Strategic analysis on vertical search marketing industry

The focus of my analysis will be on forecasting Vertical Search Marketing industry profitability. To predict the future profitability of Vertical Search Marketing industry my analysis is based on Robert M. Grant Contemporary Strategy Analysis

Trends that are changing the industry’s structure: We see from the Search Engine Watch study that horizontal search can't always do the job. Clearly this is what is driving the quietly exploding vertical search revolution.

But what really is the limitation? Search Engine Watch has recently had the chance to talk to Tim Mayer about Yahoo Search Builder and to Shashi Seth at Google about their Custom Search Engine product and a consistent theme emerged. Tim refers to it as "disambiguation", and Shashi refers to it as "not knowing the context". They are both referring to the same thing. The problem is that horizontal search engines often do not know what you want based on your search query. For example if your query is "surf" and you live in Santa Cruz, what is it that you really want? Or if you type in "diabetes", the horizontal search engine does not know if you are a doctor looking for research data, or a patient looking for treatment information or tips on managing the disease.

Horizontal search engines are trying a number of initiatives to address this problem, such as search query refinements that allow users to focus their searches more quickly, such as Yahoo Shortcuts or the Google Onebox. However, these refinements are not entirely scalable, as it requires human editorial input for each query to make them accurate.

Vertical search engines address this problem by allowing the custom design of search engines for a specific purpose. The human input is built in from the beginning, and is provided by motivated people who are not on the payroll of the vertical search engine platform provider. If you decide to use a search engine which says it's a "health information search engine for doctors", instead of one that is labeled a "health information search engine for patients", you have already helped to reduce the ambiguity of your search queries even before you type in your query.

In addition, traditional horizontal search engines cannot always determine the target audience of a page or site. Vertical search engines naturally address this issue, because the sites included in the results have been selected according to more specific criteria, and perhaps even by human input.

New players seeking to enter: While much of the search world keeps its eyes focused on every move made by Google, Yahoo and Microsoft, hundreds of small vertical search engines have sprung up, along with several technology providers that enable them. The world of search is such a dynamic place that you can find major developments taking place right under your nose that just aren't getting that much attention. Vertical search is one area where this is happening.

Outsell reports that the vertical search market will reach $1 billion in revenue by 2009. And enterprise search technology provider Convera's recent survey of more than 1,000 professionals found that only 43 percent of business professionals always find what they want from a horizontal search engine after several attempts, and half of those who don't find what they want will then turn to a vertical search engine to improve their results.

The major search providers have long recognized the importance and benefit of verticalization, with each offering some level of vertical options in its general search. In addition, Google, Microsoft and Yahoo have each developed a vertical search platform to allow developers to build a custom vertical search engine using their technology. Microsoft launched Live Search Macros in March, Yahoo's Yahoo Search Builder debuted in August, and Google unveiled its Custom Search Engines in October.

Industry products becoming more differentiated: On September 23rd of 2009 Kelsey group at DMS 09 did a case study to highlight vertical opportunities. Directional Media Strategies 2009 (DMS ’09) is The Kelsey Group’s 30th Yellow Pages and directories conference. In his keynote message, one message Dave Swanson, chairman and CEO of R.H. Donnelley, relayed was that RHD is going to be investigating geo-specific vertical opportunities, essentially meaning evaluating specific categories in specific cities (i.e., attorneys in Orlando).

Here’s a quick recap of what each vertical player discussed:
Darrell Campbell, Founder and CEO, Everycarlisted.com: Part of Superpages.com, the site has 2 million vehicles listed with 1 million videos on the site currently. About 40 percent of Everycarlisted.com’s traffic comes from the car tab on the Superpages.com site. Currently, the site participates in SuperBundles deals and car dealers specifically spend, on average, about $1,000 per month. Package deals range from $350 to $1,450 per month. To come from Everycarlisted.com is video and more video — with the goal of being an all video site.

Craig Smith, CEO, ServiceMagic.com: Over the past 10 years, ServiceMagic.com has grown to 950 employees who help push leads to 61,000 member businesses. The home improvement service vertical handles 40,000 inbound calls per week from homeowners looking for service professionals. The interesting piece of ServiceMagic is that it has tapped a group of businesses that are very small (typically fewer than five employees), spend less than $1,000 per month, and predominately (60 percent) do not have a Web site. Looking forward the vertical is evaluating community expansion, same-day service requests and a project cost guide.

Howard Yeh, VP - Corporate Development, Healthcare.com: Healthcare.com’s business model is pay per click — 100 percent performance-based. The company focuses on the 18 million people in the U.S. who purchase private health insurance. Due to state regulations, local agents remain a crucial piece in helping consumers through the complex process of acquiring insurance. Currently Healthcare.com has about 350 advertisers actively purchasing pay-per-click ads that average about $4. In the near future, Healthcare.com is evaluating diving deeper into the health-care vertical whether it be in new areas of medical procedures or monetization opportunities.

As Campbell said, ” I can’t think of a vertical that the Internet is not going to transform.”

So what are the true industrial economics of Vertical Search Marketing industry? What can Porter’s five forces analysis tell us about the likely profit potential of new Vertical Search Marketing business?

The Vertical Search Marketing industry has some similarity to the internet e-business industry. The first thing to note is that most new Vertical Search Marketing businesses are not fundamentally new business. For the most part they use a new and extended reach for targeted advertising. They offer a better rate of return on every ad spend by advertiser. As such, the main features of these markets are, strong substitute competition from traditional Horizontal Search Marketing, low entry barriers as it doesn’t cost much to develop and implement a vertical search website and high product differentiation. The principal structural features of these businesses are shown below:



The implication is that most Vertical Search Marketing businesses whether for doctors, patients, job seekers, house hunters, recruiters and travellers will tend to be highly competitive and, on average, will generate low margins and low rates of return on capital.

So will any Vertical Search Marketing business offer high profitability? The key is the potential to reduce rivalry and raise barriers to entry through innovation strategy that exploit network effects, economies of scale, or product differentiation.

Yellow Pages in 21st century, Private Equity approach – high leverage with exit strategy

Looking in to the history of the Yellow Pages industry in general we will find private equity finance approach. In finance, private equity is an asset class consisting of equity securities in operating companies that are not publicly traded on a stock exchange. Investments in private equity most often involve either an investment of capital into an operating company or the acquisition of an operating company. Capital for private equity is raised primarily from institutional investors.



In Yellow Pages the investment strategies is a private equity approach which includes leveraged buyouts. Leveraged buyouts refers to a strategy of making equity investments as part of a transaction in which Yellow Pages assets was acquired from the old shareholders typically with the use of financial leverage. The companies involved in these transactions are typically mature and generate operating cash flows.

Financial leverage which takes the form of a loan or other borrowings (debt), the proceeds of which are invested with the intent to earn a greater rate of return than the cost of interest. If the firm's rate of return on assets (ROA) is higher than the rate of interest on the loan and cost of average dept (COD), then its return on equity (ROE) will be higher than if it did not borrow because of the leverage contribution in the DuPont model ROE = ROA + (ROA - COD) D/E. On the other hand, if the firm's ROA is lower than the cost of average dept (COD), then its ROE will be lower than if it did not borrow. Leverage allows greater potential returns to the investor that otherwise would have been unavailable but the potential for loss is also greater because if the investment becomes worthless, the loan principal and all accrued interest on the loan still need to be repaid.

At the time of acquisition of most Yellow Pages in the beginning of 21st century by the private equitys the earnings multiple has been used. The P/E ratio (price-to-earnings ratio) of a stock (also called its "P/E", "PER", "earnings multiple," or simply "multiple") is of curse a measure of the price paid by the private equity for a share relative to the annual net income or profit earned by the Yellow Pages share.

As the financial ratio that was used for valuation of Yellow Pages at the time has been before industry downturn and finical turmoil a high P/E ratio has been used. The high P/E ratio means that investors of Yellow Pages have paid more for each unit of net income, so the stock has been more expensive compared to today’s lower P/E ratio.

Mobile networks enabling future of Cloud Computing

I don’t think any one has missed the big media attentions around cloud computing these days as Google has announced the planning launch of Google Chrome OS. As Google address this, its for people who live on the web — searching for information, checking email, catching up on the news, shopping or just staying in touch with friends.

As we are moving to a new area of PC and data computing known as cloud computing what dose this mean for mobile and Telecom computing?

Datacom and Telecom are much closer and more integrated as ever before and the true meaning of convergence is taking place. In a sense mobile operator networks has always been about cloud mobile computing where we can access voice and value added services like SMS from mobile devices directly connected to the mobile network.

Now however this is also entering a new area as companies like Ericsson implementing and managing the entire mobile network on behalf of the mobile network operators. So Ericsson soon will be doing for mobile operators what Amazon has been doing for cloud computing. Recently the company announced that Sprint Nextel will outsource its network to Ericsson in a seven-year deal valued at $4.5 billion to $5 billion.

But how will the mobile landscape change and reshape itself as Amazon is reported to be close to signing an MVNO contract in the UK as it prepares to launch its e-book reader, the Kindle into the European market.

Google Wave!

They first founded Google Maps technology and now after 2 years they are back with Google Wave!

The Rasmussen brothers (Lars and Jens) who founded Where 2 Tech, which was acquired by Google in 2004 and became Google Maps. On 28 May 2009, Rasmussen brothers previewed Google Wave, a Web-based service that combines aspects of e-mail, instant messaging, real-time collaboration and document processing into a unified user experience

Analysis by Gartner:

With Wave, Google seeks to change fundamentally the way people communicate by turning the Web into an integrated, real-time, multiway medium. Thus, Google has undertaken a complex challenge, which earlier distributed collaboration systems, from Internet newsgroups to Lotus Notes and Groove, have addressed with varying degrees of success. Wave combines a broad suite of applications, a protocol that independent developers can use to build interoperable Wave servers, and a platform that allows developers to add new processing logic to Wave content and to embed Wave functions in external Web sites. Implementing the full Wave vision requires innovations in distributed-computing algorithms, in scalable keystroke-level "push" communications, in protocol design, and in server infrastructure and data repositories.

Google will release major portions of Wave, including the protocol and a reference implementation, under the "most liberal" open-source license to drive adoption of Wave by independent developers and make it part of the Internet infrastructure. Wave also includes innovations in technology, user experience and business model, which can drive adoption by individual consumers. However, several inhibitors will keep Wave from affecting the enterprise soon:

• The large aggregation of features, which can daunt users
• Dependence on the latest Web browser technologies
• Likely overlap with multiple areas in an enterprise’s IT environment

Wave will not challenge Lotus Notes, Microsoft Exchange or Microsoft Office SharePoint Server for five to 10 years, if it ever does. Nevertheless, Wave will create both competition and opportunity for other players in the market. Wave shows that workplace offerings will eventually have to combine Internet standards and a decentralized, federated architecture. Whether or not Wave ultimately succeeds, the Web will win.

What is the root of our times biggest economical crises?

Since the beginning of economical crises I have been wondering for a while where did it start? Why investment banks start bundling the mortgages and selling it as products and bonds?

Here is a unique interview of Michael Lewis by CNN's Fareed Zakaria, he talks to 'Liar's Poker' author Michael Lewis about the economic crisis and future of Wall Street.



"Liar's Poker" tells the tale of Lewis's days at the now defunct firm Salomon Brothers, where mortgage-backed securities -- the fuel for the fire of the current crisis -- came from. "Home Game" chronicles his life as a father. Don't forget Father's Day is coming up!

Reinventing process

I think he did it again, Kjell A Nordström, he managed to inspire business leaders in the Polo Position Day 2009. After The books Funky business and Karaoke capitalism, which are described as a "manifesto of what our time requires from business firms and their leaders", became an international best-seller and has to date been translated into 33 languages.


http://www.polepositionday.nu/program/index.html

Leading age technology in 21st century is an absolute necessity for any company but it’s not the key success factor for companies. In general this applies to all companies from banks, to car manufactures to mobile device manufactures. The leading age technology is necessary for any companies’ survival but it doesn’t create the temporary monopole. What do the companies do next, they ask McKinsey for help. McKinsey will analyze the problem for months and the final conclusions is that your company need a major reorganization and you need outsourcing, in sourcing, downsizing, rightsizing and you know the rest, you have seen it so many times and you have all been there don that. Back in days this was a powerful way to do change but now these types of help are available everywhere and to everyone without help of McKinsey.

So what do we do now? We are now in an age where we don’t have competition in a way that we once knew; there is only a reinventing process and renewal change management that can create leading innovation. iPhone was amazing but now Apple needs to reinvent themselves, it has been more then 2 years and the competition is catching up with all the major device manufactures offering almost the same technology soon or later. This is a major challenge for companies like Apple but they have managed to find a way to create an organization where change is part of the day to day business.

In the age of facebook can we really judge people by their faces?

Just saw an interesting article about how much a face can tell you about a person. Could we really judge people by the way they look? Could one persons face reflect its character?

In this article in economist there is an example about how women judge men by their faces. Testosterone levels are reflected in the face, and who is seen as a one-night stand and who as a potential husband depends in part on this physical feature. Similarly, a male face betrays the owner’s underlying aggressiveness and even his business acumen. Facial beauty in either sex is also associated with higher incomes. The latest research, though, cuts to the moral quick. For Jefferson Duarte of Rice University in Houston, Texas, and his colleagues are suggesting that one of a person’s most telling moral features, his creditworthiness, can also be seen in his face.

What do you think?