So the president of ContextWeb, a three-year-old software company, is trying to patent technology that will automatically put relevant links in Web pages found during a search. That way, in theory at least, a surfer can then refine a search with each click, going from Web page to related Web page until the precise information is located.
"This is a shift in how people browse," Subramanian said. "Instead of users typing search terms into a box, slowly we'll see Web search results next to related content. So you can go from place to place with a certain focus, as opposed to information overload."
Viewed as a potential diamond in the rough of the flagging Internet industry, paid search has become the subject of fierce competition among players big and small, driving major changes in Web advertising and causing leaders to devote more resources than ever before on expansion. One of the most promising possibilities is "content-targeted advertising," which is transforming traditional advertising methods.
Content targeting builds on keyword advertising techniques pioneered by paid-search provider Overture Services and emulated by Google and others. Words are sold to the highest bidder, and advertisers pay only when a reader clicks on a link.
Today, advertisers pay for banners or text links that appear alongside query results on search engine pages. Content-targeted advertising would place an ad directly on Web sites that come up in searches, rather than only on the engine's pages.
The system would allow several advertisers to buy the same keywords and rely on content analysis to ensure that the ads appear where they are most relevant. In the case of "explorer," a Web page about browsers probably would not work for a car ad, but might be a good fit for a book about Microsoft's Internet Explorer browser. Ideally, content-targeting software can tell the difference and deliver the right message.
The concept provides a way of reaching targeted consumers without the hassle involved in cookies, spyware and other tracking technologies that have drawn criticism on grounds of privacy and security. It does, however, still attract some controversy in its blurring of the line between independent information and advertising--a balance that has raised concerns ever since the practice of paid search listings began. Search engines, for instance, already sell content-targeted ads that can sometimes appear alongside headlines on news and information sites, which make up the fifth-largest category of traffic on the Web.
The Google gods
Does the search engine's power
threaten the Web's independence?
Search engines and Web directories have shown that they are willing to make that bet. Paid search results are expected to generate close to $2 billion in revenue this year--nearly 25 percent of total ad sales--and as much as $7 billion in annual worldwide sales within five years, according to industry estimates.
Revenue on the rise
Financial analysts expect the top players to triple their marketing funds for search in the coming years, given that it could eventually account for half of their ad revenue. Research firms estimate that major Web portals such as Yahoo and Microsoft's MSN will raise spending on search marketing to a collective total of $200 million this year and another $200 million in technology, to follow a market pioneered by pay-for-performance networks such as Overture.
Some players are feeling the weight of such heavy competition. Overture reduced its 2003 financial forecast by nearly 50 percent, citing increased spending as a key reason. In a second blow, Applied Semantics, listed as one of Overture's top 10 advertising distribution partners,
Making matters worse, Yahoo and MSN recently renegotiated their contracts with Overture to take a greater portion of search-related revenue on the grounds that they are providing the traffic. Equity analyst Richard Fetyko of Kaufman Bros. estimates that the new contracts give the portals up to 70 percent of the revenue from clicks, as opposed to 50 percent to 60 percent previously.
"Overture is having problems because of the high-profile nature of its partners that can command better revenue-sharing terms," Fetyko said. This type of contract revision is what is putting financial pressure on the company's margins, along with costs related to overseas expansion and competitive pressures.
The situation is not unique. On Tuesday, LookSmart saw its stock price plunge 43 percent after it cut its outlook for 2003 in expectation of higher operating costs. Like other search providers, LookSmart is looking to reinvent itself by charging Web sites to appear in its listings. Its biggest customer is MSN, which also relies on listing services from Overture and Yahoo subsidiary Inktomi.
In addition to financial concerns, search ad networks face technical challenges in the new opportunities. For all its usage and development, search technology remains an inexact science: A search involving Apple Computer could still land on a fruit orchard Web site, or a travel agency ad could end up on a story about a plane crash.
Others are undeterred by obstacles, whether financial or technical. Google launched its content-targeted advertising in February on sites belonging to Blogger (whose parent company Pyra Labs it recently acquired) and to many partners of Applied Semantics. Both the Mountain View, Calif.-based search leader and Applied Semantics have technologies that analyze Web pages to place relevant advertisements.
Overture intends to introduce a similar service with established partners by the end of the second quarter, using a combination of page-analysis technology and the expertise of its staff editors to determine relevancy. ContextWeb said it is in talks with the Pasadena, Calif.-based search company and with FindWhat over their use of its technology to analyze Web pages for targeted text ads.
Overture is making significant investments to maintain its dominance and favor with advertisers. It recently completed the acquisition of Web search technologies from Fast Search & Transfer and AltaVista.
With the frenzy of activity in the search business, critics say the market is quickly heading toward saturation levels. But industry analysts say the profit potential is too large to resist, especially in an economy that offers so few opportunities for Internet companies.
At Salomon Smith Barney, financial analyst Lanny Baker says the choice is obvious: "It's way too big of a market, growing way too fast, generating way too much profit, with way too much of the market up for grabs, for the big players to continue not spending on advertising and developing their search franchises."