Post Google IPO: Now, the Really Hard Part

Having completed its initial public offering in a media circus, industry watchers suggest Google must grow bigger, smarter and stronger, or face being overtaken by its powerful rivals.

Analysts interviewed by internetnews.com say the sovereign of search must compete not only on its stock price, but on its core technology and its marketing.

GOOG traded at $100 at close of trading on the NASDAQ on Thursday, its opening day. The price is substantially lower than its initial price range of $108 to $135, but substantially higher than its IPO price of $85.

For other search providers and search engine marketing agencies, the IPO brought welcome attention to the industry.

“It’s a big day for the industry,” said Justin Osmer, a product manager for Microsoft’s MSN search.

“It was a very successful IPO that shows the strength of the search engine market,” said Jim Lanzone, senior vice president of search properties for Ask Jeeves. “We’re happy to see the spotlight shone on search, the space deserves that kid of attention.”

But some industry watchers think the stock price is still too high, given the rapid evolution of this industry.

“I see too much competition from Microsoft and Yahoo to really think they’ll be able to sustain the same level, or even the market share they have,” said Chris Winfield, president of search engine marketing firm 10E20. His firm manages more than $1 million worth of marketing campaigns on Google.

Winfield expects continual erosion of Google’s market share, especially as Microsoft MSN rolls out its next-generation search.

Google was vague about what it would do with the billions it would raise from the public markets. “We currently have no specific plans for the use of the net proceeds of this offering,” the prospectus said. “We anticipate that we will use the net proceeds received by us from this offering for general corporate purposes, including working capital. In addition, we may use a portion of the proceeds of this offering for acquisitions of complementary businesses, technologies or other assets.”

Perhaps that’s because Google didn’t need the money. With 105.6 million last year on revenue of $961 million, rising quarterly revenue and $455 million in cash, the search leader went public not to raise cash, but because its size and amount of outstanding stock triggered an SEC rule that would have forced it to open its books anyway.

Technology acquisitions to extend Google features and services are surely on its mind. Earlier this month, it acquired Picasa, a company that provides software for digital photo management.

Google is in a features and technology race with the other search providers. They’ll compete on basic search technology, access to specialized content and brand, said Ask Jeeves’ Lanzone.

Continued on page 2 with: “Search is King”

Search is King

What’s driving the intense competition, of course, is search engine marketing (SEM), the process of placing ads in search results pages that are targeted to the query. Advertisers typically bid on how much they’ll pay to have their ads appear when key words are searched for, and only lay when the searcher clicks on their ad, a pricing strategy known as pay-per-click.

According to Jupiter Research, paid search is already and will continue to be the fastest-growing sector of online advertising, increasing from $2.6 billion in 2004 and growing to revenues of $5.5 billion in 2009. (Jupiter Research shares a corporate parent with Internetnews.com.)

Marketers see SEM as effective and cost-effective. In fact, the demand is outstripping the inventory. Search providers must fight to bring users to their sites, using a combination of technology to deliver satisfactory results, new features and good old-fashioned branding.

Google has run special promotions for advertises and produced a direct mail campaign. It also is testing Gmail, a Web-based mail system such as Yahoo and MSN offer. MSN answered Google News with Newsbot, a news search service with a recommendation engine that suggests articles on related topics.

Earlier this year, Yahoo jettisoned Google’s search technology and replaced it with its own, in combination with SEM technology and services acquired with Overture Services.

Google had great press and a superior product, according to Winfield of
10E20. But now, he asks, “Is there a discernable difference between Yahoo
and Google?”

Kevin Lee, CEO of SEM firm Did-It, agreed with Winfield’s assessment.

“The huge advantage Google had was, it was leaps and bounds ahead of the competition,” Lee said. “To a great extent, Yahoo’s caught up. It’s a neck-and-neck race now between Yahoo and Google.”

Lanzone said that Ask Jeeves is working on extending search from the Web
to the desktop, an area considered the next frontier for search.

“In this information age, search is the way people navigate it,” Lanzone said. “Search is evolving to happen on the desktop and on mobile devices.”

While Ask Jeeves has an advertising partnership with Google in which Google sells some of its ad inventory, Ask Jeeves has its own proprietary search technology that’s based on social networking theories. It identifies “hubs of authority” and gives them more weight in the ranking of results. This strategy could help reduce index spam, the process of faking links to a URL in order to fool the algorithm into giving a page a higher ranking than it deserves.

Then, there’s the MSN wildcard, Lee said. “They would still need to leapfrog dramatically ahead. That’s going to be difficult. Not impossible, but difficult.” Yahoo executives were not immediately available for comment.

With the enormous technical and financial resources of Microsoft, MSN is a formidable competitor. Microsoft will integrate search with the desktop in Longhorn, its next-generation operating system. Meanwhile, MSN is building in-house algorithmic search technology, with plans to launch it by the end of the year.

“At MSN, we feel search is still in its infancy, and there’s a long way to go in terms of innovation and features,” Osmer said.

MSN engineers are planning to integrate the ability to search through local files on the desktop via Lookout — a recent acquisition. Already available in beta, Lookout searches e-mail and other Windows files for search terms. Osmer said the goal is to extend the search technology to the “invisible Web” of non-HTML documents, as well as to mobile and handheld devices.

” It’s our intention to offer up a whole new level of search,” he said.

The race to build bigger and better search is good news for information-overloaded consumers. But it will make for interesting times for Google and its opponents. Industry watchers are hoping Google’s engineers can keep their minds off their options and on their work.

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