01:13 PM

Tech Watch: VCs searching for search engines in all the wrong places

VCs are pouring money into any search engine company they can find but they are missing the point about Google’s success. Google is not a search engine company.

It seems that almost every venture capital firm I meet with has a search engine investment or two in their portfolio--or is searching for one or two.

I met with Raul Valdes-Perez, president of Vivisimo recently. This Pittsburgh-based company has a search engine product that uses a very interesting technology that can generate a taxonomy-on-the-fly. This means it can quickly group search results into folders representing different subjects. It recently introduced the search site Clusty.com as one demonstration of its technology.

“We’ve got about forty VC’s chasing after us,” Mr Valdes-Perez complained. “We don’t even need the money.” Vivisimo is far more interested in partnering with Silicon Valley companies that could use its technology. But VCs are desperate for any search related company. (And you thought the mistakes of the bubble years, with the herd-like behavior of the VC community, were a thing of the past...)

The VCs are missing the point when it comes to understanding Google. It is not a search engine company but an extremely efficient advertising delivery network. It already derives a significant share of its revenues from non-search web pages through its Adsense service.

Search is merely an application for its advertising delivery technology.

In fact, I wouldn’t be surprised if Google might one day decide to outsource search. If say CompanyX built a better search engine—so what? Google would offer to sign it up as an advertising partner and CompanyX would accept.

Why? Because Google would be far better at monetizing that search engine because it has this enormous advertising delivery network.

I could tell VCs what kinds of companies they should be chasing (BTW it’s not advertising network technology companies ) but I'll wait a bit...

Here is a link to Vivisimo and Clusty.com.