Sunday, June 15, 2008

Are Google, Yahoo the next dinosaurs?
By Leslie Cauley, USA TODAY Tue Jun 10, 7:32 AM ET
Charles Darwin famously declared that "natural selection" was Mother Nature's way of improving a species so it could advance.


Internet search engines are locked in their own Darwinian drama. Depending how it turns out, desktop brands such as Google (GOOG) and Yahoo (YHOO) could become sturdier versions of themselves, ensuring survival as more people bolt for the mobile Web. Or they could become the Dodo birds of the Net - outclassed by a new generation of rivals.

Born in the early days of the Internet, Google, Yahoo and smaller competitors help billions of people navigate the Web each day. Now, they're scrambling to adapt their desktop services for the hard realities of the wireless world.

Today, about 1 billion people have PCs; about 3 billion have mobile phones, growing to 4 billion by 2010. A major driver is the growing popularity of Web-enabled devices such as the Apple (AAPL) iPhone.

(The real challenge of the current business model) One of the biggest challenges: dealing with the matchbox-size screens of cell phones and other devices, which aren't hospitable to the ads that are the lifeblood of traditional search engines. Billions in potential ad revenue are at stake as social networks, location-based services and wireless search deliver instant answers to wireless users on the go.

"As hot as they are right now, Google and the others could become dinosaurs if they simply try to use their old business models,"
(the classic dynamic for so many former industry leaders as their markets change) says Roger Entner, a senior vice president at IAG Research in Boston. But if they can adapt, he says, they could extend their dominance.
Microsoft (MSFT) has been pushing its Windows Mobile operating system for years. Today, it's available from 50 handset makers and more than 160 mobile operators worldwide.

Even so, it's been tough slogging, says Phil Holden, director of online services for Microsoft.
"What we've learned is that loyalty on the PC doesn't necessarily transfer to the mobile phone," he says. The wireless world, he adds, "has a lot of different dynamics."

One thing everybody agrees on: The mobile Web is an advertising gold mine just waiting to happen.

The fledgling mobile search industry generated about $700 million in ad revenue in 2007, JupiterResearch estimates. By 2012, revenue is expected to hit $2.2 billion and keep rising. Jupiter analyst Julie Ask says mobile search could eventually eclipse the traditional Web, which currently generates about $20 billion in ad revenue.

No matter how things shake out, consumers will benefit, predicts Ford Cavallari of Monitor Group, a consulting firm in Boston that specializes in technology. Search rankings based on factors that have little relation to the quality of a product or service, such as the number of daily "hits" a website gets, or a paid advertisement placement, are about to become history, he says.

Soon, word-of-mouth referrals from social-networking sites (think Facebook and MySpace(NWS)) and customized data made possible by instant messaging and other instant communications will rule, he says.

The upshot: In the near future, a restaurant "might actually have to be high quality and offer value" to patrons to draw customers from the Web, Cavallari says.

"In the next 12 to 18 months we're going to see a growing segment of (consumers) using wireless services as the way to get on the Internet 95% of the time," says Imad Mouline, chief technology officer of Gomez, which helps Facebook, Expedia (EXPE) and other companies improve the quality of their Web presence. Currently, about 16% of cellphone owners use handheld devices to access the mobile Web, Jupiter says.

Entner, for one, thinks the mobile Web could produce a mighty rival to traditional desktop engines, one whose core strengths are rooted in the unique world of wireless. Such a newcomer, he says, "could wind up doing to Google what Google did to Yahoo" and other PC-based search engines. Namely, it could trump them in the marketplace.
To be sure, Google, a Web monster with a market value of more than $200 billion, would be tough to topple. But it's not impossible.

If it's not careful, Entner says, Google could wind up following in AOL's famous footsteps. AOL in the '90s was an online juggernaut with a gold-plated brand name and more than 30 million subscribers. Today, it's a free service with a dwindling base of about 8.7 million customers.

"Google is trying to replicate a 20-inch experience on a 2-inch screen, and that's leaving them, inevitably, about 90% short," he says.

Too much information

Making the leap to wireless is a lot trickier than it might appear.
For starters, there are those tiny screens. Internet search was designed for PC screens, which can easily accommodate loads of advertisements. The latter is critical, because search engines depend on ads for their financial survival.

In the PC environment, ads are abundant and constant. Paid advertisements are typically stripped along the right side of the PC screen, with premium spots at the top reserved for the biggest spenders.

Try that on a wireless device, and you'd quickly run out of room for anything else.

Similarly, the basic act of rendering searches also gets tough on a tiny screen.

In the online world, a single search request can result in a dozen or more pages of results. If results aren't specific enough, you simply resubmit a query. After a few tries, you usually find what you're looking for.

That entire process is a total non-starter in the wireless environment, says Sameer Mithal, a senior principal with IBB Consulting in Princeton, N.J.
Mobile consumers are typically on the run, he says, with little time or patience for typing on pint-size keypads. As for pages of search results - forget about it. There isn't nearly enough screen space for that, Mithal says.

And advertisements? Approach with care; otherwise, you may offend customers and lose them for good, Gomez's Mouline warns. "Not doing it thoughtfully can get you to a point where customers will abandon your entire brand."

Traditional search engines, to some extent, are victims of their own success. Basic search algorithms are designed to do a massive Web "crawl" each time a search request is received. In the mobile environment, however, such thoroughness can be the digital equivalent of using a shotgun to take out a housefly - way too much firepower for the task at hand.

"The desktop search engines are what they are," Mithal shrugs. Even if you're only asking for a very specific thing - a sports score, for example - "they still have to search overall Web content."
Search engines, angling to win over mobile customers early, are racing to solve these problems. Their solutions, in some cases, are wildly different.

Yahoo's solution is a nod to the social-networking craze. Its OneConnect service, which makes its debut this summer, integrates messaging and social-networking updates from Facebook, MySpace and the like in one spot on the phone. OneConnect ties directly to a user's address book, letting people share information, social-networking updates and messages on the fly.

"On the phone, time is limited, so you really need to provide highly relevant and useful information," says Marc Davis, chief scientist for Connected Life, the Yahoo unit responsible for non-PC services, including mobile.

That philosophy is the force behind "OneSearch with Voice," which integrates voice-recognition technology with traditional search. The service allows users to simply speak their request into a cellphone - "Where's the best craps table in Las Vegas?" - in plain English. Responses are sent back in text form, as in any other search.

The voice-recognition technology is "so good, it's shocking," Davis says, handling accents, continuous speech and verbal affectations with ease.

While all searches, mobile and otherwise, use the same search algorithm, there is one big difference: Yahoo says mobile search responses are provided strictly on the basis of relevancy, with no preferential treatment for ad-supported products and services. "This is about providing answers, not links," Davis says.

Google says it sees no reason to change what it does just because it's moving into the wireless arena. "We think that what we do is highly transferable to the mobile device," says Matt Waddell, chief of mobile and developer products for Google. (!!!!!!!!!!!!)
The tiny screen isn't a problem, he says. "It's still as easy as typing."

That said, Google is making a few accommodations. Instead of giving wireless users pages of search results, for example, it only offers "snippets" - Google-speak for the first few search results that appear at the top of the page. It's also limiting the number of ads to one or two per search.

Waddell says the advertising opportunities in wireless are huge. One example: Say you're in San Francisco, and you suddenly get an urge for pasta. Provided your device has Global Positioning System location technology, Waddell says, Google can offer up a list of Italian restaurants within a five-minute walk.

"Advertisers would probably be willing to pay more money for such an ad, because it would be much more targeted," he says.

While such an approach might seem to subjugate the interests of consumers to advertisers, Waddell says that's not the case at all. "We never think of advertising first," he says, adding, "We won't touch an ad with a 10-foot pole unless we think it delivers a better search experience."

Google is taking other steps to make sure it doesn't get iced out of wireless opportunities. The Web giant is pushing development of an open wireless operating system - dubbed Android - that would make it easier for consumers to use Google's mobile services. Android-loaded devices are expected to hit the market later this year.

While the big incumbents duke it out, start-ups are nipping at their heels. That includes Medio, a Seattle-based company that hopes to turn itself into the Google of mobile.
Like Google, Medio's service is geared around a simple "search box" format. That's where the similarity ends, CEO Brian Lent says. Medio "was designed as a pure-play company for the mobile industry."

Unlike Google, he says, Medio's patented algorithm hones in on "mobile discovery," producing far more relevant answers for users. Example: A search for a Madonna ring tone might also result in links to a CNN article about the singer, as well as V Cast, the mobile music channel offered by Verizon.

"That's a lot different than crawling the Web" as Google does every time a query is received, Lent says.

Another difference: Medio is a "white label" company that works directly with big carriers such as Verizon and T-Mobile. Carriers, in turn, rebrand Medio's service under their own names.
Lent has a very personal view of the Web's biggest search engine. A data-mining expert, Lent was part of the academic team that worked on Google when it was still a lab project at Stanford. He left to take a job at Amazon a month before Google was incorporated.

Lent, who remains friends with Google co-founder Sergey Brin, says he's hugely admiring of Google's pioneering efforts. The Web giant, now a Medio partner, almost single-handedly raised the online search category to a new level, he says, introducing billions of people to the wonders of the Web.

But now it's a new world, he says - a wireless world. "Everyone wants to bash the incumbent, but I'd rather take a playbook out of judo and leverage the strengths that they have" and build on top of that, Lent says.

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