DECEMBER 7, 2000
NEWS
ANALYSIS
Will Google's Purity
Pay Off? |
As rivals branch out, the
Web's hippest search engine claims it can make money from a
few big clients -- without pay-for-placement or the clutter of
banner ads
|
It's probably
the only company in the world with a former Stanford University
neurosurgeon on the payroll, a man who would rather punch code than
wield a scalpel. In the reception area of its headquarters in
Mountain View, Calif., lava lamps change colors to match the site's
many hues. Two-year-old Google (www.google.com) is surely the
hippest search engine around. And it has the tech to back up its
bravura. This year alone, Google has amassed more than a dozen
awards from computer and business publications such as PC
Magazine and Upside.
Google, which performs 23
million searches each day, has a rabid following among computer
geeks, who rave about its amazingly accurate results and clean looks
-- uncluttered by banner ads. In short order, the company has
captured 25% of the search-engine market, says consultancy Gartner
Group. And it has some brawny backers in Silicon Valley
venture-capital notables Kleiner Perkins Caufield & Byers and
Sequoia Capital. That potent duo has collectively bet $25 million on
the still-private company.
LIMITED
BUSINESS. But how will Google ever make money? There's
the rub. The company's adamant refusal to use banner or other
graphical ads eliminates what is the most lucrative income stream
for rival search engines. Although Google does have other revenue
sources, such as licensing and text-based advertisements, the
privately held company's business remains limited compared with its
competitors'.
Northern Light (www.northernlight.com), which
matches Google in many search-engine competitions, sells archived
articles from hundreds of publications and builds intranet portals
for companies. AltaVista (www.altavista.com), another competitor,
has integrated its search engine into a broader portal strategy.
"There isn't really good evidence, frankly, that companies focused
purely on search, as Google has been, can support themselves with
that model," says Northern Light Chief Technology Officer Marc
Krellenstein.
The brainchild of Stanford computer-science
grad students Larry Page and Sergey Brin, the company's CEO and
president, respectively, Google pioneered a now-popular technique
that counts the number of links pointing to a site as a gauge of its
importance. According to the theory, every link to a site is a vote
of confidence that the content matter there is useful.
SPARTAN AND FAST. The beauty of the Google
search engine is that it keeps frivolous links, so common on other
search engines, to a minimum. And the company claims Google's
massive database of 1.2 billion Web pages is the world's largest.
The result: Not only can Google judge the importance of sites but it
also has the capacity to drill down into minute topic areas for
hard-to-find information. Brin boasts that the competition can't
match such performance. And Google's spartan look -- a simple search
bar on a white page with minimal text and graphical pollution --
enables faster downloads, according to search-engine expert Greg
Notess.
So, where's the business model? To this end, Google
has started to diversify its revenue stream. It boasts 100 co-brand
partners, such as The Washington Post and Netscape, that have
selected Google as an embedded Internet search engine on their site.
Most of these co-brand partners pay the company from $8 to $10 per
thousand queries and from $600 to $2,000 per month in licensing
fees. Google also has a program offering free search capabilities to
smaller Web sites, with the caveat that it might begin inserting
advertisements on search-query pages at a future date -- but no
banner ads.
The company has also instituted a pay-for-play
scheme called Adwords that allows an advertiser to purchase a word
and place a small text ad on the page whenever that word is
mentioned in a query. But Google is making the most money from
customized intrasite search functions, built for a dozen select
clients, such as router giant Cisco Systems and Linux provider Red
Hat.
YAHOO! POWER. An even
bigger stamp of approval came in June, 2000, when portal Yahoo!
replaced Inktomi's (www.inktomi.com) search engine with Google. "If
they can hold on to the Yahoo business, it may prove as powerful for
them as it proved for Inktomi initially," says Gartner senior
analyst Whit Andrews.
Even though Google is seeing queries
grow at a rate of 20% a month, Brin and Page admit that the company
makes less cash per search query than AltaVista or Northern Light.
Supporting a research staff of 100, including 30 PhDs, might have
something to do with this. But Google has spent less money
developing an ad-sales staff than other search engines.
Still, the company says its burn rate is decreasing and that
it should be profitable sometime after the third quarter of next
year. According to Google spokesman David Krane, the company also
saves money by using Linux, the free operating system, on its
network of 6,000 desktop PCs. While Page admits Google doesn't yet
make a penny per search in revenue, he's upbeat. "We do more than 20
million searches a day, so it works out to $80 million dollars a
year," he claims.
"MORE
DIVERSIFIED." Competitors question the accuracy of such
high revenue numbers. Furthermore, Google's pure-search strategy has
thus far garnered fewer unique visitors than more developed portal
competitors. AltaVista, for example, ranked eighth among portals in
September, with 20 million visitors to its site, according to Media
Metrix, which measures Web traffic. Google ranked 48th, with 5.7
million unique visitors. Says AltaVista President Greg Memo: "Our
model is much more diversified." As evidence, he points to
AltaVista's recent launching of sites for 10 different European
countries and the sale of the AltaVista engine as a piece of
enterprise software to more than a thousand businesses.
Now
comes Google's big test. Can it keep forswearing pay-for-placement
deals that allow commercial sites to buy high rankings in searches?
Yahoo has begun cutting these deals in droves, matching lesser
competitor LookSmart. But Brin says he isn't worried: "When somebody
searches for 'cancer,' should you put up the site that paid you or
the site that has better information?" Brin is betting better
information will win the day.
But when the whip comes down
and shareholders start to demand a return on their investment,
Google may have to swallow its scruples -- particularly if it hopes
to keep banner ads off its pages.
By Kalpana Mohan in San Jose,
Calif.
Edited by Alex
Salkever
|
Copyright 2000,
by The McGraw-Hill Companies Inc. All rights reserved.
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