Silicon Valley Watcher - at the intersection of technology and media

The Federal Trade Commission (FTC) appears to be stepping up its scrutiny of Google and anti-trust issues related to its business. Bloomberg reports that the FTC is asking for sworn statements from competitors and advertisers.

This action usually precedes the filing of a lawsuit seeking to block the $750 million AdMob purchase announced in November.

Agency officials typically collect declarations “when they think there is some significant chance” the agency will ask a court to block a merger, or seek to modify a deal, said Stephen Calkins, a former general counsel at the FTC who is now a professor of law at Wayne State University’s law school in Detroit.

You can bet that Microsoft is happy to testify about this deal. Microsoft has a lot of experience with anti-trust and can craft its complaints in a language that FTC's lawyers can understand.

Scott Cleland, writing on The Precursor Blog, predicts that Google is likely to withdraw from the deal before the FTC files a complaint.

The last thing Google wants to do is have its own actions or recalcitrance be the catalyst for a much broader and more serious antitrust crackdown on Google's rapidly proliferating anti-competitive behavior.

For Google, it means it has to rethink not only its mobile ad strategy but also its acquisition strategy. It will be very difficult for Google to make large acquisitions in the future. But trying to grow its businesses organically, will reduce its ability move quickly, and dominate new markets. Which is precisely what the FTC means to do.

At some point, Google may decide to make a stand and challenge an anti-trust complaint. But it will have to choose its battleground carefully, because it will lay itself open to anti-trust lawsuits from other businesses, it will need solid footing.

Google's difficulties in making acquisitions bad news for the VC community. With very few IPOs around, acquisitions have become the main exit strategy for many venture-backed companies.

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Please see: Nine years later does Google still need 'adult supervision?' | Tom Foremski: IMHO | ZDNet.com

Wayne Rosing, when he was VP of Engineering at Google, once told me that Google saves every bit of data from people's searches and puts it onto tapes and ship it off to a storage facility.

Why does Google collect all that data I asked? We don't know, but we collect it all, he said.

Search data is mined to "learn from the good guys," in Google's parlance, by watching how users correct their own spelling mistakes, how they write in their native language, and what sites they visit after searches. That information has been crucial to Google's famously algorithm-driven approach to problems like spell check, machine language translation, and improving its main search engine. Without the algorithms, Google Translate wouldn't be able to support less-used languages like Catalan and Welsh.

Data is also mined to watch how the "bad guys" run link farms and other Web irritants so that Google can take countermeasures.

Google eventually anonymizes the data:

The last octet of the IP address is wiped after nine months, which means there are 256 possibilities for the IP address in question. After 18 months, Google anonymizes the unique cookie data stored in these logs.

This isn't especially ambitious; Europe's data protection supervisors have called for IP anonymization after six months and competing search engines like Bing do just that (and Bing removes the entire IP address, not just the last octet). Yahoo scrubs its data after 90 days.

But this data could still be traced to individual users.

This is what happened when AOL released search data on 685,000 search users in August 2007. The data had been anonymized but it was easy for reporters to find the actual users from clues in their searches, such as zip codes and town names.

You can search for what AOL users searched at these sites:

http://www.aolstalker.com/

http://aolpsycho.com/

The AOL searches revealed a glimpse into the unguarded thoughts of the digital haves.

In one instance, it looks as if a wife and a husband are using the same computer, each hiding their extramarital affairs from the other, then later looking for help online to deal with the pain of a failed relationship.

And there are real soap operas, tracked over a period of months... from the excitement of first meetings:

"how to get rid of nervousness of meeting a blind date 23 Apr, 12:27"

Then disaster:

"if your spouse has an affair should you contact the other person's spouse and let them know : 07 May, 09:58"

And the same user account asks:

"i had sex with my best friend and now he treats me differently :26 May, 13:58"

There are also "how to kill your wife" searches and more.

All this data was anonymized but all the searches from a single computer were kept together and that means they can eventually be traced. A New York Times reporter quickly managed to find one of the searchers.

Welcome to the future transparency of your past.

In the future, there will be vast databases of anonymized data from a variety of sources: search engines, credit card companies, cell phones, geo-location data, etc. It will be possible to triangulate that data, and if one piece of that data is linked to a user, it will unlock everything else.

Yes, it would take quite a bit of data mining but we have the technologies to do it today.

While each silo of information, technically might be anonymous, in aggregate, it would help identify users from their behavior. Each digital interaction throughout your day, whether through mobile, or desktop, or bank, leaves a trace and that can eventually be tracked and matched with an identifiable person.

And Google, with its dominance of your life, search, email, docs, buzz, photos, video, etc, is collecting huge amounts of your behavioral data, and it will be one of the main keys in unlocking your privacy.

Welcome to the future transparency of your past.

I'm a big fan of Gabe Rivera's Techmeme news aggregator, (and I'm not the only one as my photo shows), I became even more of an admirer when he hired five editors to help with story placement, because news sites stopped linking to each other, and his usual search algorithm didn't work anymore (Google take note).

Earlier today, Intel, the world's largest chipmaker, reported that one of its senior execs, Sean Maloney, number two at Intel, suffered a major stroke.

I wrote about it around 4pm. Others have too. Nine hours later, nothing has shown up on Techmeme. Top story at this time (10pm Monday) on Techmeme is an old story: Picnik Acquired by Google. The most recent Sean Maloney story is Intel Risks It All (Again) Oct 14, 2009.

I speak as a fan, Gabe, fix that algorithm :)

UPDATED: A story finally appeared on Techmeme at 6.55am Eastern Time the next day - linked to a Guardian story in the UK - NOT to the source statement from Intel the previous day.

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Please see: The Death Of The Search Algorithm? Techmeme Has Six Editors

"Death might be too strong a word but this is definitely a watershed moment. Techmeme, which used to rely completely on Gabe Rivera's secret algorithm to pick tech news and blog posts, now has six editors.

This is significant because Techmeme shows that human aided algorithms are more effective than just software and server. Techmeme is a microcosm of the rest of the search-enabled world of services, from news aggregators to basic search.

If Techmeme can't be Techmeme just by using its algorithms, and now needs lots of editors, then that means much larger news aggregators and search companies will likely have to add human editors too."

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The Demise Of Linking ... And Its Effect On Google Pagerank - SVW

The demise of linking seems as if we have gone back to where things stood five years ago, when newspapers hated linking out to other news sites, or even acknowledging that other news sites existed.

Bloggers loved linking and many still do it -- but not as much, especially if they've transitioned into online news magazines such as GigaOm, orReadWriteWeb, blogs only in name because they use blogging software (Wordpress) to publish but act like and look like the traditional old media.

This all has a more serious implication: Google PageRank. The whole bedrock of Google's search is in links. That was its founders' great insight: pages with more links to them are more important than those with fewer links. There is a PageRank patent.

Not everyone has reduced their linking. Spammers and publishers of commerce sites are continuing to use links a lot because that's what Google pays attention to in determining the quality of a page. This means that if non-spammers are linking less then Google's first page of results is going to get flooded by spam."

Following an Italian court ruling earlier this week, Google is facing the prospect of having to check Italian sourced videos before they are posted, to make sure they don't violate Italian privacy laws.

That's a daunting task.

One potential way around this problem is to do what it did in South Korea last year. A new law forced Google to collect the real names of Koreans uploading videos or commenting online.

On the day the law came into effect, Google simply switched off the comments and blocked the ability for people to upload videos to its Korean YouTube site. Koreans were still allowed to upload video to YouTube sites in neighboring countries.

It was neat sidestep of its legal obligations.

Run for the border...

Courts only have jurisdiction within their country. But web sites and data, can be located anywhere. In the future, Iceland, might become a favored destination for Internet data because it is debating passing strong laws that protect freedom of speech.

Iceland plans future as global haven for freedom of speech | World news | guardian.co.uk

Google could use the international nature of the Internet to thumb its nose at any government seeking to control what it hosts.

Such a strategy however, is a risky one. If it chooses the wrong issue, it would be seen as an international pariah, which would harm its brand. After all, a competitor is always just one click away.

Google needs to decide whether its claim to "Internet freedom," as its right to host and distribute a video of a disabled boy being beaten and insulted, is one that would justify disregarding a country's laws.

There might be more important battles to be waged in the future and it would do well to keep its powder dry.

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Please see:

Analysis: Italian Decision Could Help Traditional Media Orgs

Google Is A Media Company - New York Times Sees The Connection In Italian Court Case

It seems that the New York Times agrees with my view that the Italian court ruling on Google hosting a video of a disabled boy being bullied, [Italian Decision Could Help Traditional Media Orgs], potentially benefits Italian prime minister and media magnate Silvio Berlusconi:

Larger Threat Is Seen in Google Case - NYTimes.com

In Italy, where Prime Minister Silvio Berlusconi owns most private media and indirectly controls public media, there is a strong push to regulate the Internet more assertively than it is controlled elsewhere in Europe. Several measures are pending in Parliament here that seek to impose various controls on the Internet.

Critics of Mr. Berlusconi say the measures go beyond routine copyright questions and are a way to stave off competition from the Web to public television stations and his own private channels -- and to keep a tighter grip on public debate.

...

The Google ruling comes amid other proposed legislation that would seek to bureaucratize the Internet in Italy, including the highly contested Italian version of a European directive that would compel online broadcasters to seek the same licensing agreements as broadcast television. Google lobbied for changes to the proposal.

I've said this before and I don't mind saying this again: Google is a media company -- it publishes pages of content with advertising around it. Just like a newspaper. What's not a media company about that?

Google is not a technology company.

You cannot buy any technology from Google. You can buy technology from Oracle (databases), or from Intel (microprocessors).

(OK. You can buy a search appliance from Google but that is a tiny business that barely registers in its financial results.)

Google is a technology-enabled media company. Therefore, it will come under similar regulations that apply to media companies.

As the New York Times reports:

The verdict, though subject to appeal, could have sweeping implications worldwide for Internet freedom: It suggests that Google is not simply a tool for its users, as it contends, but is effectively no different from any other media company, like newspapers or television, that provides content and could be regulated.

I've been saying that Google is a media company for about five years. Today, more people understand this point, and this is what the Italian ruling is about.

And this is the issue that will chase Google in other countries too.

[This is a very important point: This issue is one that can help traditional media companies. If Google's business costs rise because it has to hire people to monitor its content, like other media companies have to do, then that establishes a more even playing field. The cost of online advertising will rise and that will be good for media companies struggling to make the transition to online. It will increase their potential revenues from online media.]

Google can't continue to turn a blind eye to its social responsibilities. It has to face them or it will be forced to face them.

If media companies such as newspapers have to shoulder social responsibilities then Google, and other Internet companies, need to do the same.

"Do no evil" is passive "Do some good" is what Google needs to do.

Yes, it is tough to do that, but I know Google can do it. I'm constantly amazed at how it manages to deal with some of the most difficult problems around. It can do this and still prosper.

It's better that turning a blind eye to its social responsibilities and hiding behind "Internet freedom" as an excuse for the right to publish a video of a disabled boy being beaten and insulted.

Google's position on this issue is risky.

The risk is not from public opinion but from within its ranks. If its own people, its employees, start to lose their respect for the company, then it is in trouble.

That's what happened at Yahoo, with its horrible policy of working with Chinese authorities to finger and imprison dissidents. I know from personal experience, that people that worked at Yahoo lost a lot of respect for their management, and that damaged Yahoo tremendously.

You can trace Yahoo's problems directly from the start of its China policy.

Take a look at the stock market value of Yahoo at the time it was revealed by Reporters without Frontiers, to have acted as a "police informant for the Chinese."

Yahoo's China "police informant" role sparked a $47.5 billion slide in market value - ZDNet.com.

I'm not saying that this Italian issue is anywhere as bad as Yahoo's actions in China. But I am saying that this is a good time for Google to step up and consider its responsibilities -- before it is forced to do so.

And before people, especially its own, lose respect for the company.

This is an issue that will come up time and again. It's something that Google cannot continue to evade. I think it's best to deal with this sooner rather than later.

Google is the world's single largest user of Internet bandwidth. But it doesn't have to pay for most of the bandwidth it consumes, in the form of its spiderbots copying web pages, and YouTube video streams.

A study in December 2008 estimated Google's 'free' bandwidth use to be about $6.9 billion, today it could be double that amount. [Precursor study- December 2008]

Scott Cleland, head of Precursor, is a leading Google critic especially of its position supporting net neutrality. Google has been lobbying the Federal Communications Commission (FCC) to maintain net neutrality regulations, which prevent Telcos from charging companies for bandwidth based on usage. He claims that Google is pushing net neutrality because it is the biggest beneficiary of such rules.

This is from his post: How much should Google be subsidized? | The Precursor Blog by Scott Cleland

- Google is world's largest Internet user and uses 21 times more bandwidth than it pays for.

- Google's lobbying for open access restrictions on auction of 700 Mhz spectrum resulted in $7 billion less money for the US treasury.

- Google received $89 million in taxpayer subsidies from the state of North Carolina to build a data center. It does not disclose subsidies received from other data center sites.

- Google's recent push for 1 gigabit networks could force other Telcos to also offer similar networks. Yet Google would be the biggest beneficiary of such high speed networks.

- Google is lobbying the FCC over what broadband providers can charge consumers because it takes attention away from its own massive use of Internet bandwidth.

Google's massive hidden implicit subsidy in the FCC's proposed open Internet regulations is that it is acceptable for broadband providers to charge consumers more for faster service, but it is unacceptable for broadband providers to charge web companies like Google more for more speed.

He makes the point:

Why should a consumer have to pay more for more broadband speed and capacity, but Google should not?

Mr Cleland's criticism of Google comes from his long standing position representing the Telcos and their ability to charge companies such as Google for bandwidth use.

Both Google and the Telcos are spending a lot of money trying to influence the FCC. [Google Spends Millions To Influence Washington]

While Google might be protected in the US from such charges, at least for now, that might change in other countries. Recently, Spanish Telco Telefonica spoke about charging Google.

Google has called Mr Cleland a "payola pundit" because of his Telco funding.

It's clear that Google has made an enemy of the Telcos, both in its net neutrality lobbying and because of its mobile strategy.

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Please see:

Analysis: GOOG Messes Up Mobile Strategy As Jittery Telcos Fear Becoming "Dumb Pipes"

Marguerite Reardon over at CNET has put together an excellent report on the Mobile World Congress 2010 GSMA in Barcelona.

It is the most important conference for the wireless Telco industry. And this year, there was a lot of concern about the growing power of Apple and also Google.

The wireless Telco companies are banding together to provide apps stores to counter Apple. But also, they are increasingly concerned about Google:

Vittorio Colao [Vodafone CEO] warned the telecommunications industry that companies controlling 70 percent to 80 percent of a market, such as Google in mobile search, should raise the attention of regulators.

Here is a list of things that Google has done that worry the wireless Telcos:

- Its NexusOne handset.

- Its Android handset OS.

- Its investment in Clearwire, the WiMAX telco.

- Its plans to build a high speed network for select communities.

- Its large holdings of 'dark' optical fiber.

- Google Voice.

- Its position supporting network neutrality, which limits what Telcos can charge.

- It has placed competing bids for US wireless spectrum.

- Its Android apps.

It's looking like Google is assembling many of the components it needs for a wireless Telco operator, but with the extra muscle that comes from dominating the search business.

At the conference, Google was accused of trying to turn wireless operators into "dumb pipe providers."

Google CEO Eric Schmidt tried to calm the operators:

"We feel very strongly that we depend on the success of the carrier business," Schmidt said. "We need a sophisticated network for security and load balancing." ...Google is not looking to compete with wireless operators.

You can read the rest of the article here:

Google CEO comes to Barcelona in peace | 3GSM blog

Foremski's Take:

Good luck to Eric Schmidt in trying to reassure the Telcos that Google is their friend and partner. Just look at the list above.

It seems as if Google has not considered the strategic implications of its actions on wireless operators, and its other partners.

Nearly all of its actions in the list above do nothing to increase revenues for Google.

They are all outside of its core business: selling advertising related to search.

Yet those actions have put the wireless operators on guard. They can now take steps that can impact Google's revenues much sooner than Google's actions can improve revenues for Google.

This is a strategic blunder on Google's part because the wireless operators are in a much stronger position than Google.

- They have control over what network services they will support.

- They control which features they will support on phones on their networks.

- They can make alliances that are designed to work against Google's dominance.

The mobile market is very important to Google's future but so far, it has managed to upset a lot of strategic companies, Apple included.

Google forgets that the mobile market is not like the desktop Internet market.

The wireless operators saw what happened in the PC market where the dominance of Intel in hardware, and Microsoft in software, aggregated most of the value and profits.

PC makers were left with razor thin operating profits in single digits while Intel and Microsoft produced 60% plus profit margins.

That's why the wireless Telcos have resisted attempts by Intel to standardize the handset hardware, and from Microsoft to extend its dominance in software to the mobile phone market. They don't want a repeat of what happened in the PC market.

That's why there are a myriad operating systems and hardware platforms in the mobile space. They didn't let Intel and Microsoft turn them into "dumb pipe providers" and they won't allow Google and Apple to do it either.

Google will have to change tactics but it might be too late, it has put the entire wireless industry on guard.

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Please see:

Analysis: GOOG Needs To Have Its Own Telco Service More Than It Needs A Phone...

Google is testing a new service in Houston, Texas. The New York Times reports on the experience of the Kingpinz Skateboard shop: [These battle lines are drawn in Yellow.]

Mr. Cowie is trying something new: for a flat fee of $25 a month, he is making his listings on Google stand out. Whenever his shop comes up in a search page or on a Google map, it is adorned with a bright yellow tag.

It's working pretty well:

Just type "skateboards in Houston" on a search engine, and his store will be among the first listed.

Mr Cowie loves the new service. And it's no wonder:

... buying search ads on Google -- got to be pretty expensive. Mr. Cowie, whose shop is just 1,000 square feet, found himself bidding for placement against deep-pocketed national chains, and having to spend $1,500 to $2,000 a month just to keep up.

What a great new business for Google. It replaced revenues of $1500 to $2,000 a month from Mr Cowie, with $25 a month.

But there is another aspect to this story. Google has begun to mix organic search results with 'sponsored' search results. Prior to this, the results were separated. Sponsored links were always on the right, and the main search results were 'organic,' they were listed on how relevant they were to the query -- not because of payment.

Take a look:

Google said it is collecting requests from communities interested in being among the first to try out an experimental high-speed network it is planning to build.

We're planning to build and test ultra high-speed broadband networks in a small number of trial locations across the United States. We'll deliver Internet speeds more than 100 times faster than what most Americans have access to today with 1 gigabit per second, fiber-to-the-home connections. We plan to offer service at a competitive price to at least 50,000 and potentially up to 500,000 people.

Google believes this will encourage developers to create new types of applications that aren't limited by current bandwidth speeds. But where else are there high concentrations of software developers? San Francisco/ Bay Area has the highest concentration and this is where Google should build one of these networks.

App development has to take place where there is also access to culture. Apps developed outside of a culture won't succeed. If Google builds its network somewhere remote, say a small town in Nevada, what types of high speed apps would they need there?

Better to build the network, and the apps, within this community, in San Francisco. This is where the apps can be best tested, within the Bay Area, a community with a very diverse culture.

I would think that diversity would be key for this endeavor. App development that is not connected to its culture will not succeed. (Could Foursquare have been developed in a rural community?)

You can vote for your community here. Google Fiber for Communities: Get involved

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Also, isn't this showing that Google is inching towards becoming a Telco?

Please see: Analysis: GOOG Needs To Have Its Own Telco Service More Than It Needs A Phone...

The American Civil Liberties Union says that a proposed alliance between Google and the National Security Agency is a frightening and dangerous combination.

The NSA--a component of the Department of Defense--is an intelligence collection agency with few effective checks against abuse and no public oversight of its activities. In the last decade, the NSA's vast dragnet of suspicionless surveillance has targeted everyday Americans, in violation of the law and the Constitution.

...The specific terms of the proposed deal are very unsettling. Google announced that they're asking the NSA to find "vulnerabilities."

What assurances do we have that a spy organization like the NSA would fix the holes they find and won't instead use them to tap into our personal data? Cybersecurity for the American people should not be handed over to a military spy agency that has a history of secretly exploiting vulnerabilities, not fixing them.

The ACLU makes some very good points.

What is interesting about this proposed alliance is that the two sides are still negotiating the terms. This must indicate that Google has not been happy about terms that the NSA has specified.

The NSA has a long history of spying on US citizens. And Google has more information on US citizens than anyone...

This can't be a good mix.

The ACLU asks that people send a message to Google that strongly opposes a deal with the NSA.

Here is a template for a message to Eric Schmidt, CEO of Google.

Please see:

» Tell Google Not to Enter Into an Agreement With the NSA

» Cybersecurity is Not Your Gig, NSA!

Associated Press reports: Spain's Telefonica considers charging Google - Yahoo! News

Speaking Monday at a press conference in the northern city of Bilbao, President Cesar Alierta said companies like Google use a lot of network bandwidth for free, something which was lucky for them but not for Telefonica.
...He says things had to change.

Foremski's Take: If ISPs, such as Telefonica, start charging Google they will also charge other companies providing web services. This will be bad news for thousands of startups worldwide.

Why?

Because Google can afford to pay the fees while startups cannot. This will be a huge tax on innovation.

Google, Yahoo, Microsoft, etc -- can afford to pay the fees. This will help their businesses because it will keep competition at bay.

Those companies will then be able to acquire smaller companies that don't have the means to scale their businesses, and eliminate large numbers of potential competitors. While they can do this already, the fees will speed up the process.

The Telcos are in a strong position because in every country they are government regulated entities, which provides a strong barrier to competition. How many new Telcos have arisen in the last five, or ten years? Consolidation has strengthened the current Telcos.

Here is another reason why GOOG should look at the strategic benefits of becoming a Telco or acquiring a Telco.

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Please see: Analysis: GOOG Needs To Have Its Own Telco Service More Than It Needs A Phone...

Google Becomes (Almost) Full-Fledged Telecom, Vonage, Skype, Others In Sites | BNET Technology Blog | BNET

On BusinessWeek, Peter Burrows and Cliff Edwards report:

Apple (AAPL) is in talks with Microsoft (MSFT) to replace Google (GOOG) as the default search engine on its iPhone, according to two people familiar with the matter. The talks have been under way for weeks, say the people, who asked not to be named because the details have not been made public.

Foremski's Take: The story says that the discussions are due to " accelerating rivalry between Apple and Google."

I don't buy it. Yes, there is some increased rivalry but on the Internet, that's increasingly true of many companies. This is more likely a financial decision.

Apple receives tens of millions of dollars a year from Google for search traffic from the iPhone and also from users of the Apple Safari web browser. Microsoft is most probably using its cash hoard to muscle its way onto the iPhone, and maybe even become the default search engine in Safari.

We might see Microsoft do the same with Mozilla and bid to become the default search engine on Firefox.

The rivalry explanation doesn't hold water.

MSFT a larger business rival to APPL than GOOG. MSFT has a rival OS, it has Zune a potent rival to the iPod; it has a mobile OS that is on many cell phones; it has many competing applications.

Apple is paid by Google to provide search traffic and to provide prime placement for features on the iPhone such as the YouTube app (which cannot be erased by the user). Industry sources have said that Apple receives enough money from Google to fund most of its OS development.

Whether it gets those funds from Google or Microsoft -- it doesn't matter to Apple. This is purely a business decision.

Google's new found willingness to pull out of China because of hacking attempts by agents of the Chinese government doesn't make sense.

Why would the Chinese government seek information through hacking? It could give Google a legal order to divulge specific information and Google would comply, as it has done countless times in the past, not only in China but in other countries including the US.

Time and again Google's top executives have said they comply with all laws within each country.

Also, the hacking attempts were largely rebuffed. Google's security technology prevented the attackers from gaining much useful data.

David Drummond, SVP, Corporate Development and Chief Legal Officer reported:

Only two Gmail accounts appear to have been accessed, and that activity was limited to account information (such as the date the account was created) and subject line, rather than the content of emails themselves.

...accounts have not been accessed through any security breach at Google, but most likely via phishing scams or malware placed on the users' computers.

Leaving China does nothing to improve overall security, Google faces such attacks all the time, from every region.

The question remains is why now? Google could have taken a stand on human rights in China on many occasions in the past.

In a Tweet yesterday, Bobbie Johnson, a reporter for the UK based Guardian newspaper, pointed out:"Goog acted after its rights were infringed, not the rights of its users."

But even this doesn't explain why Google has found its backbone and made a stand now. It has to be because it has adopted a new policy, one that it tested last year in Korea.

And it's a policy in which Google is able to take advantage of the global nature of the Internet to thwart any national ambitions -- no matter how large.

We first saw this new policy at work last year in South Korea where the government has passed a new law that requires users posting video, or comments on large web sites to use their real names. Web site operators must collect and verify users names. The "real-name" law is designed to clamp down on government critics.

What did Google do? When the deadline arrived for the new law to be implemented, it blocked Korean users uploading videos or leaving comments on its Korean YouTube site. It told them to use YouTube sites in other countries.

[You can read my news report here: Google Is Facing Wrath Of Korean Government Over Snub Of Internet Law]

It neatly sidestepped the law by making use of the global nature of the Internet. It showed the limits of government power and its jurisdiction -- the Internet is global and beyond the reach of any one country.

Based on its Korean experience, Google is gaining in confidence that it can stick to its principles and stay clear of any repressive government policies, anywhere, by taking advantage of the global Internet.

It can stay beyond the reach of any government, including the US if it has to, by moving its HQ and its operations around the world. It has more than 50 data centers all over the world.

This is a watershed moment and one that governments everywhere must be paying close attention to because it demonstrates that when its citizens engage with the Internet, it is a world without borders and where building borders is futile. [China's "Great Firewall" is very porous.]

That's a frightening scenario for any government especially a Chinese government wary of any competition for the hearts and minds of its citizens. And the Internet is its largest source of competitive ideas.

With China, Google is making a bet that there is a business and moral value in an unfiltered Internet, an Internet that is larger than the borders of any one country. I'm pretty sure we already know who's right.

The larger picture here is that Google has realised it has an important advantage: it's not constrained by borders but governments are.

- - -

Please see:

Hilary Clinton: Statement on Google Operations in China

Google Is Facing Wrath Of Korean Government Over Snub Of Internet Law - SVW

Techcrunch reports that Google [GOOG] is about to acquire Yelp, the local restaurant and store reviews site for as much as $500 million.

Comscore puts worldwide traffic at nearly 9 million monthly unique visitors, and it has been growing fast - the company says its real numbers are more like 25 million monthly uniques.

Yelp has whispered that 2009 revenues will be around $30 million and are expecting $50 million or so in 2010.

Foremski's Take: If Techcrunch's figures are correct this is a very high valuation for Yelp. More importantly, it could signal a new strategy for Google, which so far, has avoided acquiring content sites.

Yelp, which depends upon user generated reviews, has done well in San Francisco and a few other large metropolitan areas. But with hundreds of reviews per restaurant, the reviews become less valuable because of their large number and because large numbers of people have different tastes.

The way to deal with this growing mass of information would be to use a search engine to sort through this huge pool of data. Google, which prides itself on its search technology, could simply unleash its search algorithms against Yelp and surface the best (or worst) reviews and help people make a decision. It doesn't need to own Yelp to do this.

Google is more likely going after the advertising relationship that Yelp has with local merchants. The local advertising market is the next big battle ground for e-commerce and the many billions of dollars spent on Yellow Pages type directories.

Google could use Yelp's advertising relationships to offer local merchants a range of other services such as their own web sites and buying local adwords to attract traffic.

This would also push Google closer towards eventually having to compete with Craigslist, which is by far the largest platform for local advertisers. Craigslist is a much larger site than Yelp, it is the eighth largest English language web site in the world.

Craigslist offers local store listings and reviews. And its services are free compared with Google, which offers an auction of local keywords.

If Google does acquire Yelp, the trend will be in place for it to eventually have to compete with Craigslist, a privately held company with about 30 employees but with tremendous amount of loyalty among local users and businesses, that Yelp cannot match.

All the recent debate about the Google index and newspapers, and Google's interest (and problems) in indexing out-of-print books, would all be a much different discussion if the Google index were run as a non-profit.

And it is rather ironic to note that Larry Page and Sergey Brin, the founders of Google, strongly believed that search engines should not be commercial enterprises.

Take a look at page 39 "Inside Larry and Sergey's Brain" by Richard Brandt (referral link).

Andrei Broder, who led the team that created the AltaVista search engine, the best of its time, talks about meeting Larry and Sergey. "When the discussion turned to the topic of making money from the technology, Broder found that Page had a profound difference of philosophy on the subject. "It was a very funny thing about Larry," Broder recalls. "He was very adamant about search engines not being owned by commercial entities. He said it should all be done by a nonprofit. I guess Larry has changed his mind about that."

Brian Lent, now CEO at Medio Systems, also ran into this obstacle when he met with the Google duo.

"The problem with the Google search engine at the time, Lent recalls, is that Larry and Sergey didn't want to commercialize it, and Lent was anxious to become an entrepreneur. Their mantra at the time was more socialistic than entrepreneurial. "Originally, 'Don't be evil' was 'Don't go commercial,'" says Lent.

When he was at Stanford University, Sergey Brin wrote a paper: "The Anatomy of a Large-Scale Hypertextual Web Search Engine."

In that paper, he argued against an ad-supported service as a corrupting influence. "Advertising-funded search engines will be inherently biased towards the advertisers and away from the needs of the consumers," he wrote.

Wow. What if Google were a shared resource, a non-profit, with everyone having equal access to its index?! That would solve a lot of problems that Google is currently facing and that would be avoided if search was a shared resource -- instead of the Internet's dominant index being controlled and exploited by one company.

Could this be a possible future outcome? Could a non-profit search engine "out Google Google?"

If site owners blocked all commercial search with a robots.txt file but allowed a non-profit search engine, that would build a vendor-neutral index very quickly.

A non-profit search engine could support itself by licensing the index to various companies -- even Google, so that they can then apply their algorithms to rank the results according to their specialty.

After all, the value isn't in the index it's in how you present results from the index.

Maybe Google could gain everything if it were to spin-off its index into a non-profit? It would fulfill its founders' original ideals and Google could still be Google.

This would also block any moves by Microsoft to "buy" parts of an index and prevent access by Google or other search engines. Microsoft would have to compete on its ability to analyze the index.

Also, if the index were a commonly-owned resource, every site owner would be able to grant permission to different groups, to access its part of the index.

That's what's missing with the current system. You can either allow a search engine to index your site or not. You have little control over who can access your part of the Google or Bing index.

If the index were held in common, newspaper publishers and others, would have more options, and we could avoid search engine wars, and problems with incomplete indexes.

When the first iPhone came out two years ago I was astounded that there was no way to search its contents: Searching For Search On the iPhone

One year later, in 2008, after many updates to the software and new hardware: still no search function! It's taken another year to add search in the most recent update iPhone 3.0 in June. It's taken two years to add search.

That's not accidental it has to be deliberate. A year ago I wrote: Is Apple About To Launch Apple Search?

And it makes sense. It has its own browser and having its own search site makes perfect sense.

The browser and search service are essentially the operating system for our modern times. Apple knows all about owning the OS and that has been a winning strategy for Apple.

Take a look at how Apple would be able to quickly build a large search engine business:

1: The Apple fanboy market would leave Google in a heartbeat. No question. That's about 5 per cent of the computer market, and that's not counting the iPod, iPhone users.

2) All the users of Safari, the Apple web browser on Macs and Windows systems would be default users of Apple search.

3) Search is all about brand. Tests have shown little difference in the quality of search results between search engines. Microsoft rebranded its search service Bing and it now has traction. Apple knows "brand" very well and it knows how to parlay that expertise into new businesses.

Study: Good Brand Can Make Search Seem More Relevant

The study showed that when a searcher was given an identical result set across Google, Yahoo, Windows Live Search and an in house search engine, Google and Yahoo came out as more relevant. Why? Because of the brand of the search engine.

Despite the results pages being identical in content and presentation, participants indicated that Yahoo! and Google outperformed MSN Live Search and the in-house search engine.

http://www.pcworld.idg.com.au/index.php/id;229165979

One drawback for Apple is that GOOG pays Apple for placing its search engine in the search bar in Safari. Industry whispers report that this payment is enough to fund development of Mac OS X.

However, that revenue is jeopardized by Google's announcement of its Chrome browser, and also there is competition from Google's ChromeOS, and its Android cell phone software.

While the industry focuses on Microsoft and Google competition, Google and Apple are becoming ever more competitive with each other. That's why Eric Schmidt is leaving Apple's board of directors.

- - -

Please see:

Since There Is No Objective Way To Gauge Search . . . Brand Will Win

I went to Google's biennial Searchology event this morning. This is where top execs unveil their latest advances in search.

This year there was a lot of new stuff, and a lot of it revolved around understanding the semantics of search, to understand the meaning of what users want, rather than what they typed. If you misspelled something, or used a seemingly cryptic search term, GOOG execs said it was their responsibility to figure out what you meant by that.

For example, a search for "sfll playoffs" could mean a misspelling of "nfl playoffs" or, more likely, "San Francisco Little League playoffs." Google is using location data and other factors as part of what it calls "rocket science" search technology to try to determine what the user really meant -- not what they typed.

Udi Manber, vice president of core search, spoke about how difficult it was to determine the semantics of user queries, how to understand what was meant.

The demos they showed were impressive. But, how will Google sell advertising against an increasingly semantic set of results? Currently, Google sells keywords to advertisers, and those keywords trigger advertising served up on the results page.

Keywords are very specific. How will this work when the results that people want, aren't related directly to a keyword they typed? Is there such a thing as a "semantic keyword?"

If Google tries to guess what the advertiser wants and what the user wants, it creates more opportunities for a mismatch. Since Google gets paid on clicks, that could be a problem if it misses the intentions of both user and advertiser.

How do you sell "semantic" advertising?

[This is a guest post by Todd Hogan founder of Surchur, which specializes in real-time search. Please see http://blog.surchur.com/. If you'd like to offer a guest post please contact tom(at)siliconvalleywatcher.com.]

- - -

By Todd Hogan

This past week you've seen the mighty Google show its interest in the upstart Twitter. Now, whether those discussions really were as serious as many at first believed, the takeaway is the same: what is happening "right now" is becoming increasingly important to many internet users. One important trend growing from this is the need to search through all of the "right now" content that is being generated every moment and make it accessible. Our team at surchur.com is one group trying to make that happen.

But who cares about what's happening "right now?" Here are 5 profiles of users that are very interested in real time search:

Foremski's Take: What would happen if somebody developed a better search engine than Google? Would it be able to unseat Google? And what would happen to Google?

Nothing would happen to Google. Because if you could build a better search engine GOOG could monetize it way better than you or anyone else.

GOOG would partner with the better search engine because it has the monetization platform, it has the ad delivery network, and ad sales representatives in nearly every country.

The market has moved on--it's not enough to be better than Google in search, you also have to have be better in all aspects of the business.

That's what Microsoft needs to focus on, building a great monetization platform for search - search alone is not good enough even if it's great.

Reuters: Yahoo reaches Google ad deal, Microsoft talks fail

Yahoo said it had agreed to let Google put search ads on its site in what it called an $800 million annual revenue opportunity that would boost cash flow by $250 million to $450 million in the first 12 months.

Yahoo's ads and Google's would be pitted against each other in an auction style process that could make a deal easier to pass regulatory approval.

"Yahoo is being a reseller of Google whenever it makes sense and that is likely to be a lot of the time given how much more effective Google Web search ads have proven to be," Global Crown Capital analyst Martin Pyykkonen said.

Monday morning I was down in Mountain View at the Googleplex, GOOG's HQ for a briefing on new search initiatives and to find out about Google Health - a potentially wonderful and problematic service.

[For the first time, I was using Twitter to "live blog" from the event. Twitter is particularly well suited to such an activity, plus my "Twits" served as a decent note taking device for this post. I'm tomforemski on Twitter if you'd like to follow me.]

A planet sized wiki...

On search there was a lot said about local search and how difficult it is to do because place names are not standardized and some facilities share the same address and phone number. GOOG is very excited by image search because there are about 100 billion photos taken every year and Google loves new content (after all why go back to the Internet if there is nothing new?)

Google is trying to create a 3-D virtual earth. Its satellite and street level imagery are lacking. What it wants is a 3D rendition such as the one for San Francisco, which is very impressive. But I think that Google will have trouble getting users to continue to create that 3-D content because the novelty will subside so it'll have to think up some games and incentives.

Google likes images and the geo-tags that can go with them, but again, this relies on the continuing goodwill of users to upload and tag images, etc.

What this adds up to is a wiki-earth that users create using Google tools, or other tools, and also annotate and tag the locations. It would be a massive project and on top of that it would require fresh content - good luck with that. I just don't see legions of users willing to update Goog's database time and again, and again. Businesses will-- but that's advertising and that doesn't require payments to Google, (there could be a shot in the foot here ...).

Google Health very important...

Google Health is interesting and I would say it is Google's most important business launch since its AdSense/AdWords text-link ads. Not only is this a great way to integrate health data from multiple sources by having the individual do it but it also enables Google to access billions of dollars in pharma and medical services marketing.

Government regulations on health data make it very difficult for medical practitioners to pull an individual's data from many sources. But a Google Health user can consolidate their medical records in a highly secure Google database then authorize sharing that data with their doctor or other third party, and even allow that data to cross-borders. How about MyIndianMD.com...? (Hold on one second while I visit GoDaddy...)

Google Health could reduce health care costs because tests won't have to be repeated, and individuals could choose not to have expensive procedures just because their doctors are trying to cover their legal liabilities.

The problems with this approach is that the individual is being asked to make choices which their doctors would be best at making but because of legal and other issues, they cannot. Similarly, Google has to be careful not be providing medical advice. It gets around that - it provides users with "choices and options."

I spoke with Martin Harris, M.D and Chief Information Officer at Cleveland Clinic, one of the beta test partners for Google Health. He said that one problem was that computer literate users would be the first to benefit. "It's part of what I call the Internet divide," he said. "Ideally we should be able to let people access their Google Health accounts through their TV set top box or through the phone. That will come soon."

I spoke with a couple of people on the Google Health team and they said users would in the future be able to designate "delegates" to administer their Google Health records on their behalf so that the elderly could have their families help them.

Building businesses on top of Google Health . . .

There is also a great opportunity for a range of third party services to be built on top of Google Health and it's open API. Google for example, is offering an application that allows people to monitor how much they walk and will give $100k to charity.

I can think of linking gym machines to my Google Health record, what I ate that day, even what I ate at a restaurant automatically uploaded with calories and vitamin info. How much I slept, etc. This could become many people's home page.

There are some obvious potential problems if insurance companies or employers seek permission to view health records. What about potential spouses opening their hearts . . . and their medical records to each other?

How to monetize search, Google Health . . .

Nothing was said about how Google would make money from the improved search or from Google Health.

I asked about Google's search and if it improves then fewer pages are served. . . and therefore the performance of Google ads has to improve just as fast as search improves.

I was told that the advertising teams are ahead of search, and with better search there will be more search, therefore more pages will be served. I don't see that as being true.

It would have been good to have a presentation about the business side of Google's search and Google Health.

Here is further discussion of the business opportunities: The Google Health Problem...And The Quest For Pharma Gold

- - -

Notes: Google did a nice job pulling together top media and allowing good access to its executives and also to Google Health partners. Its PR people didn't get in the way but facilitated interviews etc. This meant that journalists could each have a chance in coming away with original quotes and material that wasn't part of the general presentation. I always appreciate the opportunity to come away with some unique content.

I recently visited Powerset to get a look at the company's much buzzed-about search technology based on the semantic understanding of language. Powerset is not the next Google but it does have an interesting technology thanks to its dozens of noted academics in lingustics and artificial intelligence.

The first product is a hand-optimized use of its technology to search Wikipedia along with Freebase, an open-source database of information. The results are fascinating in that the search results provide a new way to navigate through subjects. You can see what Powerset calls "factz" similar to facts, which are terms drawn from the subject matter dispersed throughout the two databases, that highlight and summarize complex subjects.

It takes a lot of computing power and time for Powerset to process a web page and it generates a lot of metadata. Thanks to Moore's law and Powerset's computing architecture, this processing time will continue to shrink but right now it cannot be used to process the entire web in a similar way to that of the major search engines because of those constraints.

There are about 2.5m pages in Wikipedia which is a lot of information and a good size to demonstrate Powerset's technology. Wikipedia was chosen because of its open license.

I can think of many uses for Powerset's approach such as improved ad serving based on meaning rather than contextual keywords.

What will be Powerset's next product? I wonder how many types of searches require a semantic understanding? It'll be interesting to find out. In the meantime I encourage you to take Powerset for a spin.

Here is Powerset's news release:

. . . An end to Enron and other corporate scandals?

Friday I met with Michael Lynch, CEO of Autonomy [AUTN], the second largest European software company with a market capitalization of more than $4 billion.

I wrote about its new software that can identify illegal content in corporate communications such as blogs, emails, any document, and phone recording, and even in video files.

The Autonomy Information Governance (AIG) software makes sure that a corporation complies with huge numbers or regulations, it also monitors any document being created by an employee, including a blog entry, an email, even audio and video. It checks in real-time to see if any laws or company policies are being violated.

AIG also makes it quicker and cheaper to find documents related to a lawsuit.

When a corporation is sued, it often has just 90 days to produce huge quantities of documents, emails, etc, related to the lawsuit. It faces huge fines if it doesn't meet the deadline. The software understands the meaning of documents and can reveal which documents should be reviewed by lawyers.

Companies being sued or investigated, must lock-down all their documents so that they can be searched for evidence. This has to be done even if a company has not been sued or investigated but has a reasonable chance of that happening.

"With 14,000 separate records retention regulations out there and the complexities and costs being incurred just trying to comply with legal hold requests, a company doesn't have the capability to manage this without advanced technology," said Browning Marean, a top lawyer, and partner at DLA Piper US LLP.

"I was on a panel recently and one of the panelists said that the Internet is different and people will behave better. I don't think it will change human nature at all. Human nature hasn't changed in hundreds of years, if you read Shakespeare. And if you look at Roman and Greek times, human nature is pretty much the same thousands of years ago."

"It's seems really arrogant for people to say that in this one generation human nature will be different," Mr Lynch said.

The AIG software also carries out document retention policies, which in the corporate world of double-speak refers to: how soon can we shred or delete this document just in case it comes back to bite us.

Autonomy is trying to bolster its position in the multi-billion dollar e-discovery market, which is lead by Recommind, based in San Francisco. You can read more about the software here.

Foremski's Take:There are some good and bad aspects to this software. The bad is a big brother type use for it. I can imagine the Chinese government using it to monitor Internet use and communications in real-time. You'd get a message pop up: "Report to your local police station immediately - you just committed an illegal act." (The Chinese police sent out text messages to Tibetan demonstrator's cell phones to report to the police.)

It could be used to restrict blogging. A lot of people tell me that large corporations are scared of blogs violating a regulation and so every corporate blog entry has to be run through lawyers-- it has to be "lawyered." This can take time, days, even weeks.

Paradoxically, I think AIG could be used to clear a blog post in real-time and could thus increase the amount of good, legal information that company workers can share in public. Either way, it automates some of the tasks of a lawyer, and that means less need for lawyers, and smaller legal bills for corporations.

Less lawyering, means lower operating costs, which maximize share holder value, and that's what corporate officers are required to do. It's the ultimate SEC regulation.

Please also see: Autonomy CEO says tags don't work

News.com's Charles Cooper: What's interesting is what we say it is. Really?

Last week I attended a briefing by Autonomy, a company based in the United Kingdom and San Francisco. On Monday, Autonomy will announce a product designed to assist companies with governance compliance. This likely will be a big deal for IT administrators and law firms that are scrambling to enact internal information management policies in the wake of the subprime mortgage and credit crisis.

Please see: Mike Lynch on the meaning of meaning based computing.

About a year ago, Internet mogul Barry Diller appointed Johnny C. Taylor Jr. president and CEO of a new business group at his IAC corporation called Black Web Enterprises Inc. Mr Taylor was previously head of human resources at IAC, which owns large Internet properties such as Ask.com, Match.com, LendingTree, Ticketmaster and 54 other leading Internet brands.

Black Web Enterprises is the first business to be created by IAC rather than acquired. I met with Mr Taylor recently and he explained the background to tomorrow's launch of a new search site: Rushmore Drive targeted at the Black Internet user.

"We felt that the Black community could be better served by the Internet and so we carried out a lot of focus groups. We found that Black people in the US do a lot of search, they look at news, and they look for jobs. Out of that work we decided to launch a search site called Rushmore Drive that offers mainstream search but also something extra for the Black community." It also has its own editorial department staffed by journalists, and a jobs site where people can also network similar to LinkedIn."

Is "Black" considered a good designation? "Yes, Black designates a large number of people. Barry Diller asked why we didn't use the term "Afro-American. First of all, "afro" is a hair style and secondly there are many people such as those from the Caribbean that don't identify themselves as African-American."

IAC estimates that there are 40 million African-Americans and an additional 20 million people who fall under the designation "Black."

Suspicious of a Black web...

I asked if there was a suspicion by the Black community about a search site focused on them, because there have been many cases where minorities paid more for cars, loans, etc.

"It's interesting. When we ran focus groups I was surprised that there was a lot of suspicion from people about a large corporation targeting the Black community, because I don't really pay much attention to being Black myself. I was watching a lot of hostility through a two-way mirror. But when I stepped into the room and people could see me, they immediately changed their attitude and were much more welcoming of the idea. They also told us that they want great search, they don't want just a bunch of Black targeted search results."

Not a Black Ask...

Mr Taylor said that the site is not a Black version of Ask.com. It provides high quality search results plus more. The term Black is hardly used on the site and it won't be used in marketing or advertising.

Radio ad spots will be targeted at Black audiences only in the sense that a radio station has a Black audience, and not in the advertising message itself. "It's important to be inclusive," Mr Taylor says.

Classy...

The search site's name Rushmore Drive is based on the address of the business group, located on 1115 Rushmore Drive, in Charlotte, North Carolina. "It's like Rodeo Drive, it is a classy name." Classy is an important quality, Mr Taylor says, which is why the right type of advertiser is important.

"I could have tripled my first year numbers from just one advertiser that wanted to be part of the site but I turned down the business because I did not like the association with the product." Mr Taylor declined to name the advertiser (I would guess it could be a malt liquor brand) and said he wanted top advertisers such as Gucci and Ferragamo.

A Black Linkedin...

Part of the job search at Rushmore Drive is a network feature similar to Linkedin. "One of the first things Black people ask each other is which church do you go to, and what professional associations do you belong to," Mr Taylor says. Those two answers are key to the networking feature on the site.

Black writers...

News on the site will come from mainstream sources but there is also an editorial department with Black writers that will engage users in discussions around topics that are of importance to that community.

"For example, the recent death of R&B singer Sean Levert was a big deal in the Black community but it didn't make much news elsewhere. We would promote that news and also discuss why he was in prison for failing to pay child support. We would look at the issue of paying child support in the Black community and not shy away from uncomfortable issues," Mr Taylor says.

IAC is investing many millions of dollars in this first home grown business. "I can't say how much we are investing. Barry Diller told me to make sure that we build a quality product. I can tell you that it's not cheap setting up a search site, I've got a large group of engineers and also a large group of marketing people."

Foremski's Take:

It is certainly new territory for a search site. And maybe it will spur the development of other search sites focused on specific types of users. For example, I recently wrote about the possibility of an Apple branded search site.

Mr Taylor's challenge will be to demonstrate how Rushmore Drive can provide a better search experience that is inclusive while at the same time exclusive in its strong focus on the 60m strong Black community.

- - -

(Thanks to Steve Gillmor for the headline inspiration.)

Additional Info:

Latest results from Comscore show a slight drop of 0.2 percentage points in Google's share of search in December 2007 compared with November 2007 to 58.4 percent.

Second place Yahoo gained 0.5 percentage points to 22.9 per cent over the same period.

Third place Microsoft remained at 9.8 per cent.

Fourth place Times Warner gained 0.1 per cent to 4.6 per cent.

Ask lost 0.3 percentage points to 4.3 per cent.

ComScore said:

Americans conducted 9.6 billion searches at the core search engines, representing a 3.9-percent decline versus November. With many Americans traveling and spending time away from home during the holidays, search activity typically experiences a seasonal decline during December. Google Sites saw 5.6 billion core searches during the month, while Yahoo! Sites recorded 2.2 billion.

Additional info: www.comscore.com

I recently met with Aggregate Knowledge and Proximic, both companies have technologies that serve up relevant content to web site visitors, especially on media sites. Relevant content means visitors are likely to stay on the site and that provides another chance to try and monetize that visit.

- Aggregate Knowledge, based in Silicon Valley, could be called "Aggregate Web Analytics" because it watches the behavior of web visitors and then guides future visitors to the same pages that most other visitors visited. It can also guide visitors to higher margin pages that the web site owner is seeking to monetize.

"Most sites have click through rates of abut 2 percent, with some of our clients we can get 22 per cent click through rates," said Paul Martino, CEO of Aggregate Knowledge.

Kleiner Perkins is the main investor in the company. Randy Komisar, a partner at Kleiner Perkins Caufield & Byers, said that the web is changing. "It is not about search it is about discovery. Search is only good if you know what you are looking for, 'discovery' means serving up content that is relevant and that you didn't know was there," said Mr Komisar. (Kleiner Perkins was an early investor in Google.)

- Proximic, founded in Munich, Germany tells a very similar story of being able to serve up relevant content on media sites. It claims a radical search technology that indexes pages by "patterns" not by links or keywords. Pages with similar "patterns" represent similar and relevant content.

Philip Pieper, CEO of Proximic, says that the beauty of their approach is that their index is easily scalable and very compact. "We have even written our own disk operating system, to speed up searches. We believe that our technology can help media companies better monetize their online operations because we can provide relevant content," said Mr Pieper. The index can be held in just a few gigabytes of memory, it could be loaded onto a flash drive. Proximic says that its search technology could be run on a bank of iPods.

Proximic is working with Nature magazine to boost its online revenues, and also with the British newspaper "The Independent."

Foremski's Take: They may get there in different ways but Aggregate Knowledge and Proximic serve up similar messages to web site owners. They promise to improve online revenues by making the content on those web sites more relevant to visitors, including the advertising.

And neither of them collects personal data on visitors. This is a key advantage because privacy issues are only going to get bigger and messier--you don't want to be in a business that relies on collecting and using personal user data.

Media sites in particular, need all the help they can get to monetize their online operations. However, making sites more "sticky" produces value only if the site publisher can monetize those extra clicks. And there aren't many media sites that are good at that. Even if media sites doubled their online revenues, it is still not enough to support their businesses as they transition from traditional media to digital media.

The success of both companies is tied to the ability of their customers to figure out their own online business models. Yes, Aggregate Knowledge and Proximic can help in that regard, by serving up advertising that pays better, and is more relevant to visitors, but that will likely not be enough to help media sites make money, and survive.

Working with online retailers to help optimize their sites is likely to produce longer lasting customers than in the media sector.

- - -

Please See Information Week: Aggregate Knowledge Aims To Be A Mind Reader On The Web

Proximic empowers the web publisher for the post-2.0 world

Technorati Tags: adsense, proximic, aggregate knowledge

About a year ago I met with Bob Chandra, founder of GrayBoxx. At the time, GrayBoxx was still in very stages of development around the idea of getting recommendations for local businesses from the contact info in people's address books and telephone logs.

Mr Chandra says,"I already know who my favorite businesses are because they are the ones I call and they are the ones whose phone numbers I already have." That's a great start to finding out the recommendations of other people, without any tagging or reviews or community action to create that content.

GrayBoxx also uses other sopurces of data to compile an impressive database of listings. It has 185m recomendations compared with 3m for Yahoo Local.

It is still in stealth mode but is building up its user base with plans for a broad launch in early 2008. The Sierra Ventures backed company says it has developed its own version of GOOG's PageRank, but one that is tuned to the recomendation of local services.

The local search market is extremely competitive but it is an area that is poorly served. Yes, some sites are good for say, restaurant reviews, while others for automotive repairs. None offer a comprehensive service, at least none so far...

GrayBoxx just announced a board of advisors that includes Rajeev Motwani, one of the top experts in search and co-developer of PageRank. It's all about the algorithm...

Terry Semel, the embattled head of Yahoo! has been ousted and replaced by co-founder Jerry Yang. The move comes in the wake of shareholder criticism of Yahoo! in its bid to keep up with Google (GOOG).

Mr Semel will remain as a non-executive chairman and advisor.

Susan Decker has been appointed president.

Here are details from Yahoo! and SVW analysis will soon follow:

Google said searches will now combine all other types of results such as video, images, books as well as web pages.

It is a move away from silo search engines that focused on video, images, etc. Marissa Mayer, VP Search Products & User Experience, said that it was confusing for users to pick from search engines. "You almost needed a search engine for search engines."

Foremski's Take: This is bad news for the huge SEO industry because there is less space to get web pages into the first page, new opps for video placement. The focus now is on the first two results...

Over on New Rules Communications I was writing about Google's ad networks and the bad economics for media companies. 

Link to: This Is Why Online Ad Nets Can't Save Media Companies

I noticed that there is an interesting conflict of interest emerging at the heart of Google's business model.

Please check my reasoning:

Google makes almost all of its revenues from two ad networks:

-AdWords: Customers advertise on Google web sites.

-AdSense: Customers advertise on Google partner sites, which includes many media companies.

Google's revenue in 2004 was about evenly split between AdWords and AdSense.

Since then, Google's revenue from its own sites has grown by 24 percent to 62 percent of total revenues. AdSense has fallen.

And this makes sense because Google makes far more money from its own sites than from partner sites. It is better for Google's shareholders that it channel more of its revenues through its own sites because:

-Google gives back about 80 per cent of AdSense revenues to its partners.

-It keeps all of its AdWords money.

And this is where it has a mammoth conflict of interest:

Which advertising network should Google invest in?

-A dollar invested in its AdWords produces far more profit than invested in AdSense, its partner network. Management has a fiduciary duty to its shareholders to maximize profits.

-Google can boost overall profits by undercutting AdSense at anytime it wants, say  by offering a discount on AdWords compared with AdSense. A 20 percent discount on AdWords would make more money for Google than the corresponding loss of business through AdSense partners.

-Google can undercut AdSense in other ways, and is already doing it, by investing in technology that improves AdWords conversions over AdSense. Google can apply technologies to its own sites that make them more efficient at selling ads. It can't do that with partner sites. And partner sites don't have the resources to improve their advertising conversions at a similar pace.

Which means AdSense revenues for media companies will continue to fall because AdWords is more efficient.

---

Media companies that partner with Google in its AdSense program do it because they don't know what else to do. The economics of partnering with Google are poor and the relationship is unsustainable because of the inherent conflict of interest.

Why Would GOOG Maintain AdSense?

-There are strategic purposes, it forces media companies in its network to compete with its far more profitable business model which weakens them as potential competitors.

-Also, it keeps third-party sites out of rival ad networks.

-AdSense is a great "cookie jar" because if GOOG ever needs to meet its numbers for its quarter, it can push more ads through its own sites rather than through partners.

UPDATE: Independent Advertising Network Advantage 

Independent advertising networks, which don't compete with their publisher partners, such as Blue Lithium, Federated Media, and others, will be able to attract partner sites away from Google because they can invest in technologies to improve revenues for the entire network.

But how much freedom do large publishers have in leaving the Google network? Some have contracts with Google that could tie their hands for years.

FAST Search and Transfer, the leading European search firm, introduced a search based business platform for media companies and said that search traffic from its customers has surpassed Yahoo! and will overtake Google in 2 years.

The Norwegian based company said its FASTMedia software platform is the first to match content to individual users, in addition to supporting all types of online advertising models. The suite of applications is designed specifically for media companies and enables them to run their own ad networks.

FAST said that its top 35 media customers already generate search traffic that exceeds that of Yahoo!.

The market research firm IDC estimates that 70 per cent of search queries do not come from search engines.

Instead, people are choosing to bypass search engines and are going
directly to their preferred information sources, retailers, and other
websites and searching there.

FAST recently completed a survey of its top 35 media customers:

Together this "FAST Media Network" is generating as much search traffic as Yahoo!, with search traffic growing more than twice as quickly.  At the current pace, searches within the "FAST Media Network" collectively will surpass Google in two years...

FAST wants media companies to "turn search from the disrupter of their worlds"  and use the technology to grow their businesses.

For example, newspaper publishers have stood by and watched Google and Yahoo sell massive amounts of advertising based on their content without any direct benefit--unless a reader clicks through to their news site, and then happens to click on a Google or Yahoo text ad.

FAST wants to cut out the middle-men by selling search-based business software to media companies to run within their own data centers and operate their own adverting businesses.

Global Media Warming

The battle for media markets is heating up.  Google recently acquired DoubleClick for $3.1bn and today Yahoo! acquired Right Media for $680m, to beef up their advertising services.

The competition is for a very lucrative business--running massive advertising networks for global media companies. The search giants keep about 20 per cent of total advertising revenues.

But this revenue share is skewed towards a handful of large media companies with the clout to negotiate better deals. Most publishers receive far less, between 60 and 40 per cent of ad revenues.

The FASTMedia software supports pay-per-click, contextual, classifieds and all other types of online advertising services, plus self-service, and unique features. It's  "Featured Content" technology matches content on-the-fly with online users' searches. Publishers can use this for targeted premium content services.