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Monday, June 20, 2005

The Rise Of Specialized Search & Its Future

Adam Smith once said that specialization is a function of market size. Will Price writes, "the growing search market is seeing the emergence of specialized, vertically-oriented search algorithms and companies". Searching for good answers wrt the types of search companies starting today and how an investor might want to participate in Adam Smith's prophesy of specialization. The common abstraction across the believers of specialised search is that while generalized, web-searching is useful, certain classes of queries demand a move from page-link analysis to algorithms more germane to the query at hand. Categories of specialized search include:
• Mobile search (optimized for handset form-factors, location-based services, and carriers): Medio Systems
• Product search (optimized for product reviews and comparison shopping): Fatlens and Become
• Rich media search (optimized for video and audio): Blinkx, GoFish, and Meevee
• Travel: Kayak
Fatlens is an example of a company optimized to solve a problem (help find tickets to events), rather than generic information about a category/topic .The major search giants are investing heavily in search and extensions to web search. The business models of various search companies are coalescing around a few key variables:
• Advertising (Ex. Google Adsense as a partner, direct sales to advertisers)
• Lead generation or referrals (revenue per click, revenue per customer acquisition, etc)
A breakdown of revenue per search helps to understand, the revenue model of search engines:.

At a high level, Revenue Per Search = Coverage x Click-through rate x Price Per Click
• Coverage (#searches that show ads/total # searches)
• Click-through rate (total # clicks on ads/# searches that show ads)
• Price per Click (total amount received from advertisers/total # of clicks)
or total amount received from advertisers/total # searches
The specialized search vendors' business models presume that specialization will lead to higher value to consumers (greater relevancy) and hence more qualified leads to advertisers.WRT verticalization, a few thoughts:
1. Future revenue frevenue per search or "RPS")
2. RPS f(domain specific problem resolution)
3. Domain specific problem resolution f(verticalization and specialization)
4. Verticalization f(investment in domain specific search algorithms)
5. However, venture returns are a f(scale and market size)
6. Focus limits scale
7. Therefore, future scale must be f(indirect sales and extensible product platform)

The vertical search space will only see scale and success to the extent that major content or web properties see sufficient value in specialized search that they syndicate results from specialist search engines and play the role of aggregator of traffic and integrator of best of breed search function. The key bet for a vertical search vendor today is to overcome their not-invented-here bias and grant that specialized vendors produce better results than they are capable of producing through incremental hiring of specialists and tweaks to their search engines. Microsoft, Yahoo , Google may then morph from technology innovation companies (the best search innovators) to integrators of best of breed function and ad networks that drive queries across underlying and optimally suited third-party search engines.

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Sadagopan's Weblog on Emerging Technologies, Trends,Thoughts, Ideas & Cyberworld
"All views expressed are my personal views are not related in any way to my employer"