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Monetizing Search August 8, 2007

Posted by jeremyliew in business models, Consumer internet, Internet, Search, start-up, startups.
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Before I joined Lightspeed I was General Manager of Netscape, where I was responsible for the portal and the browser. Search drove about half of Netscape’s revenues and so I spent a fair amount of time trying to understand how to best monetize search traffic.

One thing that initially surprised was that the top two search terms on Netscape.com were “Google” and “Yahoo“.

In fact, around 20% of searches are “navigational” in nature – users looking for a particular website. Another 50% of searches are “informational” in nature (e.g. “capital of Taiwan”, “top social networks”) and the remaining 30% are “transactional” in nature (e.g. “cheap flights to Orlando”, “flat screen TV”. These stats come from an IBM research paper from 2002 that defines a taxonomy of web search, but the ratios were still roughly accurate as of 2006 when Gina Winkler, the outstanding woman who ran Netscape’s search team, left the company. [NB Netscape's search is now largely a re-skinned version of Google, a very different product to what it used to be]

It is relatively difficult to monetize navigational and informational searches. Try searches for “amazon” or “specific gravity of lead” and you won’t see any sponsored links. All the monetization comes from the transactional searches. Look at the huge number of sponsored links for searches on “ipod“, “rowing machines” or “disneyland hotels” in comparison.

So a new search company’s ability to monetizing search depends largely on what percentage of its search volume is transactional. For some of the new vertical search sites, this percentage can vary dramatically.

Take people search for example. A search on “jeremy liew” in Google yields no sponsored links (although before Ebay cut back its spending on Google there used to be an ad for “Great deals on jeremy liew at Ebay”!). In general, people search is informational. The proportion of transactional searches will likely be lower than general search. This is something that companies like Wink and Spock will need to take into account as they develop their business models.

Conversely, sites focused on shopping search will have a very high proportion of transactional queries. The first generation of comparison shopping engines such as Shopping.com, Shopzilla built valuable businesses on much lower traffic than the big general search engines because almost every query is monetizable. This bodes well for the next generation of shopping search engines including companies such as Shopwiki, The Find (a Lightspeed portfolio company), and Krillion.

Similar analyses can be conducted on other vertical search engines in areas such as local, travel, video and health – some of these will have a much higher proportion of transactional searches than others.

Semantic search startups propose to do a better job on informational search than the current search engines. If they see a greater proportion of informational searches because of this, then they may in fact monetize at a lower rate than today’s search engines.

Search is a tough business because of the need to change customer habits and pull search share away from today’s big branded search engines. If a new search engine does not monetize well because of its mix of queries, it has even more work to do.

Comments»

1. David Armstrong - August 8, 2007

JL…as the search market “frags” itself into many different powerful vertical searches, I think the model is the one that “de-frags” it back, and makes it Web 2.0 (ugh I hate that term) which puts the USER in control. On top of that…create an API to tap into this “de-frag” from any site or device, that streams (read RSS) specific content to other sites or devices to enhance their offerings, provide persistent search tools, etc.

2. Gopi - August 8, 2007

I think MSN/Yahoo or even netscape (old portal) see more navigational queries than google as most of their traffic is driven by homepage defaults and people tend to use their search boxes more as a navigational tool.

3. Gopi - August 8, 2007

Yes, shopping or high value vertical search engines have a higher gross revenue per query but most of them will fail to attract traffic on their own. Thus they have to rely on Google/Yahoo for traffic and will essentially remain as a arbitrage player & so their net revenue/query is not that attractive.

4. Brian Provost - August 8, 2007

I love newb searchers who search by destination url or brand. Some of the highest-converting affiliate traffic you can find! But, I agree with your other non-spammer assessments…

BP

5. achartwell - August 8, 2007

I think your point about separating out the different types of search behavior to “navigational,” “informational,” and “transactional” is interesting. I’d never heard of a taxonomy exactly like it. In your piece you state that, “(s)imilar analyses can be conducted on other vertical search engines in areas such as local, travel, video and health – some of these will have a much higher proportion of transactional searches than others.”

I am wondering though how video search comes into play in this taxonomy?

People search online for specific video, say an episode of Saturday Night Live, what taxonomy would that fall under? The search for video clips is not transactional, and under your present taxonomy video search would be “informational,” and not monetizable. However, most online video searches are not informational per se.

It seems to me that, if you are either a online video publisher, like YouTube, or an advertiser, one could easily monetize video searches by unobtrusively running in-video ads either in the video at the bottom or underneath the video, for example, Saturday Night Live “Best of Eddie Murphy,” etc. New technologies developed by companies like ScanScout sort and tag videos. In ScanScout’s case, these videos can later be served relevant ads using three metrics speech and visual recognition and metadata.

Based on behavioral nature of video search, new video search technologies, and video’s current popularity, don’t you think “video” search should really be in its own category?

6. spock & the business plan. « surya on marketing. - August 9, 2007

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7. Steve Poland - August 9, 2007

Jeremy — great post; made me step out of the box.

8. commonsensical - August 9, 2007

Thank you very much.

This is perhaps the most valuable information I have read on the subject. As a developer of semantic search software, I have struggled with the hard and practical facts of the significant barriers to monetizing search results of an informational nature. The underlying reasons for this were never clearer than after reading your article.

We have been focused on enterprise search indexing and retrieval needs for most of our existence as a company. We use a renewable licensing model. Some time ago I argued that we need to focus our semantic techniques on shopping matters if we were to make them more suitable for the transactional nature of Internet use.

Winning new customers in the Internet space required that we develop techniques for identifying products and methods for relating them to one another and other things as well. I got a lot of push-back from co-workers. They claimed it was tedious work and the results would not be used for informational purposes but for (ugh!) shopping– making people buy things they do not need –all the time feeding rampant consumerism.

I was actually quite astonished to learn that these deep-seated sentiments existed in my co-workers minds. And because of this rather idealistic crew, it became the subject of significant discussion.
Of course, at the time, I argued that being an informed shopper was a good thing. I insisted that helping people become informed about product choices was a matter of providing information.

The information in your article about how to best monetize on search results will be useful to me as I try to refocus my crew on monetizing the results rather than on licensing the technology to others. I am going to keep watching your space for more information like this.

9. jeremyliew - August 10, 2007

@ achartwell,

I’m not sure that video search should be treated differently. Some of it may be transactional in nature (“download harry potter”) some of it navigational (“sexy back music video”) and some of it recreational (which might be similar to informational in its monetization characteristics) (“funny kitten videos”). I don’t know if your proposal about video monetization is all that fundamentally different from contextually targeted text or banner advertising in search results or on content pages.

10. Jordan Mitchell - August 11, 2007

Interesting.

In my experience, contextual ads are more effective than behavioral. But in navigational and informational search use cases, perhaps behaviorally targeted ads are more effective?

So if I searched for “disneyland hotels” yesterday and am now searching for “paris hilton” (yikes, “bare” with me), and if the search engine knew I was very interested in “biking”, then the advert could relate to “biking tours near disneyland”. Of course, that presumes the availability of this level of targeting.

11. Vineeth Subramanyam - August 19, 2007

Interesting read on the classification of searches. Thought I’d add in a few more thoughts.

First, depending on the nature of the search engine, the types of searches that come in are likely to be self-selected. So, an engine like Google, that has a mission to “organize the world’s information”, will decidedly get less transactional searches than one like Kayak (that searches airline tickets). For this reason, it is hard to change the mix of searches to more transactional – there is ample evidence of this as Google has repeatedly tried to dominate other verticals, but people chose YouTube over Google Video to find videos, chose dedicated comparison shopping sites over Froogle to find deals, chose Technorati over Google to search through blogs, and so on.

Second, while it may make more sense for an entrepreneur starting a brand new search engine to base it on a more transactional vertical than one that is informational, it may be more important for existing sites (Google included) to handle all kinds of searches that currently come in and try to monetize each type differently. For example, while the pay-per-click model is attractive for purely transactional searches, Google could instate an affiliate model (revenue share –or- pay-per-thousand-impressions) for navigational and informational searches. This will be a lower-risk option for many vendors compared to the pay-per-click model. At the same time, Google could actively acquire more search engines that are transactional rather than informational.

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13. Shlomit - October 29, 2007

Very interesting! Does anyone have updated figures from 2006 – 2007 on the search traffic that is navigational in nature? I have the original 2002 research, and would like to analyze the current situation.

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