OnceР’В upon a time, the most valuable secret formula in American business was Coca-ColaРІР‚в„ўs. Today, itРІР‚в„ўs GoogleРІР‚в„ўs master algorithm.
In the search business, however, thereРІР‚в„ўs no rival to play the role of Pepsi. Yahoo is the closest but still a distant No. 2, and Google earns more profits in a single quarter than Yahoo does in a year. This may have had a bearing on the recent departure of YahooРІР‚в„ўs chief technology officer, its chief operating officer and, last week, its chief executive. Microsoft, an even more distant No. 3 in the search competition, canРІР‚в„ўt keep up with Google, even with $28 billion of cash in its pockets at the end of March.
The fumbling of GoogleРІР‚в„ўs largest challengers, however, has not dampened the enthusiasm of entrepreneurs and venture capitalists for entering the search game. The combination of low start-up costs and potentially huge profit makes it seem a reasonable bet.
Developing a search algorithm can be accomplished by very small teams. It was a team of two РІР‚вЂќ Larry Page and Sergey Brin, the founders of Google РІР‚вЂќ who developed a new and improved search algorithm. They beat out Alta Vista, whose search engine was developed by seven people at the Digital Equipment Corporation.
Profit margins in the search business are mind-boggling, and cannot be obtained in other segments of the technology world. GoogleРІР‚в„ўs net profit margin last year was 29 percent. AmazonРІР‚в„ўs was 1.8 percent РІР‚вЂќ yes, that is a РІР‚Сљ1РІР‚Сњ followed by a decimal point. Which business would you rather be in?
Even gathering the crumbs of business left behind by Google could generate a lofty market capitalization. Don Dodge, a Microsoft manager who works outside of the companyРІР‚в„ўs search group, made this argument in a post on his personal blog last month: РІР‚СљWhy 1% of Search Market Share Is Worth Over $1 Billion.РІР‚Сњ Mr. Dodge reasoned that 1 percent of the 7.3 billion searches performed in the United States in March, multiplied by 12 cents in advertising revenue per search, would yield annualized revenue of $105 million. Assuming a market cap that is 10 times revenue, his arithmetic leads to a billion-dollar company.
Here is another attraction: Any company that offers a superior search service would be able to poach the customers of everyone else. No long-term contracts keep Google users in place. In addition, even though each search engine conducts a search in its own way, users do the same thing РІР‚вЂќ typing in a word or a phrase РІР‚вЂќ no matter which service they are using. Therefore, no daunting learning curve will frighten customers who are considering moving to another search engine.
Engines like Hakia, Accoona and Powerset are trying to grab market share by writing a more sophisticated algorithm. A growing number of entrepreneurs are placing their bets, however, on a hybrid system that puts humans back into the search equation. They are grouped under a newly coined rubric, РІР‚Сљsocial search,РІР‚Сњ and it is becoming a crowded field.
Newcomers like Squidoo, Sproose and NosyJoe offer search results based on submissions or votes by users. Bessed also relies on users to suggest the best Web pages for a topic, but then has editors refine them. ChaCha gives customers the opportunity to have an online chat with a human being who can provide search assistance.
Sometimes a small variation on an existing idea is enough to make it stand out. In October 2006, when Bessed began its search service with the manually edited results pages, it had only two editors and covered just a few hundred search terms suggested randomly by users.
Last month, another company, Mahalo (Hawaiian for РІР‚Сљthank youРІР‚Сњ), inaugurated a search service with manually edited results. It started with several advantages: venture capital backing, 30 editors, systematic focus on the most commonly requested search terms, and the added idea of supplying GoogleРІР‚в„ўs search results for any search not covered by its own best-of-the-best lists.
Mahalo now has pre-prepared pages for 5,000 terms related to entertainment, travel, health, technology and other subject areas. The company plans to expand its coverage to 10,000 terms by year-end, and eventually to provide results for one-third of the most common search terms.
The company is financed by Sequoia Capital, which knows something about the search business: It was an early backer of both Yahoo and Google. Sequoia, like other Silicon Valley venture capital firms, offers experienced entrepreneurs an office and salary to figure out an idea for a new start-up. It was while he was an entrepreneur in residence that Jason Calacanis had the inspiration for Mahalo. Mr. Calacanis, 36, published The Silicon Alley Reporter in the mid-1990s and went on to be a co-founder of Weblogs, a federation of blogging sites that was sold to AOL in 2005 for about $25 million. He took up residence at Sequoia in December 2006, founded Mahalo and gathered two rounds of financing, including backing from the News Corporation.
At the end of May, Mr. Calacanis unveiled Mahalo at the D: All Things Digital conference sponsored by The Wall Street Journal. Mr. Calacanis said he has enough financing to provide five years of experimentation and refinements, but he has not disclosed the amounts.
A hand-built Mahalo search-results page has one conspicuous advantage over GoogleРІР‚в„ўs: grouping into subthemes, which make a page of links much easier to scan and to find items of particular interest. For example, MahaloРІР‚в„ўs page about Paris Hilton, the siteРІР‚в„ўs top search subject last week, arranges the recommended links into clusters including news, photos, gossip, satire and humor. The use of subject categories also eliminates the need to provide, as Google does, two-line text excerpts from the listed sites to provide clues about the siteРІР‚в„ўs contents.
The Mahalo page about Ms. Hilton lists more than 80 sites. Each takes up only one line; grouped by subtheme, they are easier to skim than the 12 sites that fill the entire first page of GoogleРІР‚в„ўs search results.
All of the links listed in Mahalo send the user to Web pages that contain genuine content, not sales pitches in disguise. By using its own editors as the final arbiters of what goes in, Mahalo cuts off access in its listings to Web sites that confuse a search engineРІР‚в„ўs algorithm with advertorials that commingle advertisements with noncommercial information. To those in the trade, outsmarting the algorithm is called РІР‚Сљsearch engine optimization.РІР‚Сњ For the rest of us, it produces Web pages littered with spam.
Last week, Mr. Calacanis tried to illustrate how spam has infested some top results on Google. After running searches for РІР‚Сљlow-carb diets,РІР‚Сњ РІР‚СљLasikРІР‚Сњ and РІР‚СљlingerieРІР‚Сњ at Google and at Mahalo, he compared the results. The exercise succeeded in exposing a few examples of Web sites ranked highly in GoogleРІР‚в„ўs results that contained advertorials or content apparently scraped from higher-quality sites.
Google contends that its search engine relies on humans and machines. Matt Cutts, a software engineer who heads GoogleРІР‚в„ўs Webspam team, said users who place links on their own Web pages pointing to other sites provide the raw information about valued sites that is incorporated into GoogleРІР‚в„ўs PageRank algorithm. How best to utilize that information requires continuing work by human engineers. РІР‚СљAlgorithms donРІР‚в„ўt leap out of Google like Athena from the head of Zeus,РІР‚Сњ Mr. Cutts said.
True, but one could argue that at Google the machine has the final say. Once the query is fed into the РІР‚Сљengine,РІР‚Сњ the results are presented without manual adjustment. At Mahalo and other РІР‚Сљhuman poweredРІР‚Сњ sites, the machine performs a first cut at the search in advance of a userРІР‚в„ўs request, and the results are then winnowed and shaped by human editors, then stored, a process that Mr. Calacanis terms РІР‚Сљeditorialized search.РІР‚Сњ
HUMAN-POWERED search may be able to cover a wide swath of queries if it can draw on the enthusiasm of contributors who have made Wikipedia a phenomenon of huge scale. Mahalo just began a РІР‚СљMahalo GreenhouseРІР‚Сњ service that enlists users who are passionate about a particular subject to write a page of search results for $10 to $15. Submissions must pass the scrutiny of the siteРІР‚в„ўs full-time editors before posting.
Even Google is interested in exploring РІР‚Сљhuman poweredРІР‚Сњ search. РІР‚СљI donРІР‚в„ўt think weРІР‚в„ўre ideologically bound to only computers, only algorithms,РІР‚Сњ Mr. Cutts said. In fact, he said, Google has combed through its own Web pages to remove all references to РІР‚Сљautomatic rankingРІР‚Сњ to prepare for the possibility of relying on user feedback to improve search results or other approaches that are more directly РІР‚Сљhuman poweredРІР‚Сњ than the algorithm.
Mr. Calacanis says Mahalo is not engaged in a battle of humans versus machines. He described his company as the embodiment of humans with machines, РІР‚СљJohn Henry and the steam hammer versus the steam hammer alone.РІР‚Сњ