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Saturday, March 27, 2004

The Case for Infospace + Google

Infospace's seemingly innocuous acquisition of a local online search provider called Switchboard for $160 million in cash may be a harbinger of an impending domino sequence in the local search market and the search engine industry in general.

Along with CitySearch, MSN, AOL, Yahoo, Google, various yellow-pages companies (plus some hangers-on and wannabes), Infospace is one of a short list of real powers in local search. That its recent acquisition was for cash suggests that Infospace believes its stock to be currently undervalued, something you couldn't say for too many Internet companies today.

Google is an emerging player in local search and is attempting to hang on to its status as the #1 search provider in the world. But meanwhile, companies like Yahoo are bulking up and waging battle; and one of the biggest economic powers in the world, Microsoft, is getting ready with its own strategy. There is going to be no tougher area to consolidate than local search; it will likely remain a fractured affair. But the company that sees the opportunity to roll up undervalued properties in this area will reap significant capital gains in the future. Thus far, Google's main idea seems to be to build their own products and expect that users will like them and growth will ensue. Maybe so, but going up against major competition, it probably wouldn't hurt to buy a little insurance.

The disadvantages of Google's slow march to an IPO, coupled with an understandable "we'd rather build than buy" mentality (though Google has certainly snapped up some cool assets for cheap), may now be growing more apparent. Every time Yahoo takes another key revenue generator off the table, such as Kelkoo, it consolidates its position. This month's issue of Fortune magazine cites Yahoo as #831 on the Fortune list, but with just one or two more Kelkoo-scale acquisitions, and continued growth, it will crack #500 far ahead of the schedule Fortune projects.

Google, therefore, needs to consider whether size does indeed matter, particularly in the hotly contested local search market. Infospace could offer some insurance. Instead of Google (post-IPO) acquiring small pieces of Infospace (unlikely since it is going to be difficult to pry prime local listings assets from any of their owners, Infospace included), Google could acquire the whole company. Infospace has an impressive list of valuable assets in search and other areas, some of them arguably underutilized or forgotten. These include, of course, popular metasearch properties which could potentially be reinvigorated under Google's watch. (There are also wireless technologies and lines of business that could be either deemed valuable to the business of a global search leader, or simply sold off.)

Consider Metacrawler and Dogpile. Currently, these metasearch properties are significant sources of revenue for several of Google's competitors, including LookSmart, FindWhat, and Overture. By acquiring these, Google could reduce the number of paid links in Metacrawler results, especially those emanating from competitors' keyword ad networks, while taking out a bigger share of that ad revenue pie for itself. This was the same strategy used when Google acquired Applied Semantics, whose DomainSense keyword listings were a major source of revenue for Overture and FindWhat.

If ballpark valuations of Google in the range of $14 billion are accurate, then Google is worth about a dozen times more than Infospace, at least on paper. Sure, Google could raise some IPO cash and then offer Infospace a cash-plus-stock deal they couldn't refuse. But I like the idea of Google and Infospace throwing us a curveball and cooking up a reverse-takeover scheme, leaving Infospace shareholders with a fair but relatively small proportion of shares in a new public company called Google. I'm not sure a reverse takeover on that scale is even legal. But Google taking the back-door route to going public would certainly confound and infuriate the bankers, the press, and the public, who have already speculated to the nth degree about a traditional IPO for Google. Some have even dreamt up bizarro scenarios such as a "Dutch auction."

The suspense is killing me.

Posted by Andrew | | | Permalink

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Friday, March 26, 2004

Yahoo Continues Acquisition Blitz, Gobbles Up Kelkoo

European shopping comparison site Kelkoo has been acquired by Yahoo for $575 million.

We won't say the purchase was "long-rumored," but it doesn't come as a massive surprise, either. A recent email exchange with a person close to Kelkoo, in which I speculated that Kelkoo was going to have to partner with a company such as Google or Yahoo, was deemed "interesting."

A possible part of the reason Kelkoo needed to sell to the highest bidder now is that they've relied significantly on organic Google traffic in the past. With Google likely only too happy to 86 competitors' shopping-oriented pages from its index (or at least play God with their rankings), and Yahoo ending its search partnership with Google, a Kelkoo might have faced rising marketing costs if it wanted to gain exposure on a major portal.

Posted by Andrew | | | Permalink

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Thursday, March 25, 2004

Microsoft Regrets Outsourcing Search

CEO Steve Ballmer admits they wish they had done it all in-house, reports ClickZ news.

"People say Microsoft wants to do it all -- we outsourced this, and shoot, I wish we had done it all," he said, drawing a burst of laughter from the crowd.

Although it's tempting to believe that Microsoft has something incredible up it's sleeve, a more sober analysis of the search sector, including observation of the recent Yahoo Search rollout, suggests that in the grand scheme of things, bringing yet another search product into the world is really no big deal. Hundreds of search-focused companies operating today (or is it closer to thousands?) use search and navigation technology to accomplish various goals for the enterprise, for researchers, or for consumers.

MSN is a big-market player, and is search engine will be widely used. But one gets the sense that no one, including Microsoft itself, is going to be too excited on launch day. To most users, it'll be just another day.

A much larger battle than one over market share by the major "search engines" or "search products" may eventually be a battle over navigational and metadata standards. Here, Microsoft will be planted right in the middle. And that's as much about politics and position as it is about technology or consumer demand.

Posted by Andrew | | | Permalink

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Tuesday, March 23, 2004

Click Fraudsters: Be Very, Very Careful

ClickZ reports on what one hopes is just the first in a spate arrests for "click fraud." Numerous clubs, bots, and incentive schemes are out there today with the intent of bilking advertisers.

In the past year, I've been asked at seminars and in interviews what can be "done" about the problem of bogus clicks. In those instances where I just came right out and said what needs to happen is that the perpetrators need to be arrested, I've noticed the interviewer would often go very quiet and change the subject.

Folks, we're here to sell the steak, not just the sizzle. Confronting fraud head on now, even if it means using uncomfortable words like "arrest" and "jail," is the best thing for the long-term health of online advertising.

One bit of advice for the hapless perpetrator of this particular scheme, dubbed "Google Clique": if you plan to extort money from someone, next time don't meet with them in their corporate offices while U.S. Secret Service agents watch and listen from the next room.

Posted by Andrew | | | Permalink

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Citizen MSN

According to CBS Marketwatch, Microsoft has just announced that it's going to decrease the prominence of Overture sponsored links on MSN Search beginning July 1. Could it be that they've now taken seriously Jakob Nielsen's concern that text links could fall victim to the same "banner blindness" that afflicted other forms of online advertising?

The principle is fairly simple: in an online setting, messages get taken more seriously when they're inobtrusive, respectful, and targeted. In other words, when they aren't aimed at users' foreheads with all the precision of a 16-ton anvil.

Ad agency types may now respectfully disagree.

Posted by Andrew | | | Permalink

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Overture's Site Match is a Bit Too Revealing

In the spirit of a benevolent hacker searching for flaws in software so the bad guys don't find it first, I report the following.

Yahoo has goofed. Anyone using the new Yahoo Search can easily tell which sites are paying for inclusion and, thus, can drain their accounts dry, if they wish. Too see who has paid for inclusion, simply point your cursor over links in the Yahoo Search results pages, and you'll see a long URL string of alpha-numeric characters. Right there in the middle of the URL string, you'll see text that says "MI=sitematch".

I noticed this while checking on the status of a Site Match account for a client and was appalled to find that anyone can easily tell who's paying for inclusion. Thanks to the dubious cost-per-click fee Yahoo has adopted for each paid inclusion clickthrough, no site is safe from malfeasance by competitors.

Therefore, we at Traffick call upon Yahoo to mask the URLs of pay-for-inclusion sites immediately to avoid abusive click charges from competitors and anyone else wanting to cause mischief.

Posted by Cory | | | Permalink

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Sunday, March 21, 2004

Newsweek Gets Google Happy

I used to get a bit annoyed by the omnipresent media coverage of Google, with all its standard cliches about two geeky Stanford graduate students turning a sleepy research project into a multi-billion dollar information storehouse that could one day become The Most Important Company in the World (if it hasn't already). But, with this week's Newsweek cover story on Google, "All Eyes on Google," I've changed my tune.

Yes, it does become rather tedious to read basically the same story over and over. The media frenzy that attends every cover story on Google is like a combination of information infection spreading from one company to another, and partly a panic about being the last media company in the country to worship the king of search. It's not all bad, though.

Brin and Page surely must tire of the incessant interview requests, but there's no doubt they recognize the immense value of such news coverage as they feverishly work to fend off Microsoft and Yahoo. The "Search Engine Wars," as they are called somewhat naively, are indeed some of the most fascinating skirmishes in the world today. (Sure beats that miserable one in Mess o' potamia!) At issue is truly nothing short of an information revolution that shows no signs of abating, as Newsweek rightfully points out.

The Newsweek article doesn't really raise any new interesting points in my mind, and, at times it gets the story wrong, if ever so slightly, but let's not split hairs, eh? I still recommend that everyone read the article. It's a good reminder that a) this is a pretty darn neat field to "be in" b) we've come a long way, baby c) you ain't seen n-n-n-nothin' yet!

Posted by Cory | | | Permalink

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