Re: Search engine promotions

From: Michael Martinez <Michael_at_xenite.org>
Date: Thu 15 Mar 2001 09:54:20 -0600

JOHN GASKILL <gm_at_info-central-usa.com> WROTE:

>Paid search engines must work, up to a point, or formerly
>unpaid search engines would not be adopting the model,
>and many advertisers would not being paying for a higher
>ranking, repetitively.

TO WHICH ROB FRANKEL <rob_at_frankelbiz.com> REPLIED:

[snip -- he disagreed]

>The rationale of my point had nothing to do with
>"copycat" behavior. Lots of dot-coms copied each
>other by losing bazillions and thinking the cure would
>come after they went public. Ha ha ha ha ha...

>The repeated behavior I refer to is that on the part
>of advertisers re-upping their relationships with paid
>search engines. They keep paying, not because
>the pain feels so good, but because it works.

I feel compelled to reiterate here that THIS SYSTEM HAS
NOT BEEN PROVEN TO WORK.

That is, no search service has yet demonstrated that any
of the paid listing models are profitable. Goto.com is
the front-runner and they are currently projecting a
possible break-even for this year. A few weeks ago
they were projecting a tremendous loss with possibly the
first profit in 2002. But we're only in the middle of
March as I write this. Goto still has a long way to go.

The search services are turning to paid listings purely
out of desperation. They cannot afford to wait and see
if the revenue stream will support even one, let alone
all, of them.


JOHN GASKILL <gm_at_info-central-usa.com> WROTE:

>Paid search engines must work, up to a point, or formerly
>unpaid search engines would not be adopting the model,
>and many advertisers would not being paying for a higher
>ranking, repetitively.

TO WHICH MICHAEL MARTINEZ <Michael_at_xenite.org> REPLIED:

[snip -- Goto comment reiterated above]

>Yahoo is profitable, although paid rankings are only a
>small part of their revenue stream at this time.

Yahoo!'s profitability came chiefly through their
advertising model, which they have just conceded isn't
going to work any more. When they started charging for
listings on their auction service 80 per cent of their
users left them.

Yahoo! MAY recover that user base, but as of this writing s
uch a recovery is still highly doubtful.

Right now, the investment community has thrown in the
towel and said, "Enough! Show us some profit, not
promises!"

The fundamental flaw in any business plan which requires
that the Internet produce profitable revenue streams is
the assumption that the majority of people WANT to use
the Internet for the same purpose they use roads: to
conduct business.

In fact, Danny Sullivan's most recent newsletter (as of
this writing) mentions that no more than 25 per cent of
Internet users have any intention of buying products
and/or services on the Net. And that percentage, coming
from only one source, has yet to be vindicated. In
reality, the figure MIGHT be higher but more likely if
different is lower than 25 per cent.

Time will tell.

>Looksmart's stock is down to 2 1/16 from a 52 week
>high of 72. The success of the paid placement model
>is not what made Looksmart suffer. The problem is
>the quality of their search output. For many search
>engines that is a big problem. And, as the internet
>continues to grow, the problem only gets bigger.
>These problems result from choices made by managements.

Appearances of search results are really secondary. Why?
Because they can be had for free. If Looksmart were
making profits, the investment community would have been
kinder to them, or would soon return to kindness. Not
all the stocks have gotten hammered over the past few
weeks. But even Jeff Bezos was recently quoted as saying
that Internet stocks are not a good buy for short-term
investors. The Internet economy is not yet ready to
support a lot of profitable businesses. Not in the larger
arenas which are measured by stock performance, at any rate.

MICHAEL MARTINEZ <Michael_at_xenite.org> WROTE:

>Why have so many search services jumped on the idea? Because
>they are desperate for revenues. You can't blame them for
>wanting to try something. But this isn't the answer. At
>least, if the search service industry as it is composed
>today is to survive, these companies are going to have to
>come up with other revenue streams. Otherwise, there will
>eventually be a huge shakeout.

TO WHICH JOHN GASKILL <gm_at_info-central-usa.com> REPLIED:
>It may not seem to be the answer but as you say,
>they have to try something to generate revenue.
>If all these pay for placement attempts don't pan
>out, there will only be a couple of survivors and
>life goes on in the jungle.

It's a hungry industry. If the majority of the field folds,
then new services will replace them.

Right now the services which appear (to me) to be in the
best position to continue running include Yahoo!, Google,
AOL/Open Directory/Netscape, MSN, Inktomi, Altavista, and
Suite101 (a minor player with no revenue, but they seem to
keep about $6,000,000 in the bank despite mounting expenses).
About.com might also be in for the long-term. They are
spending money, however, and I'm not familiar with their
revenue models. Excite is part of the huge @home empire but
there seems to be a lot of doubt about their future.

All the rest of the services are, to the best of my knowledge,
scrounging. But what most of the above players have going for
them are other revenue streams. Inktomi, for example, gets
most of its money from non-search service projects. And
they sell their database and tools to other search
services. Surfers cannot actually use them directly as
a search service.

AOL, MSN, and Excite/@home all provide ISP services to
surfers. AOL owns both Netscape and the Open Directory.
Compaq owns Altavista.

But that just opens the possibility for one or more of
these companies to drop the unprofitable search service
section of their business if they cannot maintain
profitability (or at least to the satisfaction of their
stockholders). Just judging strictly by the stock
prices, Suite101 shouldn't even exist. But they have
managed to stay the course (note: I write a weekly
column for Suite101 and have stock options, though right
now it would be much, much cheaper for me to buy the
stock at market price).

Paid listings, if they prove themselves, will most likely
only work for a handful of the search services. The
large companies may have to choose between using these
services to add value to their other divisions (and
Disney failed to do just that) and dropping them
altogether.

The real question is what does any business have to
offer people that they are willing to pay money for
and which they cannot get for free elsewhere on the Net?
The answer is not exactly simple, but it involves products
and services, not information. Information can be had
for free, and will always be had for free. We have
yet to see anyone develop a profitable business model
which somehow charges for content and which can be widely
utilized.

Michael Martinez
Science Fiction and Fantasy info_at_xenite.org
Visualizing Middle-earth, a book for all Tolkien fans
http://www.xenite.org/



Received on Thu Mar 15 2001 - 09:54:20 CST