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Why Little Search Engines Can't

Taken together, the two company reports suggest that impressive revenue growth isn't enough in an environment in which competition is making profit growth increasingly tougher. In other words, the young market for search has become every bit as competitive as a more mature sector such as PCs.

Why? Because the death match between Google and Yahoo! is sucking all of the air out. In their burning desire to outdo each other, they are pushing into areas that had been the quiet domain of a niche player like ValueClick.

Of course, Google and Yahoo! will still have competition from larger search engines:

  • Ask Jeeves (ASKJ), which is soon to be bought by InterActiveCorp (IACI);
  •'s (AMZN - Get Report) A9;
  • Time Warner's (TWX - Get Report) AOL;
  • and
  • Microsoft's (MSFT - Get Report) MSN.
  • But with AOL focusing on broadband, and Amazon and IAC both focusing on e-commerce, none of those companies will give search the obsessive priority needed to keep their engines on top. On Wednesday, IAC boss Barry Diller said he likes what he has in Ask Jeeves and doesn't plan any more search deals.

    As for Microsoft, much depends on how successful it is in incorporating a sleek, compelling search product into its upcoming Longhorn operating system. Until then, MSN will probably remain a player by virtue of the default redirect to its site that happens whenever someone mistypes a word in an Internet Explorer browser.

    There's always a danger in extrapolating trends from events that span only a quarter or two, but a picture is emerging of the future of Internet search that's hard for many to shake off: Google and Yahoo! become the two big ad companies on the Internet, as search ads and branded ads continue to blur. Companies such as IAC and Amazon will find search a strong lever with which they'll boost their core business.

    As for the smaller, pure-play search companies, 2005 might become the year of put up or give up.

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