The business of providing Internet search technology has come full circle and is hot again after waxing cold during the new-media wars of the 1990s. If anything, the reversal of fortune shows how wobbly Web business models still are, highlighting how nobody has truly figured out which businesses belong together online.
Consider the recent action in the online search industry:
Yahoo announced two months ago that it would pay $235 million to buy Inktomi, which provides Web search results to portals such as Yahoo and Microsoft's MSN. That was a switcheroo for Yahoo, which started life as a human-edited Web directory and played down the value of automated search as it evolved into an online media company.
Last week Overture Services, which sells ads targeted to search results, announced that it, too, was buying Web search technology. Overture agreed to pay $140 million for AltaVista, a pioneering search engine that has never been profitable. Before analysts could digest that news, Overture revealed this week that it would spend $70 million to buy another Web search service, AllTheWeb.com, from Norway's Fast Search & Transfer.
When completed, the two deals will expand Overture's mission from selling ads to indexing the entire World Wide Web, making it a head-to-head competitor against Google, the Web's most popular search engine. The deals also could pit Overture against Yahoo, which currently displays Overture's ads atop Google's basic Web search results.
Portals and search engines have long had such tangled relationships as each tried to figure out how to make money from helping people find information online. Many portals discounted the search function and focused more on acquiring content during the late 1990s, but smart navigation technology turned out to be a crucial building block for most of the Web's leading survivors, pioneers such as eBay, Amazon.com and Expedia.com.
Now Yahoo's purchase of Inktomi shows it wants to own the Web search software it uses so it won't have to share as much revenue with third parties and so it can find more ways to integrate search opportunities across its network. Although Yahoo chief executive Terry Semel declined to confirm speculation at a meeting with analysts this month that the Internet company will eventually replace Overture's ads and Google's search results with Inktomi's, analysts think both moves are inevitable. After all, Inktomi's software does what Google and Overture do, using algorithmic formulas to find Web pages relevant to search queries and also to match paid ads to specific search terms.
Not to be left out of the makeover party, Google surprised industry analysts this month, too. It bought Pyra Labs, a six-person company that sells tools for publishing Web journals known as "blogs." Pundits puzzled over why Google would want to acquire "content" since that could put it on a collision course with Yahoo and other portals to which it provides search results. Google says it will explain its purchase soon, though it seems logical that Google would create a new way to search blogs and place ads alongside the search results.
Sheesh. There haven't been so many confusing takeovers since the Web portals went on pig-out binges in the 1990s. At that time, portals snapped up every start-up in sight in a manic attempt to amass content and visitors, while traditional media companies embarked on an equally manic hunt for portals to marry. Most of those takeovers came to naught. There's little to show for Disney's purchase of Infoseek's search engine, or NBC's ill-fated portal venture called Snap, or the ballyhooed marriage between the Excite search service and AtHome.
Search gradually lost its luster during the dot-com boom when analysts thought it would be easier to build an advertising business around content than search results, because content keeps people on a site while search results send them elsewhere.
But then Internet banner advertising tanked and Google and Overture showed how search could be valuable in its own right. Google proved that relevant search results could draw enormous traffic -- it now serves more than 150 billion queries a day and "Google" has become so ingrained in the culture that people use it as a verb, as in "I googled him and found out he drives a Volvo and hates cats."
At the same time, Overture found a way to make money off search traffic through ads akin to enhanced listings in Yellow Pages, a model that Google quickly copied. Overture displays ads related to queries at the top of results pages and charges advertisers only when users click on them. Sponsored listings are turning into big business; Overture projects it will collect about $1 billion from paid listings this year -- money it shares with portals.
Another kind of search revenue also is growing fast. Called "paid inclusion," it allows advertisers to pay to make sure their Web pages are included in the automated programs that crawl the Web's links and index its pages. The Web has grown so big that search engines have difficulty scanning all of it. So most of them -- Google is the main exception -- let companies pay to ensure they are included in what is scanned. Sponsored results, by contrast, do more than ensure a listing, they guarantee greater visibility through higher placement in the results.
Overture and Yahoo are at a disadvantage in the newer paid inclusion business, since neither owns a Web search index for which it could charge advertisers to be included. Their recent acquisitions will change that, however.
"We have been offering only half of the search solution," Overture chief executive Ted Meisel said in an interview. Overture missed some business opportunities because it didn't offer algorithmic search, he lamented.
Meisel said Overture bought two algorithmic search engines because each had different strengths. "We want to make sure we have enough of the right resources so that we are in the game today with a strong product, and also in the game tomorrow with the next-generation search product."
Overture also said this week that it is developing two new services -- localized search and contextually relevant search -- that will allow the company to target ads relevant to geographic areas and niche Web content.
Extending search into new areas also was a big theme at Yahoo's analyst day this month. Vice President Jeff Weiner said Yahoo plans to extend its search box into more areas of its network and develop personalized searching tools. He noted that 71 percent of Yahoo users run searches today, creating a big advertising opportunity if it can teach more folks to search.
Ask Jeeves President Steve Berkowitz, whose company bought a rival Web search provider called Teoma in 2001, said today's buying spree is partly the result of how much the technology has finally improved.
"I don't think people understood the power of search in the early days," Berkowitz said. "Partly that was because the technology was just bad. But if you look at most successful businesses on the Internet, search is their foundation. They use an algorithm to connect people with something they need online. Search didn't really meet those needs in the early days, but now it's getting better. Search, I think, is the foundation of the Internet."
Leslie Walker's e-mail address is email@example.com. She will host a Web chat about emerging technologies today at 1 p.m. with Chris Shipley, producer of the annual Demo high-technology forum. To participate go to www.technews.com.