capture.
         Google's ability to analyze links from across the web helped it produce a new generation of
highly relevant, crawler-based results. Its initial success was due to its unique high speed, highly scalable
indexing capability combined with a unique relevancy based ranking of search results and a simple, easy-
to-use interface. While maintaining uniqueness remains hard, Google has continued to continuously



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                      SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




invest in its search technology, thus building a reputation (i.e. complementary asset) for being ahead of
the curve in technological innovation. Simultaneously, Google has built a portfolio of complementary
assets including text translation and image searching services; tools such as a Google dictionary, a Google
phone book, and Web log publishing tool Blogger; Google Local to help users find maps, locally relevant
Web sites, and listings from businesses in their area; a social networking site called Orkut, and free
search-based e-mail service called Gmail. In 2004 Google announced plans to purchase online photo
sharing company Picasa, as well as Keyhole, a supplier of online satellite maps that allow users to zoom
down to street level to specific locations. Later that year the company unveiled a digital project giving
Web searchers access to millions of books from the libraries of leading universities. By combining
continuous innovation (uniqueness) with an extensive portfolio of “tightly held” complementary assets,
Google is today, the most popular search engine in use and one of the most successful internet based
companies when it comes to value capture.
    Several other search engines that initially gained some momentum through uniqueness have since
disappeared due to their inability to build “tightly held” complementary assets during the “take-off” stage
of the industry. Some of the notable ones include Infoseek, Lycos, Inktomi, Ask Jeeves and Alta Vista.
See section 7.2 for a detailed discussion of uniqueness vs. complementary assets strategy for value
capture among these players.
        As the search engine market took-off and matured, given the lack of opportunities for iron-clad IP
protection, the players that focused on building “tightly held” complementary assets have succeeded in
capturing value and have continued to survive.


5 Google’s Competitive Position
        So how does Google stack up? Google’s competitive position and its ability to gain sustainable
competitive advantage can best be described using Porter’s Value Chain to see where Google captures
value and Porter’s Four-Corners Analysis to allow us to predict Goggle’s future strategy.


5.1 Value Chain
        An understanding of the value chain of the online search and advertising industry and the
positions occupied by the various players helps us better analyze Google’s ability to create, capture, and

                                                  Content
                                                 Provider

                        Ad             Ad           Web        ISP/Infra-
                                                               ISP/Infra-   Browser/
        Advertiser                                                                       Consumer
                      Agency         Server      Property     structure      OS

                          Figure 12: Value Chain of Online Advertising Industry

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                       SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




deliver value in this industry.
        At one end of the value chain we have the consumer using a browser and operating system (OS)
to access the internet. Microsoft, arguably, has an established monopoly in the browser and OS space
with its Internet Explorer and the Windows operating system. Any request or data has to pass through an
Internet Service Provider (ISP) or infrastructure provider. Several players including AOL and Microsoft
play in this space. The web property includes the search engine or the portal which is the primary
mechanism for delivering value. Google, Yahoo!, Microsoft, AOL Time Warner, etc. all have such web
properties. Various content providers supply content to this web property. Time Warner is an example of
a dominant player in the content creation space. At the other end of the value chain are advertisers
interested in targeting products and services to the appropriate consumers. Ad agencies help identify the
appropriate consumer profile and create ads with the appropriate message.            The important task of
matching up the right ads to the right consumers is done by a sophisticated piece of technology - the Ad
Server. Companies such as Doubleclick, Yahoo!, and Google are well positioned in this space.

5.2     Creating Value
      So how does Google create value? Google is known for its sophisticated search algorithms,
relevancy based ranking of results, an ever increasing index of web pages (Google’s search index is the
largest with over 8 billion pages) and for setting the standard in simplicity, usability, and search features.
Through its technology, Google provides complete and efficient access to the vast array of content on the
web. Google also creates value for retailers by understanding the consumer and their current search
context to create a unique channel for marketing relevant products and services. Finally, their superior
technology attracts a large number of users. The larger the number of users the better Google’s relevancy
ranking which in turn creates additional value to consumers and attracts more users. A large user base
attracts a large partner network which provides a variety of relevant products that creates additional
consumer value. This establishes a powerful, reinforcing web-based consumer marketplace.

5.3 Capturing Value
    Google has succeeded not only in creating phenomenal value but also finding innovative means of
appropriating value. Three primary vehicles are used today to capture value: context sensitive ads, ad
placement services, and search appliances.
    Google has the ability to places context sensitive ads, selected according to the words used in the
search, on search results. Advertisers bid in highly complex auctions for the right to place ads on results
pages for searches that use specific terms like used cars, SUVs, etc.




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                       SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




    Over half of Google’s revenue and profits come from its external advertising network. Google
manages advertising for a wide network of external websites for which it provides ad placement services
through its AdWord and AdSense products.
    Google also sells a search appliance, a Linux server running its indexing and search software, to
organizations wishing to provide search services for their internal Web servers. This business, however, is
currently quite small contributing less than 2% of total revenue to the firm.

5.4 Delivering Value
    Google has developed a variety of channels for delivering value and continues to expand these. The
key delivery methods include:
    •   Localization of Google Search Engine to over 100 languages and cultures.
    •   Focused e-Commerce with Froogle
    •   Google News with continuously updated content from 4,500 sources and real time stock quotes
    •   Desktop search for private content
    •   Vertical searches e.g. mapquest, keyhole, job-search
    •   Collaboration tools E.g. Google Groups, Gmail, Blogger, IM, Catalogs, Directories, etc.
    •   Platform play with APIs for web, mobile, many others devices


5.5 Competitive Response
        Google maintains some uniqueness through IP patents on its algorithms and has built entry
barriers through its massive infrastructure - a farm of 250,000 servers currently indexing 8 billion pages
of content. Google has combined its search engine with sophisticated text-matching and auction systems
to target, price, sell, and evaluate its ads, both those placed on its own site and those on its affiliates. It is
also building platform capabilities with proprietary APIs, leading the evolving search standards, and
supporting an open architecture across multiple hardware and operating system platforms.




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                         SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




                        Drivers                                            Current Strategy
             •   Power of technology                                Create value by:
             •   Ubiquitous, just- in-time                          •   Attracting the most eyeballs in
                 information that is                                    the web-based consumer
                 universally accessible.                                market
             •   Gatekeeper for public and                          •   Create a unique channel for
                 private content through all                            products and services by
                 devices.                                               understand the current
             •   Create a great work                                    context of the consumer
                 environment. Hire great                            Capture value through:
                 talent. Do no evil!                                •   Context sensitive ads
                                                                    •   Ad Placement Services




                                    f            Future Strategy            f



                     Assumptions                                                Capabilities
             •   Content is plentiful; finding                      •   Superior Brand: #1 online
                 what is relevant to you at                             brand!
                 this time is what is crucial                       •   Superior technology for
             •   Contextual advertising is a                            search and indexing
                 powerful source for revenue                        •   Sophisticated ad placement
                 generation                                             and management capability
             •   Controlling on-line ad                             •   Largest audience base
                 placement universally is                               provides greatest relevance of
                 one mechanism for value                                content and allows for
                 appropriation                                          strongest affiliate network;
             •   Emerging and merging                                   reinforcing loops.
                 markets offer the greatest                         •   $56 billion market cap -
                 opportunity and greatest                               facilitates acquisition
                 threats for future growth.                         •   Growing platform capabilities
             •   Standards matter                                       through open/private APIs.
             •   Microsoft is the evil empire!

                     Figure 13: Four Corners Analysis of Google Competitive Positioning

        While Google’s achievement to date is no small feat, its very success has increased competitive
rivalry and attracted the attention and focus of powerful players like Microsoft and Yahoo!. Microsoft,
specifically, with its extraordinary resources and ability to persist, has a history of coming from behind
and tipping the market in its favor; Word over WordPerfect, Excel over Lotus 123, and Internet Explorer
over Netscape are just a few examples. With very low switching costs, there is little that prevents
consumers from switching to Microsoft search especially if it is seamlessly integrated with other
Microsoft products that they are currently using. A technology strategy based on a clear understanding of
the market dynamics is critical in order for Google to defy the odds and maintain its dominant position.


5.6 Creation & Control of Proprietary Industry Standards
    With the explosion of digital content, thanks to the web, its organization, search and retrieval for all
types of devices is envisioned to have far reaching impacts over the next decade. As the market extends
well beyond the web into enterprise applications and other consumer devices, a plethora of new search
products and services will emerge to serve these needs. In order to truly create value, interoperability

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                            SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




between these new products and services as well as their integration with other applications is essential.
Establishing search standards to facilitate this interoperability will be critical to value creation and
retention. However, standards create new competitive
forces in the industry. All customers want to be on the
winning standard to take advantage of interoperability.
                                                                  Value of                       Increasing
As the percentage of market share (or perceived market         standard to                          returns

share) for any one particular standard increases beyond a        customer

“tipping point” the value of that standard to the customer
increases exponentially.        The underlying logic of the
search engine, including the hierarchy of how it lists                              % market share
websites in its results page, is likely to converge into one    Figure 14: Future dynamics of the search market
standard. People searching on the Web will become used to how results are arranged based on their
searches, switching costs will increase, and increasingly customers will be locked in. At the same time,
designers will optimize their Web pages around the standardized search logic so that their pages are
prioritized in the results based on the keywords entered into the search. Finally, advertisers will pay more
to have ads placed with the leading search engine technology, which will further reinforce the move
toward standardization. Once a standard is set, it becomes very difficult to displace the incumbent - the
customer is locked in to a particular product. This creates a “winner take all” dynamic in the market.

                              Standards are:                   Google needs to take advantage of its market
                      Closed            Open
                                                        leadership to build and establish search standards
                                                        and gain market share quickly to tip it in its favor.
        Private                                         By increasing the number of ways users can search
                  •Yahoo!             •Google
                                      •Microsoft
                                                        and the different types of search, Google will
Ownership is:                                           increase its presence to support a bid for it
                                                        becoming the de-facto standard in search. Google
                                      •Lucy             must tread lightly though for Microsoft is the king
         Public
                                                        of winning competitive fights based on standards.
                                                        After Google’s attack on the desktop, with toolbars,
Figure 15: Access vs. Ownership of Search               taskbars    and   desktop     search,   Microsoft     has
announced its intent on ‘defining’ the standards in the search space. In an industry where strong network
externalities exist, a race to become the standard will quickly take place.

    Creating and establishing the dominant standard by itself does not guarantee a successful business.
Google also needs to be able to appropriate value from its market share. Figure 15 shows the dimensions
of access vs. ownership in search standards and the likely positions of the various players. Yahoo!

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                       SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




currently has proprietary, closed standards. While this has enabled significant value appropriation in the
past, it will be difficult to tip that market in its favor given the network effects of the future, as described.
Public domain search engines, like Lucy, will adopt an open standard with public ownership. While it
could be argued that public standards are perhaps the fastest way to cause the market to tip to a particular
standard, it is very difficult to appropriate value from public standards. In order to appropriate value in
this market, Google needs to establish open standards that are proprietary Google needs to use its #1
brand position and the current technology gap it has created ahead of its competitors to build proprietary
standards while retaining and increasing adoption.


6 	 Google’s Future Strategy
        So how can Google accomplish this? We recommend that following broad strategic thrusts for
Google going forward.


6.1 Grow Current Consumer Markets
    Google has become synonymous with search. Being the # 1 brand on the web, people often refer to
searching as ‘googling’. With this kind of brand awareness, Google needs to continue to grow its search
presence. Today Google has expanded basic and advanced search to include:

    •	 Topic specific searches – Searching for information specific to Apple, BSD Unix, Linux and
        Microsoft. Google also offers search for all US Government sites; hundreds of distinct
        Universities like MIT, Stanford, and Brown; and Google Scholar which searches through
        scholarly papers.

    •	 Local Search – Searching for consumer goods and services in the context of geography (place).

    •	 Desktop Search – Searches the local desktop for content as well as the web.

    •	 Catalog Search – Search through mail-order catalogs for goods and services.

    •	 Mobile Search – Search from wireless handheld devices.

Google must continue expanding search solutions. To that, Google has recently announced new search
solutions including:

    •	 Search History – Allows a user to review all past search done at Google and gives feedback and
        suggestions based on your past searches.

    •	 Ride Finder – Searches for Taxi cabs, limousines and shuttle buses using real time position of the
        vehicles.


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                       SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




    •	 Google Maps – Search for geographic locations along with driving direction and time estimates.
         In addition, Google offers two unique features over MapQuest and other rivals. First, after the
         user finds a location, they can see a satellite image of the location. Second, when searching for an
         address, Google points out what is at the address, by name when it can, and surrounding points of
         interests.

    •	 Google Suggest – As you type Google offers key words to help improve search key accuracy
         hence improving search results.

    •	 Personalized Search – Users enter profile information regarding interests in arts, business,
         computers, health, home, kids, music, recreation, regions, science, society and sports. Google
         then uses this information to help improve search results.


6.2 Provide Ubiquity across Devices
    Today data is stored and retrieved on many different devices. PDA’s and Blackberries are the norm
for business users. A proliferation of new computing devices can be envisioned in the future through
which digital content is searched and accessed. These present a great opportunity for growth. Google
should extend it search capabilities to search not only the desktop, but also the palmtop and every such
consumer device of the future. By adding integrated search support across all these devices, through
standardized API’s, Google can become the ubiquitous platform for information retrieval any time, any
where.

6.3 Expand Globally
    Currently Google derives 30% of its revenue from international sites. With support for over 100
dialects, Google is well on its way to having a global presence. However, consumer devices other than
the traditional desktop are creating significant expansion of global markets, like India and China. In order
to remain competitive and ensure that large international markets do not “tip” away from it, Google must
continue its expansion in these until all relevant markets are captured.   Additionally, Google can partner
with Linux players in these markets (e.g. China, where Linux is widely adopted) to become the “Intel
Inside” for non-Microsoft operating systems, thus building more complementary assets.

6.4 Penetrate Enterprise Markets
    Another area for expansion beyond the consumer market for Google is the private applications of
enterprises. In order to find its place in the enterprise application value chain Google needs to transform
itself into a platform. Figure 16 shows the value chain of the enterprise software application market and
the likely position of search engines if Google successfully penetrates this space.


                                                     19 

                      SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP





           Operating                        Search                         Business
                            Database                         Middleware                    Services
           System                          Engine                         Application

                            Figure 16: Value Chain of the Search Enterprise Market
    Note that the search engine can, both, seamlessly integrate with the operating system or search
dynamically generated pages from the database layer above. Such a platform enables significant value
creation and value capture for Google.          Today advertisers are attracted to Google because of ad
efficiency. Presenting an ad for a good that a user is searching for on the results page for that search
maximizes the efficiency for each individual ad. The next logical step would be to tie ads with inventory
control so that marketers can align promotions with the level of stock. If Google, for example, could
integrate search ad placement with backend ERP systems, advertisers could vary prices based on
inventory levels. When inventory is high, sale prices could be offered, then as inventory decreases, sale
price flatten out and finally as inventory goes to zero, the ads could stop being displayed. There are other
strategies for pricing but the point is that tying ad placement together with inventory would allow
advertisers to fine tune campaigns an hence create more value appropriation.

6.5 Build Networks & Partnerships
    Google needs to continue building partnerships, especially in the enterprise markets. Partnerships and
integration with database vendors like Oracle, ERP vendors like SAP, and operating systems like Linux
will enable it to continue adding value to its client base (seamless integration) while simultaneously
increasing switching-costs for its customers.

6.6 Conclusion
    Winning the search engine game is all about innovation and strategy. If the past is any indication of
the future, simply having the best product will not lead to a winning position. In a market dominated with
major players and where market disruption is only a new entrant away, Google can never rest. To win,
Google must continue to grow its customer base and API adoption and drive the market to standardizing
on its technology. In the first quarter of 2005, Google announced record revenues of $1.26 billion, up
93% year-to-year over 2004. This growth stems from stronger site traffic and increases in the size of the
Google Network. Google is clearly winning the battles - the question remaining is will they win the war?
Will they do what few others have ever done, beat Microsoft? As the future unfolds, we’ll have to google
it to find out…




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                             SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP





7 Appendix
7.1 History of Search Engines and Directories
           Below is a table showing a summary of the history of search engines and directories. This table is
updated as historical events occur within the search engine industry and as new information becomes
available about past search engine history.
Historical data last modified: 2005-03-2110
                2005 March                   .                           .                      .
2005
 R1         IAC/InterActiveCorp
                                             .                           .                      .
             acquires AskJeeves
                2005 March              2005 March                 2005 January           2005 January
2005
 R2          Yahoo! Celebrates       Overture Renamed           Gigablast Index Size      AOL Search
             10th Anniversary          Yahoo! SMS                 1,000,000,000+          Relaunches
              2004 November           2004 November               2004 August 19         2004 September
2004
 R1                                  Google Index Size             Google IPO           Amazon launches
             New MSN Search
                                      8,058,044,651              GOOG NASDAQ             A9.com Search
               2004 August               2004 June                   2004 June             2004 June
2004
 R2          Yahoo! launches         New MSN Search               AOL acquires          Yahoo! launches
            Local Search Engine     Technology Preview           Advertising.com        Yisou.com China
                 2004 June               2004 June                  2004 March             2004 March
2004
 R3         Ask Jeeves acquires       Google invests in         AltaVista switches        Google Gmail
             Tukaroo Search          Baidu Search China         to Yahoo! Search        free email service
                2004 March              2004 March                  2004 March             2004 March
2004
 R4           Yahoo! Toolbar         AlltheWeb switches         AskJeeves acquires     Yahoo! Site Match™
              with WebRank            to Yahoo! Search         Excite, iWon, My Way    powered by Overture
               2004 February           2004 February              2004 February           2004 January
2004
 R4         Yahoo! Web Search          Lycos Search             Lycos Communities          New MSN
            powered by Yahoo!          discontinued                discontinued           Search BETA
               2003 October            2003 October                  2003 July             2003 June
2003
 R1           Google acquires         Yahoo! acquires              Yahoo! to buy
                                                                                         Google AdSense
                 Sprinks                 Overture                    Overture
                2003 April               2003 April                  2003 April            2003 April
2003
 R2          FindWhat acquires        Google acquires            Overture acquires      Overture acquires
                 Espotting           Applied Semantics              AltaVista            Fast/AlltheWeb
                2003 March                   .                           .                      .
2003
 R3           Yahoo! acquires
                                             .                           .                      .
                 Inktomi
              2002 December              2002 July                  2002 March             2002 March
2002
 R1                                      Gigablast              LookSmart acquires          Gigablast
                  Froogle
                                           Beta                     WiseNut                 Pre-Beta
2002           2002 February                 .                           .                      .



10
     Source: http://www.seoconsultants.com/search-engines/history/

                                                          21
                       SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




R2         Google
                                      .                           .                   .
        AdWords Select
         2001 October          2001 September              2001 September       2001 August
2001
 R1      GoTo changes         AskJeeves acquires                                 LookSmart
                                                               WiseNut
        name to Overture           Teoma                                       integrates Zeal
           2001 May               2001 April                2001 February      2001 February
2001
 R2                                                                            Google acquires
            JoeAnt                 Teoma                      GoGuides
                                                                                Deja Archive
        2000 December           2000 October               2000 September      2000 September
2000
 R1                                                       LookSmart acquires
        Google Toolbar         Google AdWords                                     Espotting
                                                             Zeal Media
        2000 September            2000 June                   2000 June          2000 May
2000
 R2                                                       Yahoo! Web Search    Terra acquires
         Business.com             Vivísimo
                                                          powered by Google        Lycos
        1999 November          1999 September                1999 August         1999 July
1999
 R1                                                                            Disney acquires
          NBCi/Snap               FindWhat                    AlltheWeb
                                                                                  Infoseek
           1999 June            1999 February                1999 January           1999
1999
 R2      CMGI acquires                                    At Home acquires
                                 GO Network                                      About.com
           AltaVista                                           Excite
         1998 October          1998 September              1998 September        1998 June
1998
 R1      Lycos acquires
                                   Google                    MSN Search         ODP/DMOZ
         Wired/HotBot
           1998 May               1998 April                    1998                  .
1998
 R2    Yahoo! Web Search                                    GoTo acquires
                                  Direct Hit                                          .
       powered by Inktomi                                   WWW Worm
          1997 August             1997 July                   1997 April       1997 February
1997
 R1                                                                              The Mining
         Northern Light         FAST Search                   Ask Jeeves
                                                                                  Company
1997         1997                     .                           .                   .
 R2          GoTo                     .                           .                   .
1996     1996 October             1996 June                   1996 May           1996 April
 R1        LookSmart             Archive.org                   HotBot              Alexa
1996      1996 January              1996                        1996                  .
 R2        BackRub                 Mamma                       Dogpile                .
1995    1995 December           1995 October               1995 September       1995 August
 R1        AltaVista                Excite                     Inktomi            Magellan
1995      1995 August             1995 June                   1995 May         1995 February
 R2        DejaNews              MetaCrawler                 SavvySearch          Infoseek
        1994 December             1994 July                   1994 April         1994 April
1994
 R1        First W3C
                                    Lycos                      Yahoo!           WebCrawler
         meeting at MIT
1994      1994 January              1994                          .                   .
 R2         Galaxy                Open Text                       .                   .
1993    1993 December           1993 December              1993 December       1993 November



                                                   22 

                              SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




 R1                RBSE                 JumpStation           WWW Worm                  Aliweb
                1993 August              1993 June             1993 March             1993 March
1993
 R2               Mosaic                                                          First email message
                                      WWW Wanderer               Jughead
                Web Browser                                                       sent by Bill Clinton
1993            1993 February                .                       .                     .
 R3               Architext                  .                       .                     .
             1992 December               1992 July                   .                     .
1992
 R1                                       Lynx
                  Veronica                                           .                     .
                                       Web Browser
                 1991 May               1991 April              1991 April                 .
1991
 R1             WWW Server                                    WAIS publisher
                                          Gopher                                           .
                 Production                                  fed search engine
             1990 December                 1990                      .                     .
1990
 R1             WWW Server
                                          Archie                     .                     .
                 Prototype


7.2 Value Capture Strategy of Followers
      In this section, we discuss the uniqueness vs. complementary assets strategy for value capture among
some of the followers in the industry. Specifically, we explore Infoseek, Lycos, Inktomi, Ask Jeeves and
AltaVista.

•	 Infoseek (1995-2001) originally hoped to capture value through uniqueness – combining a manually
      maintained directory with a spidered index – and charge for searching. When that failed, the popular
      search engine shifted to depending like others on banner ads. Disney took a large stake in the
      company in 1998 and tried building complementary assets by going down the "portal" path that other
      leading search engines had followed. The site was also renamed "Go." Its failure to maintain
      uniqueness or build strong complementary assets caused Disney to stop Go's own internal search
      capabilities abruptly in early 2001. Today, Go remains operating, powered by Yahoo!
•	 Lycos (1994; reborn 1999) operated one of the web's earliest crawler-based search engines. Lycos
      stopped depending on that spider in 1999 and instead now outsources for its search results from Ask
      Jeeves.
•	 Inktomi (1996; acquired 2003) grew based on the uniqueness of its powerful search engine - a
      technology called "Concept Induction™" to automatically analyze and categorize millions of
      documents incorporating algorithms that model human conceptual understanding of information. Its
      failure to build complementary assets resulted in it being acquired by Yahoo! in 2003. Its search
      engine lives on as Yahoo! Search.
•	 Ask Jeeves (1998; reborn 2002; acquired 2005) originally hailed as the "natural language" search
      engine didn't really have the ability to understand language. Instead, Ask Jeeves had over 100 editors
      monitoring what people searched for, then hand-selecting sites that seemed to best answer the queries.

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                    SLOAN FELLOWS PROGRAM IN INNOVATION & GLOBAL LEADERSHIP




   Such an approach is good for the most popular queries but doesn't help when people want unusual
   information. Ask purchased Direct Hit in early 2000, to make it more comprehensive. The company
   failed to capitalize on that technology, and tried again by purchasing Teoma in 2001. In 2002, it
   shifted over to relying on Teoma for nearly all of its matches.        It was acquired in 2005 by
   InterActiveCorp (IAC), and still lives as Ask.com.
•	 AltaVista (1995 - 2003) was the Google of its day. AltaVista offered access to a huge index of web
   sites, when it launched in December 1995. The search engine quickly grew in popularity, driven by
   uniqueness. It was re-launched as a portal (an attempt at building complementary assets) in October
   1999, entering an already crowded field and taking its attention away from uniqueness - the quality of
   its search results. It paid the price as unsatisfied users flocked to newcomer Google. Throughout
   everything, AltaVista's crawler has kept going. It was acquired by Overture in 2003 which is now part
   of Yahoo!




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