How do the search engine sites make money?

representatives from Google, Yahoo, AskJeeves, and LookSmart tell how they make money. Each one spoke on how their company makes money from search, the economics and business of search in general, along with the factors for their own growth and monetization.

"From the point of view on Wall Street, search has been a great source of revenues and profit," said moderator Safa Rashtchy, Senior Research Analyst for U.S Bancorp Piper Jaffray. All four companies on the panel concurred, each reporting huge gains from the previous year.

"We are increasingly seeing companies -- that before were only doing brand types of advertising -- embrace search marketing as a good venue for them to get users and get business as well," observed Sheryl Sandberg, Vice President, Global Online Sales and Operations for Google.

Some of the core components of a search engine's monetization approach include the following:

Relevancy before monetization. For some portals, search is their core business. For others, like Yahoo or AOL, it is part of a much broader business. To achieve maximum benefit out of any monetization strategy, a search engine company must keep the priority on relevancy (and diversity) of results; an updated, user-friendly interface; ever-increasing inventory; and improving the search tool's understanding of the audience's query type.

Provide unique search technologies. A search engine has to consider what differentiates its search product from others, and whether or not it clearly provides a perceived value to both search users and advertisers.
One of AskJeeves' challenges was how to differentiate itself from the most well-know search engine - Google - by doing something unique with its own search product that people find appealing. "What differentiates us is that our audience is used to giving broader type queries," said Jim Diaz, SVP of Sales and Business Development for AskJeeves. "A substantial majority of people that come to our site will ask more than three words in a typical keyword query. That's substantially higher - even off the charts - compared to most search engines, where you typically get one or two queries."

"We're not trying to out-Google Google," added Diaz. "Unless your product is different and offers something unique to the user, it's going to be very difficult to make a name for yourself and stick around in the long-term."

Encourage commercial search. Commercial search accounts for 30% of all search queries, according to Rashtchy's own research. However, the search engines find these queries to be just as complex as their non-commercial counterparts. "Search users articulate wide range of commercial needs," said Tim Cadogan, VP of Search for Yahoo Search. "That involves showing a decent quantity of relevant results, not just one or a couple. And for a significant portion of queries, users are expressing needs that businesses satisfy best."

Present a diversity of vendors, partners, products, and sales channels. All search engine companies have created paid inclusion or paid placement programs to obtain broader reach for more targeted advertising audiences.

Keep operational expenses cost effective. Infrastructure to carry for so much search traffic can be very costly if not carefully supervised. Search engine companies must regular monitor peak usage times on their Web servers; improve on their software efficiency with Web servers; and limit the size and complexity of database sizes and complexity of the search nodes.
While many individual performance models were described, paid inclusion was a particular issue of contention between among audience members and the panelists. The search engines touted paid inclusion being one of the most effective monetization strategies that successfully delivers more relevant results. Yet some in the audience expressed concerns on how it might be affecting the relevancy of search results. "How can search results be relevant as Google's results if paid inclusion is such as important part of each of your programs?" one audience member asked.

"We believe paid inclusion actually helps us with commercial relevance," responded LookSmart's Mamone. "The best set of results sometimes is actually a set of results is from advertisers. Advertisers can equate to relevance for commercial query for the user."

"For Yahoo, we find paid inclusion helps drive quality of search results up," stated Cadogan. "Sites that have deep content, not normally accessed by crawlers, can have their information presented to the users."

Google was the sole company on the panel that has no paid inclusion program, and reiterated that the company has no plans or intentions of incorporating one. "We believe the most relevant results come from naturally crawling the Web," said Google's Sandberg. "We do want to crawl the deep content and the dynamic pages, and we believe that by continually improving on Google's span and reach of our crawl, as well as how often we crawl, we can continue to provide relevant results for our users."

Cadogan offered some parting words for the audience on how major search engines view their monetization strategy as to the benefit of their advertisers, partners and users. "A search engine company's focus on the best user search experience first; the monetization strategy is not something that goes along side of the user experience. It is part of the user experience."