SPECIAL REPORT
Search Industry Facing Evolution

What will Google (Nasdaq: GOOG) do next? How will Yahoo (Nasdaq: YHOO) counter the move? And how will this impact MSN Search, Ask Jeeves and the scores of smaller players vying to get their share of the search engine revenue pie?

Rumors abound about what will come next for major players in search. Some believe Google is preparing to launch a free Internet telephone service in the United Kingdom. Others say Google will acquire an RSS (Really Simple Syndication) aggregator. Still others say Yahoo will enter the blogosphere with a strategic acquisition.

Why so much focus on Google? Because it's the 800-pound gorilla, serving 47 percent of the search market, according to Nielson//NetRatings. Yahoo serves 21 percent and Microsoft's (Nasdaq: MSFT) MSN handles 13 percent. However, that market share is not exclusive. Nielson says there is crossover. Fifty-eight percent of searchers also say they use Yahoo and MSN.

Sponsored Links

Let the search wars continue.

We've seen toolbars, pop-up ad blockers and even spyware associated with search in efforts to instill user loyalty. However, as competition increases, experts say more changes are coming -- and quickly.

Analysts say those changes will include sponsored links that go beyond portals, Google's move towards becoming a portal, and legal issues that could stymie Google and the rest of the industry.

As smaller innovators have emerged with new products, and continue to seek out new dimensions to expand the business, search advertising is increasingly moving off the search page and onto other types of Web pages, according to Lance Podell, president of Kanoodle, a provider of sponsored links for search and content.

"The biggest companies in search are effectively locked in to providing keyword search-based services for advertisers," Podell told the E-Commerce Times. "But advertisers are looking to place sponsored links in other parts of the Web to increase their reach and extend their marketing programs."

The blogosphere is the next probable venue for sponsored advertising, Andy Beal, vice president of search marketing for WebSourced, a search engine marketing firm, told the E-Commerce Times. He agrees with Podell about more interest in sponsored links.

"Blogs will continue to evolve and the opportunity for targeted marketing comes into play as advertising becomes a part of Really Simple Syndication feeds," Beal said.

This, analysts said, is a key motive for search engines to host blogs and why some speculate that Yahoo will acquire Six Apart, a Web logging software and service company, this year. However, Google and its Blogger are still the prophesied blog champs of 2005.

Google and the Legal Landscape

While Google is the undisputed king of search, it is losing some momentum in the legal arena, and experts said this has implications for the entire search industry.

Among the most significant legal cases to keep an eye on this year are lawsuits against Google claiming the search engine violates trademark law by allowing advertisers to select keywords that will cause those ads to appear on results pages for searches of the trademark.

A judge recently ruled in Google's favor in a Virginia lawsuit filed by Geico. The suit alleged Google was allowing other auto insurers to use "Geico" as a keyword that would trigger their ads.

On the other hand, French courts are finding against Google in similar lawsuits filed there.

Sheldon Klein, an intellectual property lawyer at Arent Fox in Washington, D.C., told the E-Commerce Times more similar lawsuits are likely down the road.

"There are also lawsuits pending against actual advertisers who pay adware companies to have their ads pop up when Internet users log on to a competitor's Web site," Klein said.

He explained: "Trademark owners claim that when pop-up ads for competitors appear on computer screens superimposed over their [the tradmark owners] Web sites, the adware companies are trading on the goodwill of the trademarks and are diverting users from the owners' Web sites. LL Bean currently has a lawsuit pending against Nordstrom and JCPenney accusing them of trademark infringement by placing pop-up ads over its Web site."

Portal Power

Finally, Beal predicted Google will become more of a portal like MSN and Yahoo, with numerous new applications, including instant messaging, currently in beta testing.

However, Beal agreed that the trademark-related lawsuits that plagued Google last year will continue to arise this year to distract the company. Those distractions, he said, could cause Google to change its strategy as it enters portal competition.

"I believe this issue will be resolved through either a court ruling or the search engines preemptively taking action in answer to rising investor demands," Beal said. "Going forward, Google could very well opt to do away with its 'instant on' policy for AdWords in order to review the content of advertisements to ensure they contain no trademark violations."