Understanding The Major Search Engines and How They Work
Business Overview
Founded by Larry Page and Sergey Brin, Google’s mission is improving the ways people connect with information. Google offers the largest, most comprehensive index of web sites and other content free to anyone with an Internet connection. With the use of significant computing power, advanced software and complex processes, Google is able to provide quality search results. Due to their innovations in web search and advertising, Google.com is a top Internet destination and one of the most recognized brands in the world. Google considers their primary competitors to be Microsoft and Yahoo. Of the top search engines to choose from, Google claims the largest market share (48.8%) and also serves the largest share of the Internet population for local search (75% growth in searches).
Incorporated in California in September 1998 and reincorporated in Delaware in August 2003.
December 31, 2005, Google had 5,680 employees: 2,093 in R&D, 2,325 in sales & mktg., 861 in general and administrative and 401 in operations.
In 2005, Google acquired 15 different companies for $85 million.
Users
• Google is the #1 search engine in the Argentina, Australia, Belgium, Brazil, Canada, Denmark, France, Germany, India, Italy, Mexico, Spain, Sweden, Switzerland, U.K., U.S. (Nielsen//NetRatings 6/05, based on total number of unique visitors)
• Global unique users per month: 380 million (Nielsen/NetRatings 8/05)
• 112 international domains
• Global audience: More than 50 percent of Google.com traffic is from outside the U.S.
Revenue Streams
99% of revenues in 2005 came from advertisers. The balance of their revenue comes from licensing their web search technology and the licensing and sales of other products and services. They rely on Google Network members (third party sites) for a significant portion of revenues. 44% of their revenues in 2005 came from the fees advertisers pay them when users click on ads that they have provided to their Google Network members’ web sites. Advertising and fees from one Google Network member – AOL, accounted for approximately 9% of their revenues in 2005.
They expect their revenue growth rate will decline over time and anticipate that there will be downward pressure on their operating margin. This is due to increasing competition and the inevitable decline in growth rates as revenues increase to higher levels.
(In Thousands)
Year Ended December 31,
2001 2002 2003 2004 2005
Revenues $86,426 $439,508 $1,465,934 $3,189,223 $6,138,560
Costs $75,462 $253,042 $1,123,470 $2,549,031 $4,121,282
Income $10,964 $186,466 $342,464 $640,192 $2,017,278
Stock Price History
Google’s Class A common stock has been quoted on the Nasdaq National Market under the symbol “GOOG” since August 19, 2004. Prior to that time, there was no public market for their stock. Google’s stock has truly benefited from the surge in Internet advertising. Since its debut in August 2004, Google shares have risen 380%.
Today: July 17, 2006
GOOG
Exchange: NASDAQ GS (US Dollar)
Price: $407.76
Market Cap: 123.95B
Fiscal Year 2005 Quarters Ended:
Low High
March 31, 2005 $216.80 $172.57
June 20, 2005 $309.25 $179.84
September 30, 2005 $320.95 $273.35
December 31, 2005 $446.21 $290.68
Fiscal Year 2004 Quarters Ended:
Low High
September 30, 2004 $135.02 $95.96
December 31, 2004 $201.60 $128.90
As of February 28, 2006, there were approximately 1,496 stockholders of record of their Class A common stock, and the closing price of that stock was $362.62 per share as reported by The Nasdaq National Market. Their Class B common stock is neither listed nor publicly traded.
Unique features:
Google does not accept money for search result ranking or inclusion. Instead, they provide a unique program called AdWords that allows businesses to promote their products and services with targeted advertising. Google AdWords is a Pay-Per-Click (PPC) service that allows a company to place text ads relevant to a keyword search in the space on the right hand side of the search results page. It serves the dual purpose of combining keyword search with an ad, at a cost.
Google’s Network Members (Third party web sites) use AdSense to deliver relevant ads that generate revenue and enhance user experience. AdSense is a program in which Google provides a company with text ads to display on their website that are relevant to their site content. When a user visits their site and clicks on the ad, they get paid.
Another unique feature is Site Targeting, a service that allows advertisers to target specific web sites that have signed up to participate in AdSense – a network of content sites – with text, image, and Flash ads, so that they can more effectively reach customers.
For users, Local Search offering has been enhanced to include Google Maps, weather and movie links. Google Video is unique feature that allows users to watch news or other programs.
Yahoo!
Business Overview
In 1994, what began as a hobby of founders David Filo and Jerry Yang, Stanford Ph. D. students, has evolved in to a leading global Internet broadband one of the most trafficked Internet destinations worldwide. Yahoo! offers a broad range of products and services designed to provide users with the power to connect, communicate, create, access, and share information online. To businesses, they provide a range of tools and marketing solutions designed to enable businesses to reach their community of users. They claim the second largest share of the market (21.4%) and a 53% growth in searches. Their most significant competition is from Time Warner’s America Online Business (AOL), Google Inc. and Microsoft. Yahoo! was incorporated in 1995, is a Delaware corporation and has nearly 10,000 employees.
Users
Yahoo! is one of the most recognized and valuable Internet brand globally, reaching over 345 million unique users in 25 countries and 13 languages. They have strengthened their international presence in China, Europe and Korea and Australia.
Revenue Streams
For the year ended December 31, 2005, 87% of their total revenues came from marketing services while 13% came from Fees.
Marketing services revenue is generated from sales of online display advertising and from the display of text based links to the websites of their advertisers which are placed on the Yahoo! Properties or on the websites of their affiliates who have included their search offerings into their websites. They also generate revenue from a variety of consumer and business listings-based services, including access to the Yahoo! HotJobs database and classified such as Yahoo! Autos, Yahoo! Real Estate and other services. And finally, revenue is generated with commerce transactions from Yahoo! Travel and Yahoo! Shopping.
Fees Revenue is generated from a variety of consumer and business fee-based services, including Internet broadband services, premium mail, music, and personals, as well as services for small businesses.
Full year 2005 revenue was $5.3 billion, an increase of 47% from the $3.6 billion of revenue reported in 2004. This revenue growth can be attributed to a combination of organic growth and acquisitions. During 2005, they invested over $2.0 billion in significant acquisitions.
(In thousands)
2001 2002 2003 2004 2005
Revenues $717,422 $953,067 $1,625,097 $3,574,517 $5,257,668
Income (loss) ($158,270) $88,188 $295,666 $688,581 $1,107,725
Stock Price History
2004 2005
Low High Low High
First quarter 25.21 20.57 38.90 30.30
2nd quarter 36.51 23.95 38.95 32.29
3rd quarter 35.34 25.52 38.02 31.60
4th quarter 39.79 33.60 43.45 32.77
Market Cap ($ millions): 25,277
They had 11,447 stockholders of record as of February 28, 2006.
During 2005, the closing sale prices of their common stock on the Nasdaq ranged from $30.87 to $42.50 per share and the closing sale price on February 28, 2006 was $32.06 per share.
Unique Features
Incorporated search into multiple verticals including audio, video, image and local search; enhanced Yahoo! Hot Jobs with an Internet job search engine; and introduced Yahoo! Desktop Search, enabling users to quickly locate files, emails, archives instance messages and more.
Shortcuts give quick access to dictionary, synonyms, patents, traffic, stocks, encyclopedia, and more.
Business Overview
Microsoft released the final version of its improved MSN Search service in February, which is now available in 25 markets and 10 languages worldwide. They developed both paid search and features that makes Internet searching capabilities a more integrated part of its Windows operating system. This new service, all built from the ground up on Microsoft technology, makes Web searches more useful by providing consumers with improved access to information and more precise answers to their questions. MSN Search (launched with partner technology in 1998) is currently among the top three search portals in the United States and worldwide. It claims 10.9% market share and has seen a 20% growth in searches.
MSN includes personal communications services, such as e-mail and instant messaging, and online information offerings, such as MSN Search and the MSN portals and channels around the world. MSN also provides a variety of online paid services in addition to MSN Internet Access and MSN Premium Web Services.
Users
At the end of the current fiscal year, MSN had 2.7 million internet access subscribers and 9.1 million total subscribers compared to 4.3 million and 8.8 million at the end of the previous year. In addition, MSN has over 420 million unique users monthly, over 205 million active Hotmail accounts, and over 175 million active Messenger accounts.
Revenue Stream
Revenue is derived primarily from advertisers on MSN, from consumers and partners through subscriptions and transactions generated from online paid services, and from subscribers to MSN Narrowband Internet Access. In fiscal year 2005, they launched a new version of their MSN Search engine, which is based on their own technology. This change will help provide the ability to innovate more quickly and the opportunity to develop a long-term competitive advantage in search. In addition to the launch of MSN Search, they introduced many new products and product enhancements in fiscal year 2005, including a new version of the MSN home page which provides a richer user experience, quicker load times, higher levels of end user customization, and fewer advertisements and links. MSN launched the clarity in advertising program in fiscal year 2005, which removed paid advertising from inclusion in search results and resulted in a reduced number of advertisements that are returned with search results.
(In millions, except percentages)
Three months ended June 30, Year ended June 30,
2003 2004 Percent 2005 Percent
Change Change
Revenue $(1,953) $2,216 13% $2,274 3%
Operating income (loss) $(573) $871 15% $405 366%
In fiscal year 2005, MSN advertising revenue increased $193 million or 16% primarily as a result of industry and market growth, and continued growth of MSN display advertising revenue, tempered by the search clarity in advertising program and the impact of the home page redesign. Revenue from subscription and transaction services other than Internet Access increased $84 million or 88% in fiscal year 2005 as a result of growth in the number of MSN Premium subscribers through carrier partnerships. Offsetting the overall revenue growth was a decline of $219 million or 24% in Internet Access revenue, driven by the continued migration of Internet Access subscribers to broadband or other competitively priced Internet service providers. MSN expects increased growth in advertising revenue as it benefits from improvements to its advertising platform and search engine and continued increases in Internet spending.
Stock
Microsoft went public March 13, 1986 at $21.00 per share.
Today: July 17, 2006
MSFT
Exchange: NASDAQ GS (US Dollar)
Price: $22.49
Change: + 0.20
Market Cap: 229.63B
Unique Features
For Users:
• Search Builder tool allows users to customize search results by emphasizing or deemphasizing certain search criteria, such as specific site or domain, country or region, or language
• They launched MSN Music, which provides an easy way for consumers to find and download music online and MSN Spaces, a blog hosting service that attracted more than 18 million spaces within its first six months.
• Instant answers from Microsoft Encarta: For many topics a consumer can type in a question and receive a direct answer provided by Encarta, the #1 best-selling encyclopedia brand.
For Businesses:
They developed a unique advertising tool, AdCenter, that gives advertisers sophisticated information about consumers, including their location, age, gender and sometimes, their level of wealth. The service also allows advertisers to choose specific times of the day or week in which their ads would be displayed.
Business Overview
Founded in 1996, Ask.com (formerly Ask Jeeves) is a pioneer in Internet search and became part IAC Search & Media, a wholly-owned business of IAC/InterActiveCorp in July 2005. In September 2001, Ask.com acquired Teoma Technologies, Inc., a next generation search technology that is the core of the Ask search engine.
Ask.com is a Web search engine that allows users to find online information by asking a question, entering a phrase, or giving a key word. Also includes picture, news, and local search.
With a 5% share of the market, Ask.com is one of the top 5 search engine companies. Ask.com's ExpertRank ranking algorithm gives users relevant search results by identifying the most authoritative sites on the Web. Ask.com syndicates its search technology and advertising units to a network of affiliate partners.
IAC had approximately 28,000 full-time employees as of December 31, 2005.
Stock Price History
IAC did not have an Initial Public Offering. The company was incorporated in 1986 under the name Silver King Broadcasting Company as a subsidiary of Home Shopping Network. In 1992, Silver King was spun-off to Home Shopping Network shareholders as a separately traded public company. In 1995, Barry Diller became Chairman and CEO of Silver King and over the past decade has led the company's transformation from a hybrid media / electronic retailing company into an interactive commerce company.
As of April 28, 2006, there were 315.8 million absolute and 339.4 million fully diluted shares of IAC common stock outstanding.
IACI (common stock)
Today, July 17, 2006
Exchange: NASDAQ GS (US Dollar)
Price: $24.05
Change (%): ? 0.33 (1.35%)
Market Cap: 7.60B
Revenue
IAC Search & Media Total Revenue
($ Thousands)
31-Dec-05 31-Dec-04 31-Dec-03
Total Revenue 5,753,671 4,188,279 6,328,118
Cost of Revenue 3,128,171 2,396,248 3,469,039
Gross Profit 2,625,500 1,792,031 2,859,079
Media & Advertising Segment (Ask.com; Citysearch; Evite)
($ Millions)
2004 2005
Revenue $30.5 $213.5
Operating Inc. Before Amortiz. (13.3) 30.5
Operating Loss (47.1) 7.7
($ Millions)
Q1 2006 Q1 2005 Growth
Revenue $117.6 $9.0 1208%
Operating Inc. Before Amortiz. $11.6 $(0.9) NM
Operating Loss $(6.4) $(1.0) -556%
Media & Advertising results were driven primarily by the inclusion of IAC Search & Media (formerly Ask Jeeves Inc., acquired in July 2005), which is not reflected in the prior year results. IAC Search & Media's share of U.S. search queries grew by 7% over the prior year period to 5.9% in March. Citysearch continued its momentum with strong growth in revenue and user traffic.
IAC Search & Media increased revenue by 9% as compared to its prior year period, attributable primarily to search query growth, largely offset by lower revenue per query, in part due to the reduced amount of paid advertising on Ask.com, and lower non-search advertising revenue. Profits declined significantly on a comparable basis with last year due to increased marketing expense, higher revenue share payments to third-party traffic sources and higher other operating expenses. Operating loss for the current period was further impacted by amortization of non-cash marketing expense and intangibles of $5.5 million and 12.5 million respectively.
Unique Features:
Subject-Specific Popularity ranking. Suggests broader and narrower terms.
AOL Search
Business Overview
A subsidiary of Time Warner Inc., America Online operates a network of Web brands and an Internet access subscription service in the United States. Brands include AOL.com, AIM, ICQ, Netscape, Moviefone and MapQuest.
During 2005, AOL re-launched the AOL.com Website as a portal, making available to the entire Internet community expanded features, content and communications, and search and playback offerings, including music, movies, television, news and other video features. AOL.com search technology is provided by Google. AOL, when combined with other search sites from its parent, Time Warner, accounts for about 9 percent of U.S. Web searches, far below Google, Yahoo and MSN.
Users
Time Warner’s Internet sites, which include AOL and other destinations, had 117 million unique visitors in October 2005.
Revenue
Full-year revenues at AOL dropped 5 percent to $8.3 billion, resulting from a 10-percent, $722 million decrease in subscription revenues. The subscription dip was partially offset by a 33-percent, $333 million increase in advertising revenues. Ad revenues for the year were buoyed by a $162 million increase from Advertising.com; a 35-percent, $116 million rise in paid search; and an increase in traditional advertising. Fourth quarter revenues for AOL slipped 8 percent from the year before, down $171 million to $2.0 billion.
Time Warner reported overall net income of $1.4 billion for the fourth quarter, or 29 cents a share, up from $1.1 billion, or 24 cents a share, in the year-ago quarter. Revenue for the quarter rose 7 percent to $11.9 billion. Revenues for the fourth quarter were up from the same period of 2004 in all segments except the AOL unit, with the largest increase coming in the cable television and high-speed networks segments.
Stock
Time Warner stock opened the day trading at $17.53, in the middle of its 52-week range of $16.10 to $19.00.
Mkt Cap $Mil Sales $Mil
AOL Time Warner 68,063.0 42,167
Industry Average 18,173 9,828
Unique Features:
AOL continues to improve its web search capabilities, today adding a number of new features designed to appeal to casual searchers and power users alike. AOL Search is powered by Google, but offers many features not found on Google, and other features implemented in different ways.
• Saved Searches. Mousing over any search result causes a scissors icon to appear to the left of the result. Click the icon, and the result gets "clipped" and both the result and your search terms are stored as a saved search
• Snapshots. Results programmed by a team of AOL editors which appear at the top of search results for popular queries
• Quick Answers. Provides short answers to natural language questions entered in the search box.
Market Share:
Top Three U.S. Search Share Rankings by Percentage Points, December 2004 and 2005
Search Engine December 2004 December 2005 Change
Search Share Search Share
Google 43.1% 48.8% 5.7%
Yahoo! 21.7% 21.4% -0.3%
MSN 14.0% 10.9% -3.1%
Source: Nielsen/NetRatings, February 2006
Top 5 Search Engines Ranked by Search Share, July-August 2005 (%)
Provider/Vertical July 2005 August 2005 Change (Points)
Google 44.7 45.9 1.2
Yahoo! 21.8 23.2 1.4
MSN 12.2 11.4 -0.7
AOL 8.4 8.0 -0.4
Ask Jeeves 1.6 2.1 0.5
Source: Nielsen//NetRatings, September 2005