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Search is a commodity (again)

November 07, 2005

Until Google came along, internet search suffered from two big problems as a business. First, it was hard to make money off the end users (as a result, search engines had become commodity services sold to and rebranded by portals) and, second, switching costs were low (there was little to stop users from hopping from engine to engine). Google solved the first problem, cracking the nut on search-based advertising, but it has never really solved the second problem. Users flocked to Google because its PageRank algorithm provided clearly superior results to those of other engines, but most Google users remain ripe for the picking - there's little to stop them from switching to another engine if they're so inclined. (Habit can be strong, but it's not that hard to break, at least on the internet.)

The low switching costs could turn into a big problem for Google for a simple reason: basic internet search is once again a commodity. Do a search on Google or MSN or Yahoo, and you'll find little differentiation in the relevance of the results. Yes, if you're a super-sophisticated searcher, you may be able to point to variations that you think are important, but casual searchers won't notice any difference - and the vast, vast majority of searchers are casual searchers. There may be another great, proprietary breakthrough in internet search in the future, but for the moment Google has lost its lead. As for expanding search to more specialized areas, like 18th century manuscripts or academic working papers on quantum physics, that's not going to make much of a difference to Joe and Jane Searcher, neither of whom gives a toss about musty books or egghead treatises.

Of course, Google knows this, as do its competitors. They're all looking for ways to increase switching costs, or, as we used to say, make search sticky. One way is to make it easier for a user to default to your engine - by embedding a toolbar on his desktop, say, or putting a search box into his browser window. That can be pretty powerful. I've continued to use Google for most of my searches simply because Apple stuck a search box in the corner of my Safari browser window. But it's also a tenuous advantage. If in the next Safari update that box gets switched to Yahoo search, I doubt I would go to the trouble of hacking it back to Google. I'd start using Yahoo. Unless you control the desktop or the browser, in other words, you're stickiness is in somebody else's hands. Somebody like Microsoft, who may just happen to be your biggest competitor. Or somebody like Apple, who sooner or later is going to sell its real estate to the highest bidder, squeezing your profit margin, or incorporate internet search into its own Spotlight engine. Or somebody like Dell, or HP, or even IBM.

A better approach is to do what Yahoo's doing with My Search 2.0 - using personalization to embed proprietary data into search services. With My Search, you can tag pages that interest you and then restrict future searches to the tagged set. (You can also join up with friends to tag interesting pages, and then restrict future searches to the "community pages.") Because you can't take your tagging data with you when you go to Google or MSN, you suddenly face a real switching cost. Of course, it remains to be seen how attractive personalized search services will be to Joe and Jane Searcher (who may not give a toss about tagging or communal browsing, either). And you can bet that other search providers will quickly mimic any such service - so while it will increase switching costs, it won't necessarily enhance competitive differentiation.

There's also the old-fashioned portal strategy: provide an array of useful services to get users to spend a lot of time at your site, and they'll tend to default to your search service. That's still a good strategy - even if in the long run portals become relatively less important in people's everyday use of the net - which is why Google, despite its promises to the contrary, now offers a portal. But in this model, search inevitably becomes relatively unimportant again - differentiation and switching costs lie elsewhere in the business.

Maybe, then, what we've seen in the last few years is an aberration. Maybe the basic internet search engine is fated to be a cheap commodity running behind the scenes. And maybe those who control the search function - and most of the related ad revenues - won't be the guys running the engine but those who own the desktop or the portal (or whatever replaces the desktop or the portal). Maybe search doesn't really matter.

Comments

Search is going to change the way we access our offline or online applications. The traditional Windows 95 Start Button can't reach these so efficiently anymore. Lately I've been using Google Desktop search to load programs. I type "word" and hit enter... Up comes Word 2003. Applications in the future might not load if they were refered by un-certified search engines. That would create a large switching cost. Maybe this could happen? Certain programs only run in Windows so why can't certain web apps only function via a Google Referal???

In the realm of using search to access software and web application, only a few search engines are well equipped to function in this space. I believe something revolutionary is still to come in the way search functions in our lives and Microsoft still has a lot of kick left.

Posted by: Justin Pfister at November 7, 2005 07:26 PM

One thing I liked about Google is they kick started many innovative things others are trying to catch up. But I did not see any numbers on how many AOL/MSN/YAHOO users are switching to Google for these innovations.

For example look at Google interactive maps. When I first saw Google maps, I was amazed by its faster roaming and zooming functions. If I am a regular user of Yahoo or Microsoft I would be happy with their current, legacy maps and wait for new interface similar to Google. Now after couple of months even Microsoft and Yahoo mimicked that interactive interface (still need to catch up completely).

I am damn sure that the same Yahoo and Microsoft now running for life would be sleeping on the old map interface for next decade - if there was no Google Maps. In fact Microsoft would be happy to sell us windows based Maps and Streets product every year (2005, 2006…..).

Irrespective of the technology wars going in the background, we (end users) are really enjoying the benefit, without any direct cost :-)

Posted by: Sam S at November 7, 2005 11:06 PM

At least without any direct costs thus far. The saying goes, "Nothing in life comes for free".

Posted by: Justin Pfister at November 7, 2005 11:58 PM

Yahoo's step in personalisation with My Web 2.0 is a start at introducing switching costs, although if it really takes off, it's likely that someone will produce an exporting tool.

Google do have a similar service, in their personal search history feature, which stores all your searches when you're signed in. So far it makes no difference to me, but you can see in the future when they have a couple of years of my search patterns, how they could take PageRank to a more personal level, by providing me pages I'm more likely to click.

That's information the others won't have, so the more I use Google the better it gets. There's a switching cost. I'm not going to invest my search time in Google only to switch to another engine that can't provide me the same accuracy.

Posted by: Ed Byrne at November 8, 2005 05:45 AM

Ed, your prediction of future Google search results is very utopian. Utopia is a fun thing to talk about and imagine but I feel like Google will try and stay away from utopia because it's such a risk to their motto to "Do no Evil". I say this because Google might understand that it's impossible to create a utopia without eventually creating an anti-utopia.

There's a concept I recently read about called "The Daily Me". In this scenario you only see things and read things that are interesting, pleasurable and helpful to you. Who wants the Daily Me?

Posted by: Justin Pfister at November 8, 2005 09:42 AM

Justin,

I agree, "Nothing in life comes for free".

I think immediate cost will be born by greedy investors who are investing in these company stocks at exorbitant prices, dreaming to become rich soon.

Looks like we back to internet bubble days, with better quality.

Posted by: Sam S at November 8, 2005 10:23 AM

If you think all 3 search engines return the same results then you should stop writing about search engines as you don't know what in the hell you're talking about.

Posted by: IncrediBILL at November 8, 2005 01:41 PM

Calm down, IncrediBILL. I didn't say they all deliver the same results; I said that, for the needs of most users, they all work equivalently well at this point. My own recent (and very limited) comparisons indicate that for common searches Yahoo is a hair better than Google, with MSN lagging a little bit.

Posted by: Nick at November 8, 2005 01:52 PM

Search is a kind of commodity today...less differentiation, and the search engine kings building out expansive portals to become more than search and to increase switching costs. That said, search is still primitive and there is plenty of room for one of those companies or an upstart to disrupt the status quo. It will have to be a lot better/smarter...and Google, Yahoo and MS are highly incented to trump one another in search and are fighting over hired the highest search IQ engineers. There will be another "Pagerank," and then it settle back down again into commoditized good enough search (and ad targeting), which is why the big three are spending so much time and money trying to build destinations that capture more people who will spend more time, and increasingly have a more personalized experience ...and thus brand themselves as Google, Yahoo or MSN/Windows Live user.

Posted by: dfarber at November 8, 2005 04:16 PM

Justin,

Who wants The Daily Me? I'll tell you who wants it: marketers. The fracturing of the audience into discrete, more easily targeted micro-demos is what the commercial internet has been moving toward for years and "Do No Evil" Google is leading the way.

Social implications? If they can't be monetized the marketers couldn't care less.

Posted by: bpr at November 8, 2005 07:33 PM

Justin,

I want 'The Daily Me'! Except my definition of it would be different than yours. It's not full of things pleasurable to me, rather filled with information RELEVANT to me. Location, topic, industry, hobbie based information.

A search engine that gets to know ME better will better be able to deliever 'The Daily Me' and that's something I look forward to!

Posted by: Ed Byrne at November 11, 2005 07:57 AM

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