After a visit to GuruNet and a conversation with its CEO Bob Rosenschein, American Technology Research analyst Mark Mahaney sent the following to his clients outlining two implications for Google (ticker: GOOG), Yahoo! (ticker: YHOO) and MSN (Microsoft - ticker: MSFT):
GRU chart below.
1. GuruNet provides an indication of the increasing importance of content to search engines -- The GuruNet numbers are still tiny. The company claims to be receiving over 1MM queries per day, up 1,300% YTD. But in context, a 90MM quarterly query run-rate is only 5% of our Ask Jeeves Q1 estimate. And ASKJ accounts for only approximately 5% of U.S. queries. The growth is still impressive, however, and we see a lot of merit to Mosberg's conclusion that "Answers.com is...a start toward a new search paradigm where the object is to provide real instant information, not just links to pages where that information may, or may not, be found".
We believe that GuruNet's momentum highlights the search engine-to-answer engine trend that has previously been described by industry watchers like Jakob Nielsen. We see this trend in the moves by Ask Jeeves, MSN, Google, and Yahoo! to provide more direct content information among their search results. At the margin, the distinction between search and portal sites is likely to grow smaller. This is also a point that has been made by David Jackson of The Internet Stock Blog, one of our must-reads.
Which stocks win from this transition? We think it's too difficult to know at this time. But we believe that convenient answers -- and not just relevant search links -- will be increasing requirements of search engines. This will be an increasing part of the competition between Google, Yahoo!, MSN, etc...
2. GuruNet provides a sign of how early stage are the efforts to effectively monetize Google's Ad Sense for Content network -- With the March 8th announcement, Answers.com became a Google Ad Sense for Content affiliate. Our sense is that Ad Sense for Content has become an increasingly important revenue driver for Google, although we're hesitant to try to quantify it now -- our guestimate is 10%+ of Google Network Web Sites revenue with a 60-70% revenue share. Ad Sense for Content is a program whereby Google places relevant key word links next to content on Web publishers' sites. This program allows Google affiliates to monetize their content via search advertising.
Our take-away here is that the efforts to monetize the Ad Sense for Content network are still early stage. Newer affiliates like Answers.com simply sign up and place the sponsored links in staple format in the far right column of their Web pages. Later, they experiment with different ways of presenting and placing the links (e.g. wider columns, links at the bottom of the page, etc...), and they are likely to find that even modest and easy changes to the links can have a material impact on click-thru rates and, hence, monetization results they enjoy. That's what we picked up from GuruNet. Our sense, based on discussions with other Web publishers, is that GuruNet's experience is fairly representative. Hence, our belief that we're still in the early stages of the monetization efforts on Google's Ad Sense for Content network. And early stages in monetization efforts means early stages in revenue growth trends.