Commentary

Niche Search Engines Could Become M&A Target In 2010

Mike Kelley of PwC

While the economy drove down advertising rates, it made valuations affordable, allowing industries to consolidate, according to Mike Kelley, partner at PricewaterhouseCoopers' Entertainment Media & Communications practice in New York. That glut of cash will push companies into merger and acquisition (M&A) mode in 2010, he says.

Some of that activity could include smaller niche search engines like those built around what Kelly calls "splintering," using subcategories like health, travel, retail, or science.

Bing and Google have begun to splinter, adding categories. Publishers like Hearst, have begun to build these kind of sites, too.

Take Yelp, for example. Reports suggest Google has been in talks to acquire the directory. The site has a search engine to help users find consumer reviews for a variety of things from eateries to shopping to local services, according to Mark Simon, vice president of industry relations at DidIt. "This can be a helpful addition to Google's user base by helping them fine-tune their search selections by the peer review process," he says. "These opinions will give Google a more rewarding engine to utilize for their visitors."

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Kelley, demonstrating his point on splintering, directs me to LMK.com, recently launched by Hearst, which focuses on search of news, sports, money, life and people content. The "LMK" in the URL stands for Let Me Know.

The site, which lives up to its name, spiders out to the Web and updates every three minutes. The sports portion of the site segments college football into teams, players and coaches. "This is very different than the soldier lineup of search results you typically see," Kelley says. "A site like this might be attractive to a bigger search engine. They could bolt that on to deliver a content experience right up there with publishers."

Kelley says such is why Microsoft bought into Facebook and News Corp into MySpace. The next step will be to crack the code on new advertising applications. These revenue models will come from brands and agencies trying to find innovation in online advertising, he says.

The "splinter" affect will pick up in 2010, Kelley says. He believes people have begun to search more in sites like LinkedIn rather than Google for information on people, for example.

When researching someone before a meeting, you not only want to know about the person, but discover who knows them. This becomes part of the social graph that larger search engines, such as Google and Bing, have begun to create. You may begin searching for information in the larger search engines, but quickly discover the smaller engines allow you to drill down into the subject.

Similar to behavioral targeting, these engines deliver advertisers a targeted audience, as long as they have the mass in searchers to support the site.

If the search engine can deliver advertisers the people most likely to buy vs. a lot of people that might buy, the niche site becomes more attractive to those paying for the clicks.

PwC also expects to see more initial public offerings (IPO) in 2010 from private equity as the markets continue to firm up. More the half of the IPOs completed during 2009 were by financial-sponsor-backed, primarily private equity, companies, a trend expected to continue into 2010.

5 comments about "Niche Search Engines Could Become M&A Target In 2010".
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  1. Tiffany Lyman Otten from Tiffany Otten Consulting, LLC, December 18, 2009 at 3:34 p.m.

    We've been doing this for over 11 years now - it's the core of our business model. People don't want to search for engineering or manufacturing parts just on Google (our classic example: look for pumps on Google when you're looking for an industrial one, and the results can make you blush; on our site, the results are "liquid handling?, centrifugal?, booster?, etc." and no mention of asthma pumps, shoes, male-anatomy pumps, etc.

    This splintering has been happening in our space to quite an extent already, as we have seen several sites launch that address a specific subset even more specific than ours, and it will continue to be that way.

    The funny part though? How do most people find out about these sites, if they don't already know? Google! (We "compete" in a distant sense with Google but do not underestimate how important it is that our pages are found in it).

  2. Jason Prescott, December 18, 2009 at 6:25 p.m.

    I agree with you 100%, Tiffany. There is no question that search failure rate in the GYM ( google, yahoo, Microsoft) is staggeringly high for B2B users. I've been in the prodcut sourcing vertical for almost 10 years now, and growth has been steady, predictable and robust. Google is after indexing the entire forest, whereas we only want 1 tree. When buyers and sellers are looking for wholesale products or fashion accessories, our flagships TopTenWholesale.com and Manufacturer.com have always been pretty darn reliable.

    Your last point is right on. While many of us have great media partners, industry presence, viral marketing and outbound sales efforts -- our bread and butter remains traffic that we get from google. IMHO, Google has become a public utility that more or less regulates the electricity coming into the lines :-) Between SEM and SEO, 80% of most vertical initiatives are geared towards google.

    Thanks for the article Laurie.

  3. Greg Kim from Savings.com, December 18, 2009 at 7:59 p.m.

    The niche search engines are definitely gaining steam. Niche anything for that matter. You can't be all things to all people in this day and age. Look at cable channels vs. broadcast networks and millions of other examples. I was on the executive team of People Media, a leader in niche online dating with 27 targeted communities, and we were able to scale b/c people are gravitating towards niches which often times means 'more relevance' (that's why Match.com/IAC bought us for $80M cash). Now I'm at Savings.com which is a search engine and community to find and share the best deals/coupons/promotions on the web from over 4K retailers like Gap, Apple, Best Buy, Target, Dell, Macy's, Orbitz etc and it's this 'niche' or 'vertical' focus that will continue to propel Savings.com and others who dominate their verticals and make them attractive M&A targets.

  4. Carole Cascia from WholesaleCentral.com, December 21, 2009 at 8:35 a.m.

    One other big advantage of a vertical search engine, such as our wholesale directory, wholesalecentral.com, is that we have a staff that qualifies every wholesale company that is listed on our site, and of course Google, Yahoo and Bing cannot possibly provide this service.

    Retailers that visit our site have a much better chance of finding a reputable wholesale supplier when using our wholesale search tool than when using a wholesaler that is found through one of the large search engines.

    The major search engines are how our audience finds us, so we need them. And I agree, Tiffany and Jason, we do not look at them as competitors, instead we consider them to be an important part of the success of our business.

    Thanks for the great article and comments!

  5. Kevin Mcfall from Red Clay Digital, December 28, 2009 at 12:22 p.m.

    Interesting that besides the PeopleMedia dating example the focus appears to be on B2B based niche search offerings. I was part of a team within IAC that launched and operated RushmoreDrive.com which was a robust search engine that delivered more relevant results based on cultural nuances targeted to the African American community. Unfortunately that site was ahead of its time and sunsetted before it could be positioned in 2010 for M&A opportunities.

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