Barriers to entry

by Eszter Hargittai on August 29, 2005

Anecdotally, I still often hear people say (like I did this weekend, or like I’ve read in CT comments) that it wouldn’t take that much for a new company to enter the search-engine market. But we are not in the late 1990s and it would take tremendous resources to enter this market.

The major players at this point are AOL, Ask Jeeves, Google, Microsoft and Yahoo!. (Note that in contrast to much anecdotal evidence in the press and among other commentators, Google does not have nearly the market share that many people suggest. I’ve discussed this on CT before.)

Among the above search engines, AOL, Google, MSN, and Yahoo! represent much more than just search engines. They are vast empires of Internet-related products that continue to innovate and introduce new services.

This does not mean that there is no room for innovation. In fact, we seem to be undergoing a second boom these days (somewhat reminiscent of the late 90s, but in a much more realistic manner). Numerous interesting and innovative services have sprung up in the last few years. However, you will notice that many of these are eventually acquired by one of the companies above. Examples: Google’s acquisition of Blogger and Yahoo!’s acquisition of Flickr.

And to be sure, we have even seen new entrants in niche markets of search, for example, the searching of recently added content. Here, Technorati and Feedster come to mind. While offering valuable services – an almost immediate inclusion of blog content in search results – these engines focus on a very small segment of Web content.

It would take tremendous amount of resources in this day and age to even come close to the computation and labor resources that drive the above-mentioned companies and allow them to index Web content at a more general level. It is unlikely that we will see independent new entrants in the near future. If we do, they will likely be acquired by one of the companies above.



jonathan 08.30.05 at 12:10 am

So if the Market is closed. Who has the best cards to win the monopoly?


jet 08.30.05 at 7:08 am

The market isn’t closed, you just need $15 billion in capital. And who can’t get their hands on that?


Dirk 08.30.05 at 7:28 am



des von bladet 08.30.05 at 7:30 am

What about Baidu and the possibility of other xenophone search engines springboarding into the silly Engleesh from a basis in Foreign?

Your “major players” link makes explicit that it is only concerned with the domestic US market, but the last Next Big Search Thing I remember was Swedish by birth, and the next could well be Hungarian for all I know. Google doesn’t even handle English, Swedish or French morphology gracefully so there are plenty of walled gardens left where potential rivals can prosper and plot.


Tom T. 08.30.05 at 7:37 am

All of the players you mention (AOL, Ask Jeeves, Microsoft, and Yahoo!) were around and were similarly large and multifarious when Google first arrived, yet Google carved a place for itself on the strength of good algorithms and adequate capital. What do you believe is different about the market today that would prevent some new company from doing the same thing?

Moreover, there was plenty of acquisitioning going on back then, but no one bought Google. Why would Yahoo or MS be more likely to buy an emergent new killer-app company now?


theCoach 08.30.05 at 9:55 am

tom t,
Google was around in the frothy days of the bubble, and in a period where the physical costs of storing a web index was not too cumbersome.
However, you caould have said the same thing about IBM and software before Gates got them to sign something they should not have.
There are a lot of other things coming, that may change the import of this — a semantic web, a government program, the big guys using domain specific authorities to rank, etc.
If the change is worth while enough, an acquisition could change culture just as much as a separate company coming to prominence — there is less of a brightline between an acquisition and an upstart than it appears.


Eszter 08.30.05 at 11:22 am

Des von Bladet – Actually, Yahoo! put $1 billion into a Chinese e-commerce firm recently (Alibaba) so I would hardly say they are ignoring other markets and languages.

Tom T. – We are not in 1998 anymore. As the coach notes, much more money was floating around _and_ the resources required to start indexing the Web back than were much different from what that requires today. The Web has evolved leaps and bounds since then and has gotten much much larger and more complex (more types of files, etc.).


des von bladet 08.30.05 at 12:31 pm

Eszter – I didn’t accuse Yahoo! _et al_ of myopia; it was the page you linked that was based on US only. Google bought a slice of Baidu too, IIRC, but my point is that there was after all a slice of Baidu to buy.


Seth Finkelstein 08.30.05 at 12:37 pm

I think the point is that while there is certainly some still-unmined territory, the basics of the market are past the initial stages.

Note in many cases a bigger player could have immediately bought-out a small upstart, but for one reason or another, did not.

IBM and Microsoft is a case where there were anti-trust reasons preventing what would have been a logical business move to crush competition.


Andrew 08.30.05 at 12:47 pm

There are other firms with the reasources and the technology to put out innovative search engines. In particular amazon comes to mind here, and they might be able to put out an algorithm that tracks what users prefer as far as pages over what results seem to fit as Google and MSN do. Now, their A9 only back-ends to Google.


John Quiggin 08.30.05 at 4:26 pm

Eszter, I’d be interested in expanding on this. Is the biggest obstacle the computing power required for this kind of job or the development cost of building a new search engine from scratch? It seems to me that the barriers aren’t such as to preclude a new entrant on the software side, backed by a company like IBM or even Apple from entering. I haven’t got details to hand but I recall that Google’s physical stock of computers cost them a tiny fraction of their current market capitalisation, suggesting that successful entry could have a high payoff.


SomeCallMeTim 08.30.05 at 11:00 pm

I suspect you’re all overthinking this. You don’t really need to index anything close to the whole web. On a bet, the number of hits people click through on Google is substantially smaller than 100%. If someone comes up with a better way to determine what people want, people will go there. (I think John Q mentioned that he uses Wikipedia a lot, for example.) Once you have some initial base of users, things can grow fairly quickly.

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