Searching For A Way To The Top

By Rachel Rosmarin

You know you’re watching the early days of an industry when entrepreneurs still think they have a chance to be David in a contest with the current Goliath.

In one corner of the search engine business, you have Google with 16,000 employees and a current market valuation of $217 billion. In September, Google conducted 64% of all searches conducted on the Internet in the U.S.

Then there’s tiny Mahalo. Jason McCabe Calacanis is chief executive and founder of the fledgling search engine company, which relies on hand-compiled data. Mahalo has an undisclosed amount of venture capital funding and fewer than 100 human editors who pick and choose what information searchers receive at Mahalo.com.

Or there’s Yahoo! , a behemoth in its own right but still a distant No. 2 to Google. Not just anybody can enter the search game, asserts Vish Makhijani, Yahoo! senior vice president and general manager of Yahoo! Search. “There’s a scarcity of capital, and of talent,” he says. Yahoo! trails Google by a wide margin, but it’s easy to forget that the company brought in $1.8 billion in its most recent quarter, based largely on search engine advertising.

Makhijani believes that Yahoo! has room to grow in search, but after many months of criticism from Wall Street and consumer defections to Google, he’s reluctant to share many details of Yahoo!’s battle plan, a choice that makes Yahoo!’s public statements a bit hazy and bureaucratic.

Calacanis, by contrast, is dreaming big–and he’s not shy about bragging about it. He thinks his human-powered search engine will be a breath of fresh air to consumers sick of spammy search results offered up by Google and Yahoo!.

“No offense, but those guys in senior vice president positions at big companies don’t have the vision to realize this could be successful,” he says. “They think it can’t be done. That’s what creates a market for delusional people like me.”

Both Yahoo! and Mahalo believe there is more than enough room in search for them to both make a good living. But both companies have a long–and likely impossible–slog ahead of them if they plan to knock out Google’s Goliath.

We asked Makhijani and Calacanis to lay out their vision of the future of search, opinions on Google’s weak spots, the sustainability of search engine advertising, and the chances for tiny search start-ups.

And both men are bold enough to argue why their companies will be the search engine leader in five years.

Forbes: Google is the leader in your industry. But everyone makes mistakes. What is Google’s weakness?

Vish Makhijani: Doing search is hard. It’s billions of documents with a millisecond response time. Only a few companies can do this well. Even throwing tons and tons of money at it, like [Microsoft in] Redmond does, isn’t a formula for doing it well.

But the industry is diverging. The notion of “10 blue links” is going away. If you cover up “Google” or “Yahoo!” on the 10 blue link search-results pages, a user can’t tell the difference between us.

Jason McCabe Calacanis: The people who run Google are very smart, and they hire incredibly smart people. They’ve done a great job building elegantly simple products that users intuitively understand. When a company gets too distanced from its founders, the emphasis on product isn’t there. Yahoo! is going to have a massive resurgence because Jerry Yang is now engaged as CEO.

Google’s greatest weakness will be maintaining focus and retaining their talent. They’ve been so successful that maybe some of those talented people who’ve been there since early on don’t need to work any more.

Yahoo! started as a “human-powered” directory in 1994. Mahalo’s search results are handwritten by people. Will we see a mainstream return to edited search results?

Makhijani: It’s a notion of trust. Jerry and David built the directory, they did all the work. Then comprehensiveness became super-important, but you forsake the trust that a real person said, “We’re going to put this here.” Things are coming full circle, but a “today’s version” of Jerry and David’s directory is not going to fly.

Calacanis: In fairness, all the big guys use human gestures to determine relevance. But they don’t rank the stuff with human input. [Mahalo] will appeal to a certain group of people, and Google’s machine search will appeal to another group of people. There’s a perception in our industry and our business that winner takes all, but the truth is, there’s a lot of fragmentation.

The odds seem slim that either of you will beat Google and become the top search engine within five years. Convince me otherwise.

Makhijani: There’s nothing about search today that locks somebody in as No. 1 for years and years.

We are not the leader, and we’re going to attack and solve as many problems as we can to become the leader. We take tons of chances. We can take an iterative approach to trying new ideas. We are blessed with a really good lab-testing environment. We just launched [search advertising system] Panama, and we take a lot of that revenue and pour it back into [research and development] of our search product. Luckily, search advertising is a great business model to have.

Calacanis: I fully believe we will become one of the top three search engines. More than 1 million people visited us in the last 30 days, and we just launched. People like to surf around a directory–it is discovery. Maybe people stopped doing that on the other search engines because there’s so much spam on those sites. Our site is not really game-able.

I think we can get to that top level, and I wouldn’t be doing this if I didn’t think we could. Google is going to be very hard to displace, but it is still possible. You never know. Google became No. 1 in five years, so why can’t we? It will be a lot of hard work, and it will take five years. In that time we could get double-digit market share.

Is “search engine fatigue” a real problem? It is hard to believe that people give up on what they’re looking for so easily.

Makhijani: When you look at customer satisfaction numbers, they’re high, but if you peel the onion you see a fair amount of lack of success. We see abandoned and failed searches. We see users go check their e-mail instead. They blame themselves for bad queries when they don’t exceed. That’s garbage. There’s opportunity for improvement here.

Calacanis: Search engine fatigue is very real. Almost anything can be found, but you get into a needle in a haystack problem. And now there’s a cottage industry of people who try to intercept you as you search. We’ve done testing in our lab, and all the Mahalo users give up on searches. Some of the problem has to do with the person–it takes two to tango. There are spelling error issues and ambiguity issues. People don’t know enough to type in the words that would help.

Search engine advertising is big business, but it is getting messy. How long can that business model last?

Makhijani: A significant population doesn’t always distinguish when something is advertising or a search result. The notion of trust is super-important, and we take that very seriously. But we continue to deliver value in that advertising as well. The same team of scientists works on the relevancy of ads as on search results. And if you force lower-quality ads, people will choose another search engine. We’ve seen that. Will that business model change over time? Who knows? I see keyword advertising continuing to disrupt legacy advertising, so it will last a long time.

Calacanis: If you’re using machines, they’re going to be game-able. It is like IRS or credit card fraud. Some people will cheat. There are good “search-engine optimization” techniques, but 90% of it is black hat and smarmy. The people who are looking for loopholes and looking for ways to increase their ranking require a policing effort from Google. It is not going to end.

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2 Responses to Searching For A Way To The Top

  1. […] AaronJames wrote an interesting post today onHere’s a quick excerptLuckily, search advertising is a great business model to have. Calacanis: I fully believe we will become one of the top three search engines. More than 1 million people visited us in the last 30 days, and we just launched. … […]

  2. […] PSKoch wrote an interesting post today onHere’s a quick excerptIn one corner of the search engine business, you have Google with 16000 employees and a current market valuation of $217 billion. In September, Google conducted 64% of all searches conducted on the Internet in the US … […]

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