Microsoft Corp.’s unsolicited, $44.6 billion bid for Yahoo! on February 1 comes at a strategic crossroads for both companies. Each must urgently adjust aging technologies and business models that are losing ground to Web services trends that their common competitor Google has effectively exploited.
The potential impact of any merger is measured by market share. And the yardstick in this one — Yahoo! rebuffed the offer before exploring a tie-up with News Corp. — is percentage of the Internet search market. Google, founded in 1998 and publicly listed since 2004, has a runaway lead, at 58 percent, according to online monitoring company ComScore. Yahoo! follows at 23 percent, trailed by Microsoft at 10 percent. Time Warner’s AOL and IAC/InterActiveCorp.’s Ask.com own nearly all the rest.
But just as there is more to these media-and-technology titans than search engines and the advertising and transaction revenues they generate, there is more to the search business than the consumer choices reflected in those shares. The keyword-search function that first popularized the Web in the form of the 1990s-vintage Netscape browser, which was ultimately absorbed by AOL, is powerful enough to return millions of responses to a given query. That, however, isn’t particularly useful to corporate strategists seeking specific business intelligence or to securities researchers trying to stay on top of market-moving developments at companies they cover.
The answer to those needs is the subspecialty of so-called enterprise search. Below the mass-market radar screen, Microsoft and Google have been battling it out in this arena along with smaller providers catering to specific enterprise needs. In January, Microsoft agreed to pay $1.2 billion for Fast Search & Transfer of Oslo, which offers internal information-gathering capabilities for auditing, sales and marketing analysis and product development. The deal, which is expected to close in the second quarter, is a counterpunch to Google’s growing enterprise suite, which includes e-mail, spreadsheet and document-processing programs, all available as online alternatives to Microsoft’s Office desktop software. The Fast Search purchase will accelerate Microsoft’s upgrade of enterprise search in its Sharepoint 2007 server, says Stevan Vidich, the Redmond, Washington, company’s industry architect for financial services.
Matthew Brown, principal analyst at Forrester Research in Cambridge, Massachusetts, says that although the basic Yahoo! and Google engines ply the “public domain on the Web,” Fast Search is part of a subsector focused on “searching within large enterprises, behind the corporate firewall.” So, too, are Autonomy Corp. of Cambridge, U.K.; Endeca Technologies of Cambridge, Massachusetts; and Vivisimo of Pittsburgh.
Also in demand in the securities industry and elsewhere is so-called enhanced or deep searching to mine the Web for nuggets of intelligence in domains that the Yahoos and Googles don’t routinely reach, such as intranets, chats and blogs. New Brunswick, New Jersey–based Connotate Technologies, for one, has developed a system for customized deep searches that return a few specific, rather than thousands of undifferentiated, results. “We have targeted agents that go out and get the information you specify, empowering the end user,” explains Connotate chief executive officer Bruce Molloy. “The Web reports to you.”
Seeing the technology as a boon for investment analysis, Goldman, Sachs & Co. last year entered into a marketing agreement with Connotate and bought an undisclosed minority stake as part of an initiative to support research systems innovation.
Another investment-focused entry, Foster City, California–based FirstRain, recently introduced “On the Record,” a report that distills official and unofficial quotes that may reveal inconsistencies in company disclosures, and “No Comment,” which compiles refusals to respond to questions that, for an analyst, “can start ideas flowing,” says Forrester’s Brown.
“Time is of the essence — to find information before competitors do,” says Dushyant Shahrawat, research director of investment management at TowerGroup in Needham, Massachusetts. He projects that even as investment research budgets are squeezed, buy-side spending on research technology will grow at a compound annual rate of 22 percent, from $586 million in 2007 to $1.1 billion in 2010. But challenges remain, including complexity and usability. Sean O’Dowd, a senior analyst at Framingham, Massachusetts, research firm Financial Insights, asserts, “The product that makes enterprise search as easy to use as Google will end up the last one standing.”
