By Guest Author Saad Fazil
In an earlier post I argued that Google would benefit from acquiring search engines in verticals such as travel, jobs, and products. By doing so, Google can retain “rich” traffic which otherwise might directly go to those search engines for specific needs. Though I still stick to Sramana’s and my statement, I find it interesting that Google makes a lot more on keywords in several verticals than their counterpart vertical search engines do. This is counter-intuitive to the notion that since vertical searches can show much more relevant ads to their audience, they can charge higher premiums than Google can. In this article, I will explain why this is not the case in practice.
(1) If you search for “BOS to NYC” on Google, you will see comparable or even more relevant results than you will on Kayak (Bing is a different story though) for the same search. Google does a pretty good job of understanding particular keyword phrases such as “<airport code> to <another airport code>”, and therefore able to show very targeted ads. Therefore, it can actually charge higher premiums than Kayak can.
Kayak vs. Google
(2) Google is the starting point for many people who do not know of a specific travel site such as Orbitz or Expedia. All these online travel companies would typically spend tons of money on advertising on Google so that they can buy the traffic to their websites. However, it is less likely that Farecast would advertise on Kayak and vice versa since they are competitors. This would mean a high ad spend on Google vs. any other individual travel search engine.
(3) Extending the previous point, since all or most companies are competing on Google, the high competition would drive the CPC higher than it would be on a vertical search engine.
(4) As a dominant search engine, Google’s traffic is several-fold that of any other vertical engine. Therefore, even if CPCs were comparable, just the sheer number of clicks would drive revenue higher.
(5) Google targets a lot more keywords than just phrases like “SFO to NYC”. For example, you wouldn’t search for “hiking trails” on Kayak, whereas Google would get many more searches like that. Therefore, number of “travel-related” keywords advertised on Google is much higher than any other online travel site.
For all of these reasons, Google ends up making much higher revenue in many verticals just based on revenue from ads. Note that even though my examples above were mostly travel-based, the same would hold true for many other verticals.
So where does this lead us? Why should Google buy vertical search engines such as Kayak? There are three reasons:
(i) As I said above, Google is losing “rich” traffic to sites such as Kayak and Amazon. True that people would still come to Google for their “general” travel needs, but if they know what they want to search for, they would rather go to Amazon or Kayak or HotJobs.
(ii) We totally ignored revenue made from selling tickets, charging referral fees to the airlines, etc. If Google were to acquire one of these verticals, it could address a major concern raise by many analysts: most of Google’s revenue comes from a single source, advertising.
(iii) The question is not Google vs. Kayak, but Google vs. Bing or Google vs. Yahoo!. Microsoft bought Farecast to integrate it with its search engine (so-called decision engine) Bing. If Google doesn’t come up with a response, Bing is poised to monetize its traffic more effectively.