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Can Desktop Search Find Profits?

By Ben Elgin If anyone doubted the Web search industry was fiercely competitive, the last 90 days must have been eye-opening. Since early fall, every major search company and Internet portal has plunged into the business of scouring customers' desktops. Google (GOOG) has done it. So has Microsoft's (MSFT) MSN. Yahoo! (YHOO) became the latest on Jan. 10 when it unveiled a beta version of Yahoo Desktop Search, which can scan everything from e-mail to text files to images stored on a computer's hard drive.

It's a critical new niche in the lucrative search market. While searching for information across the billions of documents on the Internet has become relatively easy, locating a Microsoft Word file on one's own hard drive can still prove thorny. Solving this problem for customers could build brand loyalty that will spill over into Internet search, where there are billions to be made through selling targeted advertisements linked to search results.

SUPER SEARCH. Beyond brand building, desktop search could offer a bridge to what some view as the next step in the activity's evolution. Analysts believe Web surfers are pining for a "universal search" solution that allows them to query anything from one spot, whether it be scouring spreadsheet files on their own hard drive, their archived e-mails hosted by an Internet portal, or billions of documents out on the Web.

Solving the desktop search headaches may be the first such step in that direction. "Universal search is the Holy Grail," says Chris Sherman, editor of SearchDay. "We're finally getting some movement in that direction."

Still, such an all-in-one service is months -- if not years -- away. The desktop search offerings unveiled in the last three months by Google, Microsoft, Ask Jeeves (ASKJ), and Yahoo are all still in test mode. Yahoo is working with software from X1 Technologies for its desktop search product. AOL, which is expected to release a similar product early this year, is partnering with Copernic Technologies for its software.

The desktop search services, which are free to consumers, work by scanning a user's hard drive and building a search index, which is stored on the local PC. So when a customer decides to search for a file, most of the work has already been done. This can trim the speed of a desktop search from minutes to a fraction of a second (see BW, 1/10/04, "Desktop Search: The Game Is Afoot").

SNOOP SERVICES. The money-making potential of desktop search is dubious in the short term. The various players haven't announced business blueprints, but it's likely that some will experiment with ways to cash in, such as placing relevant ads alongside search results.

Such a move, however, would be rife with controversy. Google sparked a firestorm last year when it announced that its free e-mail service, Gmail, would scan customers' messages and place relevant ads next to the text. An effort to scan the content of personal files would likely prompt an even testier reaction.

Nevertheless, desktop search offerings appear to be a strategic necessity in this increasingly competitive niche. And the winners will be the ones who find a way to make it pay. Elgin is a correspondent in BusinessWeek's San Mateo bureau

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