Googles IPO Signifies the Resurgence of Search

In laying the groundwork for its stock offering, Google is marking a turning point for the search industry and proving that a relatively new way of selling ads can make money.

By officially filing to go public this week, Google Inc. marked more than a milestone for a company borne from two Stanford graduate students innovative search technology. It showcased the ascendancy of Web search as a core technology of the Internet and of search-based advertising as a profitable business model.

To industry analysts, search-engine marketers and Googles rivals, the companys IPO provides testament to what they have already known for years: The search-engine market, once written off, is in a revival, sparking renewed competition and spawning an entirely new way to advertise that uses search terms as the currency.

"It clearly signals that the [search] industry is growing and becoming more and more important," said Andy Beal, vice president of search marketing at WebSourced Inc., in Morrisville, N.C. "With Google now being a publicly traded company, it will be a strong voice for this industry and could lead to other companies following suit."

The market for paid search listings—the text ads that often appear alongside regular search results and that are triggered by the highest bids on keywords—is expected to grow to $4.3 billion in 2008 from $1.6 billion in 2003, according to Jupiter Research, a division of Jupitermedia Corp.

Google on Thursday filed its official paperwork for an initial public offering. Breaking with Wall Street tradition, the Mountain View, Calif., company plans to offer shares in an online auction that could raise as much as $2.7 billion.

/zimages/6/28571.gifLook beyond the "Google IPO euphoria," advises Enterprise Applications Center Editor John Pallatto. Click here to read more.

In a letter written as part of the filing, Google co-founders Larry Page and Sergey Brin indicated that the decision to go public was more about necessity than a deep desire to court Wall Street. One factor, no doubt, was an obscure securities regulation that would have forced the company to reveal closely held financial data whether it filed for an IPO or not.

But just as important was the intensifying competition Google is facing. Some of the biggest names on the Internet want to overthrow its search-engine crown and reap more of the profits from the search advertising model that largely propelled Google to nearly $1 billion in revenue last year. Its main adversaries are Yahoo Inc. and Microsofts MSN division, both named in Googles S-1 filing submitted to the Securities and Exchange Commission.

"Yahoo and MSN were coming, whether Google was ready for them or not," Beal said.

Yahoo earlier this year dropped Googles Web search results, opting for its own technology. MSN has begun developing its own Web crawler, and top Microsoft executives have vowed to aggressively battle Google with the companys own search-engine technology later this year.

"Upstart Google has grown to a size that is a threat to some of the more established businesses out there, such as Yahoo, to some degree, and Microsoft, to a larger degree," said Gary Stein, a senior analyst at Jupiter Research. "They needed an additional boost and acceleration [from an IPO]."

Google remains the leader in market share for Web search. In the United States, Google accounts for 34.7 percent of Web searches, with Yahoo on its tail with 30 percent, according to comScore Networks Inc. MSN has a 15.4 percent share.

But Yahoo already has shown to be a formidable opponent. In another measure of success, it had the highest penetration among search engines, with about 50 percent of all U.S. search-engine users conducting at least one search at Yahoo in February, compared with 45 percent for Google, according to comScore.

Next Page: A year after Google started offering ads, it turned a profit.