I can’t recall the last time I used the Yellow Pages and it looks like companies are beginning to recognize this trend. The New York Times has an article on a study by the Kelsey Group which indicates that small companies less than 10 years old rely more on online advertising than listings on print Yellow Pages. The study found that 90% of small businesses less than 10 years old had a web site, 73% spent money on search engine optimization, and that 72% listed themselves on a specialized online or print directory. However, only 52% of small businesses less than 10 years old were listed in the print Yellow Pages.

The study also identifies the decreasing usage of print Yellow Pages by consumers as the main reason for the increasing use of online advertising by small companies. The Yellow Pages is primarily used to look up information on local companies, given that most Yellow Pages are restricted to a few telephone area codes. This means that the Yellow Pages are competing with local online searches, which accounts for almost 25% of commerce related searches online. If you compare the user experience of the Yellow Pages versus an online search engine, it’s clear why the online medium is superior. With the Yellow Pages, you have to find the thick, dusty book, find the appropriate category, and then scan the fine print for companies to contact. Even when you find a company, you really don’t know anything about the company other than the name, phone number, and the types of products/services they offer. With an online search engine that offers local searches, you enter a few keywords, specify your location, and you get a listing of companies with phone numbers, website information, other related websites, and even interactive maps. Although the localized searches are far from perfect (eg. search for plumbing contractors in Palo Alto returning Dura Spray Foam roofing contractors), it’s only a matter of time before the algorithms are refined and metadata issues are resolved.

Given that the global Yellow Pages (online and print) market was $25 Billion in 2002, online search engines have a tremendous opportunity to divert some of that spending into location based advertising and paid listings. The success of Google and Yahoo, both from a branding and technology innovation perspective, has created online search savvy consumers who understand the benefits and strengths of the online medium versus traditional Yellow Pages. It will be interesting to see which online search company executes on a cost effective model for attracting local listing and advertising from small companies and deliver a better local search experience.

Of course, another dark horse to watch is eBay which has figured out how to reach out to small companies and make them successful on the internet. With eBay’s online traffic, community, and technology platform, as well as their business platform, they could end up making a significant impact if they choose to do so. Given some of Meg Whitman’s comments, I’m sure we’ll see them in making a play in the local listings space for small companies.

One of the unwritten rules in Marketing is that you do not make major product announcements on April 1. For some reason, the smart people at Google's ignored this rule and soft-launched the widely anticipated Google email service (Gmail) on April 1. Give the date of the announcement, some people (even well known bloggers such as Doc Searls) actually thought that it was an April Fool's joke from Google.

It's not a surprise that some people thought the Gmail announcement was a joke since it sounded too good to be true. Google announced that they would be offering a free email service with 1 gigabyte of email storage. To put this in perspective, Yahoo charges $49.99/year for 100 MB of email storage. Apparently, Google has run their numbers and they feel that it's going to cost them $2/year to support 1 gigabyte of email storage. This must mean that either Google has superior infrastructure that is more efficient and cost effective than Yahoo's email infrastructure, or Yahoo has a huge margin on their email service which is not justified.

Of course, there is a downside to the Gmail service. Google plans to generate revenue from the service through contextual advertising that reads the contents of your email to display relevant ads. Since email privacy is a sensitive issue, the announcement has gotten many privacy activists concerned. I can understand the concerns raised by privacy advocates, but to me privacy is one of those complex and difficult issues that has to account for a lot of marginal scenarios that are open to abuse. Some of it can be resolved via the appropriate privacy policies, but over time, people will understand the limitations of their privacy through Gmail and adapt accordingly. For example, by now, most of us know that regular email is inherently insecure so we know that it's not a good idea to send credit card numbers and account passwords via email.

Privacy issues aside, the more intriguing aspect of Gmail is that if Google can truly provide a scalable and reliable email service with 1 gigabyte of email storage, Google has the opportunity to dominate email, which is the numer one online activity and the original killer app of the internet. We're starting to see some encouraging signs from early reviews which seem to indicate that Gmail is more than just another email clone. As expected, Gmail is search centric, which isn't very interesting given that Bloomba from Stata Labs already has a search centric email client. What is interesting is that Gmail has the ability to tag messages instead of storing them in personal folders. In fact, it's almost blog-like in the way you view, classify, and organize information. Since Gmail is still in the beta phase, it will be interesting to see what other features they roll into the service. Like search, I strongly feel that online communication and collaboration is still in it infancy with significant room for innovation and improvement.

From a marketing perspective, given Google's brand awareness and general dominance of the search space, it should be fairly easy for Google to take market share from Yahoo and Hotmail. If I were Yahoo or Hotmail, or even AOL, I would watch Gmail very closely. Unlike other Google services, Gmail is the trojan horse which allows Google to build a direct relationship with its users. Yahoo went through this transformation with My Yahoo and Yahoo Mail and Google seems to be following in their footsteps. Also, AOL and eBay have shown how fostering communication among its users and building a sense of community can be leveraged into significant revenue streams.

Google is now starting to assemble the right mix of services (search, Gmail, Orkut, Froogle) and if it can successfully integrate them under a cohesive Google brand and execute successfully, buying into the $20 Billion Google IPO is going to be like buying into the $600 million eBay IPO and holding tight. As Roger McNamee states in an interview with TheStreet.com on 1/6/2003:

Google is one of the most impressive private companies ever. I have such enormous respect for these guys; what they've done there is just breathtaking. I can't wait for these guys to go public because I'm never going to get the chance to own it privately. Let me tell you, it's not for lack of trying.

Given Roger's track record in Silicon Valley, this is high praise. Now all Google has to do is just go out and execute and the money will surely follow.

I think it's fair to say that we're starting to see the end of the honeymoon between Google and mainstream media. If you do a search for news articles in the past year, you'll see a steady stream of positive, almost gushing, articles on Google's culture, technology, and happy users. However, now that Google is about to go public we're starting to see more balanced articles, such as the recent article in Fortune titled "Can Google Grow Up?".

I'm glad to see people take a more balanced and skeptical look at Google's success and future prospects. Given what we know about their past track record, you have to admit that if they continue to execute the way they have done in the past, a $20 Billion dollar valuation is not unreasonable. Although Google has great technology, I always thought that the more impressive aspect of their success has been their ability to generate increasing revenue while maintaining high margins using Adwords, which is Google's take on search engine pay for placement that was pioneered by Overture. The other often overlooked part of Google's success is their phenomenal success in generating positive PR and coverage based on word of mouth and good will from their users.

As the article points out, there are some cracks that are starting to appear in the rosy Google success story. The obvious ones are management issues, cultural shifts, and other growing pains that a fast growing company will need to overcome. There is also the threat of competitors such as Yahoo, AOL, and Microsoft who are starting to see Google more of a threat than a partner. However, I think the biggest weakness for Google is the lack of an ongoing relationship with their customers and advertisers.

If you look at the other success stories in the internet space, customer relationships and the sense of community play a significant role in ensuring continued success and customer loyalty. Some companies that come to mind are Amazon, eBay, Yahoo, and even new comers such as NetFlix. On the internet, users have very low switching costs. You're always just a URL away from the next service provider. Also, without an ongoing relationship, it's difficult to provide a customized and optimized experience that will keep you coming back, even when there are other sites that are almost equivalent in features and ease of use.

Google's answer to all of these concerns seems to be that search is still in its infancy and that whoever continues to win the search engine arms race will continue to be successful in attracting advertisers. I don't disagree with this approach since internet search technology is still in its early stages. However, I don't think one company can continue to innovate at the same pace, especially when employees can cash out after an IPO. Unless Google starts going through a technology and cultural shift now, they're in danger of becoming the next AltaVista, except this time it will be Microsoft or Yahoo, rather than two Stanford PhD students who overtake the search engine crown.

With all these announcements around web search engines being acquired, I thought I would give some of them a try to see how they compare to Google. I didn't do an exhaustive study, but innovation and competition seems to be alive and thriving in the search space. Search engines such as Teoma and AllTheWeb have features similar to Google but they also have additional features such as query refinement and multimedia specific search that are not provided by Google.

Google is still the King of web searches with around 250 million searches per day, which is significantly higher than AltaVista's 18 million searches per day and AllTheWeb's 12 million search per day. However, the cost of switching search engines isn't really very high. Unlike enterprise software platforms where you have an installed base of customers and applications, the cost of switching search engines is switching URL's. I still remember when AltaVista and HotBot were the premier search engines. Google might be ahead now, but if they stumble, they could be left in the dust by another startup or maybe even a new-and-improved search engine from the past.

Overture has announced that they will be acquiring the Web search properties of Fast Search & Transfer (FAST) for $70 million in cash and up to $30 million over the next three years, based on fiscal performance targets met by FAST. This is on the heels of their earlier announcement that they will be acquiring AltaVista for $80 million in Overture stock and $60 million in cash. Although Overture keeps denying it, they must be investing $100 million in cash to address the growing threat from Google and Yahoo to Overture's core business of paid placement within search results. Of course, the immediate result of these two announcements was that Overture's stock price plummeted down by 33%. If I were holding Overture stock right now, I would not be very happy.

I still remember the early days of Overture when they were known as Goto.com. They had this wacky idea of auctioning placement of search results from keywords to the highest bidder. It sounded like one of those novel business models dreamt up by a clever MBA that was creative but not quite solid. Not as wacky as the business model from AllAdvantage.com (recurse(get paid to surf and get a cut of the revenue stream from everyone you recruit into the program)) or the original business model of buy.com (sell goods at cost and make money on advertising to the customer base), but still a little wacky. You definitely have to hand it to Overture. They were able to execute on their business model and launch a $2 billion market.

The question is, can Overture continue to execute on their business model? In some ways, they've shown how companies such as Google can monetize web searches, but they seem to be slipping. After all, how hard can it be to develop search placement technology? All you have to do is recognize some keywords and then look up the appropriate text to place within the search. The real hard part is developing a good search engine, which is the part that Google seems to have mastered. Now that Overture has access to the AltaVista and FAST web search assets, it will be interesting to see how they innovate and evolve their technology into new areas. The hard part for them is that they have to embark on this transformation as a public company, with all the scrutiny and short term revenue and earnings pressure associated with being a public company. Whatever happens in the short term, I wouldn't count Overture out. They've been able to execute on their original business model and build a $2 billion market. Maybe they can do it again.

Forbes has an interesting article on how Google has built a $2 Billion brand through a superior product promoted through word-of-mouth. Apparently, this $2 Billion number is an estimate based on conversations with industry sources. They then support this estimate with an Interbrand survey that rated Google as the top brand in 2002, ahead of Apple, Coca-cola, and Starbucks. It really is an amazing accomplishment for Google, especially when you compare it to the millions that dot coms spent on advertising to reach consumers.

Google also seems to be doing very well on the revenue side as well. Forbes estimates that Google had $100M in profits in fiscal year 2002. I've read other articles that are more conservative, but the point is that they're continuing to increase their revenue and profts.

On the flip side, you're starting to see some Google backlash now that Google has entered the mainstream. Do a search for "Google evil" on Google and you'll see some interesting results such as Google Watch. So far, the backlash seems to be from the fringes, but it'll be interesting to see how Google deals with this growing backlash.