There has been a significant shift in how individuals go about finding information, purchase goods and services and, more interestingly, how business advertises to its customers. The Internet is fast becoming an integral part of everyday life, as was predicted by the pundits at its inception. The beneficiaries of this behavioral change have been those Internet businesses, which have recognized and responded to that shift. Google (GOOG: chart), Microsoft (MSFT: chart), Amazon (AMZN: chart), Yahoo (YHOO: chart) and Ebay (EBAY: chart) are all eyeing each other’s businesses in an attempt to secure a foothold in the next dominant Internet technology, while continuing to grow their share of those businesses, in which they have already established themselves.

Information search has exploded online led by Google’s appearance in 1998 and its continued innovation since then. The business of search also reinvigorated the online advertising business, which was stagnating, both with new information search methods as well as a broader range of online advertising spots. In addition, Internet-based sales have become a primary driver of retailing growth, with U.S. online retail holiday sales exceeding $23 billion in 2004, which were up 25% percent from the 2003 season, according to Nielsen/NetRatings. That growth far outpaced the single-digit sales increase for traditional in-store generated sales, which were estimated by the National Retail Federation, at about $15.5 billion, during that same holiday time period.

As recently as last year, it was estimated that only 3% of total advertising was online and less than 2% of commerce was conducted online. Both of those percentages are rapidly being revised. Revenues from Internet advertising grew 35% year over year to $2.43 billion in the third quarter of 2004, according to the Interactive Advertising Bureau. In response, there has been an underlying secular shift in how advertising dollars are distributed. Web-search advertising is a fast-growing segment of online advertising largely supported by keyword search advertising, which is fast becoming a multi-billion dollar business. Growth in that business will be supported by an increase in use of keywords as well as a rise in prices paid for them.

Enter Microsoft into the Business of Paid Search

Google's unveiling as a publicly traded company has heightened the focus on search engine companies and their growing share of online advertising revenues. That coupled with the increasing number and duration of searches on the Web, as well as Microsoft's entry into the increasingly competitive search engine field has created many more opportunities. Microsoft, which aims as a company to be part of the next revolution in online advertising, has targeted search for its long-term investment. Microsoft has stated the company aims to overtake Google in the increasingly lucrative search business.

At this point, Microsoft has already developed a Web search engine and is expected to develop its own paid search program to rival Google and Yahoo's Overture Services. At this point, Microsoft’s MSN Search accounts for only about 15% of Web searches. Not to be deterred, Microsoft has already used its extensive software development capabilities to develop a bid-management tool, currently named Moonshot, designed as a tool to manage campaigns. The buzz has been of late that Microsoft wants to launch its own bid-based, cost-per-click paid search platform resembling Google's AdWords and Overture's Precision Match. The company has been hiring employees with a background in pay-for-performance and experience writing text ad copy, building keyword lists and doing ROI analysis.

The Battle Heats up for Desktop Search

Desktop search is the next technology to take off in the booming search sector. It will help to generate further growth in revenues from ads linked to Web search queries. Yahoo, Google, Ask Jeeves (ASKJ: chart) and Microsoft's MSN Internet division have each benefited from Web-search advertising and each is looking for additional opportunities to further expand profits from search-related advertising. Google launched its test desktop search service in October. Google’s new Desktop Search tool allows users to scan their computers for information in the same way they use Google to search the web. Unfortunately, at this point, Images, Acrobat, Windows Media and MP3 files are also not officially supported by Google’s product as searchable content.

The biggest challenge to Google’s service is from Yahoo, which has begun to offer a free, high-speed way to search for data on personal computers. Yahoo's desktop search software tries to speed the process by employing a technology called typedown search, which is structured to anticipate what the user wants before the user concludes typing a query. Yahoo, which has partnered with X1 Technologies for the venture, says its product is faster than Google's offering.

Ask Jeeves positioned itself in this new market, when it bought desktop search technology company Tukaroo, last year. Ask Jeeves has also launched a desktop search tool, which the company intends to ultimately design to be fully comprehensive. MyJeeves strategy is position itself as the premier place for user’s personal files, including Web pages, photos, music files and email, among others. The company will not pose a significant threat to Google or Yahoo, but will likely gain a small share of this market in line with its existing user base.

Searching at the Local Level

For some time now, Yahoo and other online publishers have looked for ways to gain a share of the revenues that local businesses spend on print yellow pages listings and other local advertising vehicles. Local search has been an area targeted by Overture, Google, Yahoo and others as a promising growth business for some time. So far, they have been unable to develop the product that appeals to both advertisers and users on a broad scale. Overture's focus on local search, along with those of its competitors, indicates the promise of local marketing on the Internet and the effort that online companies are putting into expanding the presence of pay-for-performance advertising on the Internet. Google has added a local search feature, which enables users to search the entire web for just those stores and businesses in a specific neighborhood. Google will display relevant results from a region, designated by the user with a city or zip code in their search.

Google Partners for Position

Google recently launched an advertising partnership with Buy.com, delivering Google AdWords advertisements to Buy.com's customers. As part of the agreement, targeted, text-based ads from Google are placed on Buy.com's website through the Google AdSense program. These ads are incorporated throughout Buy.com's website, within the online retailer’s technology pages, including its computers and electronics homepages, as well as its entertainment and leisure stores, which include Books, Music, Sports, DVDs, and other catagories. In addition, customers searching on Buy.com will receive Google advertisements on the search results pages. This agreement also adds Buy.com to the Google Network and extends the reach for Google AdWords advertisers to another quality website. Unlike Yahoo, which has expanded its product offering largely through acquisition, Google has expanded its offerings for the most part through internal development.

Yahoo Continues to Try to Challenge Google’s Dominance

Yahoo is exploring a different strategy than Google and other search-based outfits. Yahoo has frequently been behind Google in rolling out innovations although the firm continues to try to keep pace by matching the technology tools offered by competitors and improving its existing offerings. Recently, more of the focus seems to be on content and rather than treating content as a commodity, Yahoo appears willing to craft deals in order to get rights to certain offerings, particularly online video.

The competition between Yahoo and Google has intensified, with the growth by the top two search engines. Yahoo actually gained share over Google in the fourth quarter of 2004 and is likely to be one of the biggest beneficiaries of the burgeoning growth in search.

No Worries for Accoona

The latest entrant in the burgeoning business of search is Accoona, a search engine with proprietary search technology, which is based on artificial intelligence. Accoona, named for the Swahili phrase "accoona matata", which means no worries, has raised $15 million from investors and expects to start generating revenues, initially by providing sponsored links through Yahoo's Overture division. Accoona sees its exclusive 20-year agreement with China Daily, the national English-language newspaper of China, as a major differentiation in the hotly competitive Web search market now dominated by Google. Accoona is partly owned by the largest English-language site in China, which is the government-sanctioned China Daily Information Services. Accoona expects more than 10 million daily unique visitors from China and maintains a global database of 32 million companies (including 5 million in China).

Just when you think that all is well in Internet advertising land