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Search, the Next Generation

By Olga Kharif In September, 2003, Michael Yang flew to his native Korea for what he thought would be a brief dinner with Yeogirl Yun, co-founder of shopping search site The two had lost touch since selling their business to CNet (CNET) for $700 million in 2000. Yang had married and spent time with his son. Yun took up law and was studying for his bar exam.

A lot, of course, had changed in the search market over those two years. The window of opportunity through which Yang and Yun crawled with had closed, as heavyweights Google (GOOG), Yahoo (YHOO), and Microsoft's (MSFT) MSN became the dominant players.

But during their dinner, the two former collaborators had an epiphany. They decided someone could still improve on the technology of Google, Yahoo, MSN -- and, yes, The window of opportunity, they decided, was wide open after all.

TRICKLE TO FLOOD. They aren't the only ones coming to that conclusion. Increasing numbers of Web surfers are going to alternative search engines, which specialize in finding certain kinds of information or offering additional capabilities to well-known search sites.

Though exact data is hard to come by, entrepreneurs say venture capitalists are sinking new money into search startups. Tech pundits believe that if one area has lots of room to grow, it's search, given that advertising sales in the field alone are expected to increase more than 40% this year. "I do believe there's every opportunity for another company to become another Google," says Ken Cassar, an analyst with researcher Nielsen/Net Ratings in New York.

Hoping to become just that, a trickle of new search sites is turning into a flood. On Mar. 21, AOL (TWX) launched a test version of its new travel search site,, which allows customers to search for and share online files, opened its virtual doors on Mar. 7. Yang and Yun plan to introduce their new shopping search site,, in April. Indeed, even Dallas Mavericks' owner Mark Cuban invested in search engine last year.

MUTUAL BENEFIT. And there are plenty of others., an Australian company still in testing mode, can help students and researchers find articles from authoritative sources. Another new search engine,, looks for blogs similar to the ones you're already reading. "We're seeing fractionalization of search," says Chris Churchill, CEO of Fathom Online, which helps companies advertise through search engines.

Many of these search startups discover that they can make ends meet by simply serving up ads from ad networks like Google's AdSense and Yahoo. Here's how this works: Google's marketers find advertisers wanting to display their ads on the Web. Then, Google recruits sites wanting a cut of the fee for displaying the ads it obtained. The arrangement is so profitable that Nextaris, which posts Google's ads, hopes to break even in three months, says CEO Tom Holt -- that prediction comes less than four months after Nextaris' launch.

On Mar. 16, MSN added to the revenue possibilities after announcing that it, too, will soon have an ad network. That means sites like Nextaris will have more sources from which to serve ads on their sites.

The number of search sites is also skyrocketing, as the technological barrier for search has been lowered. In December, Manning Publications published Lucene in Action, a guide to creating search engines with open-source software called Lucene, which is already used on singer Bob Dylan's Web site. Armed with this book, the average programmer can create a search engine in less than a day, says co-author Erik Hatcher.

SHORT-TERM GAINS. Ironically, in the short term, the flood of competitors is good news for Google and Yahoo, which get revenues from serving ads to other sites -- including rival search engines. These new sites will simply increase the ad networks' reach.

Longer term, though, it could be a different story. Just as the large TV networks have lost viewers and advertisers to hundreds of cable competitors, the big search sites could face daunting competition from all the little guys with innovative business models. Search engine, for example, can charge advertisers only for ads leading to actual purchases, rather than the traditional method of paying for ad "click-throughs."

Certainly, the tremendous growth in the search-engine market will soften the blow. What's more, industry heavyweights aren't standing still, introducing new features and capabilities. And whatever the giants don't have, they could acquire. "Acquisitions are always part of our strategy going forward," says Tim Cadogan, vice-president for search at Yahoo, which has acquired online advertising powerhouse Overture and search engine Inktomi over the last three years.

IPOs? Lucrative M&A activity? It's an ideal recipe for startups. Kharif is a reporter for BusinessWeek Online in Portland, Ore.

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