Search engines have become the infrastructure of the internet. AskJeeves Incorporated is the number three most used search engine on the internet. 41482 - Essay Example

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Since the evolution of the internet into an interlinked web of documents and virtual world, search engines have become the infrastructure of the internet. These engines have facilitated and filtered users into niche specific websites and the implementation of their technology is crucial to the success of internet development in general. Although current searches by metric on a global stage are dominated by the twin giants of Google Incorporated and Yahoo Incorporated, they are not the only global players that have gained significant mindshare over the past five years. The diversity of search needs and the sophistication of modern users have made alternative search strategies and consumer needs more evident. The development of AskJeeves Incorporated is an example of the growing sophistication and expansion.

Company Summary:

AskJeeves Incorporated is the number three most used search engine on the internet. AskJeeves is primarily based upon its underlying technology of Corporate Question Answering Service, which helps companies provide a human-like online interface for their customers. Its search engine technology purports to make internet searches much simpler than other leading search engine services. AskJeeves has become increasingly popular within its primary target demographics and its steady growth since its inception has allowed it to play a niche role within the search engine market.

AskJeeves is based within Palo Alto, California. It was launched in 1997 and has since then been a strong, if not spectacular player within the market. According to the latest metrics of internet search usage, AskJeeves as part of the Ask Network has almost 6% market share of the entire internet search industry. Almost 70% of all searches occur through either Google or Yahoo, placing AskJeeves as a bit player although it is slowly growing in strength over the last few years. Despite, its relatively weak market position against its competitors, AskJeeves has had a steady revenue stream and is poised for greater expansion. The reason for its optimism lies in its strong infrastructural technology as well as its dominant niche market position. AskJeeves has a fundamentally different approach to internet searching that has a special appeal to its market demographic. Thus, while it has not gained a substantial market share over the past five years, nor has it lost any market share to competing search players.

Current Target Market and Customer Usage:

Recent surveys on internet search usage show that only 3.5% of users rate AskJeeves as their primary search engine. 21% of surveyed audiences have rated their level of usage at once per year. The implication is that the usage level for AskJeeves within its target demographic, specifically the United States has been historically low. The market demographic of AskJeeves has primarily been a specialized search engine. The advantage of its technology is that it uses specific search technology answer questions rather than use key-words metrics. The result is that searches are often easier and more conducive to offer specific questions. On average, 21% of users have rated AskJeeves as the easiest search engine to use compared with twenty other search engines. These metrics clearly demonstrate that AskJeeves has superior technology than most of its competition and this is the reason it currently has an established market niche. Much like other niche players, it has to depend on the use of a certain established target demographic of users. The majority of its users are filtered through three search engine portals: AltaVista, Netscape, and Infonautics. These results support the fact that AskJeeves is in a position to expand its current concentration. However, it must re-evaluate its current market position and understand where its future target demographic exists and how to effectively gain mindshare against competition from the major players of Google and Yahoo.

Revenue Stream:

AskJeeves primarily generates revenue through the use of its Consumer Question Answering in two components: advertising revenues and knowledge base licensing fees. Advertising revenues are generated from short-term advertising contracts through deliverables of a specific number of impressions to users over a specified period of time. Advertising rates for AskJeeves are based upon the metric of cost per thousand impressions or CPM. All of AskJeeves impressions are delivered and measured through the third party affiliate, DoubleClick, Inc. A secondary source of revenue is generated through the actual licensing of AskJeeves knowledge base to three companies that provide internet-wide navigation services. These companies are AltaVista, Netscape, and Infonautics. The fee structure for this company is primarily based upon a fixed fee rate that is consistent over a contract basis at specified intervals. From these two primary sources of revenue, AskJeeves have consistently been one of the most profitable internet search engine companies based upon its syndication and fee based model. In the third quarter of 2006, AskJeeves reported revenue of 58 billion dollars. This growth is comparable to 30% growth compared to the same time one year ago. Looking at its search metrics and revenue projections, AskJeeves has outperformed market expectations substantially and has continued to show substantial growth over the past five years. Although its revenue has increased substantially, costs associated with marketing and operations have also increased in accordance with revenue growth. Overall, pro forma income figures have stayed at the consistent 10 million dollar level for the past two years. These costs are associated with the distribution of multi-channel marketing that AskJeeves have staged in the past year. As part of their major push to attract a new class of users, they have engaged in both online and offline marketing mediums. Their total marketing costs have nearly tripled since 2004 as a result of their recent attempts.

Despite their increased spending, their revenue figures have justified a substantial increase in user growth spending. Their per-user cost metrics have not fluctuated significantly in the past two years. The financial outlook for AskJeeves is still in relatively good standing with accurate and high revenue projections for the next three quarters.

Future Outlook:

Although AskJeeves have improved in many of its metrics including technology, usability, marketing, operations and service, they have been unable to make significant headway in comparison to other leaders in the search field. Therefore, it is evident that their next expansion strategy is to target markets outside of the United States where market share may not be dominated by either of their top two competitors. Since AskJeeves technology has demonstrated itself to be superior on many different usability levels, it can easily re-brand itself and pursue a strategy of global distribution.

In 2006, InterActiveCorp Inc. brought a significant portion of AskJeeves stock in order to enter the internet search industry. With their financial and management backing, AskJeeves is in a position to change its specific focus from the US demographic to an international level.

Industry Outlook:

The internet search industry has exploded in the last decade; overall growth has increased at a pace of almost fifty percent per year according to ComScore Metrics. Similarly studies have shown that the overall growth in search engine market share has become substantial with well over two hundred million unique visitors per month. The internet search industry is unique in several aspects. First, it is erratic and fast paced in its growth, since the wave of internet search engines such as Yahoo, Lycos, Excite, etc. More than one hundred and fifty competitor search technology has emerged. Overall growth in user participation in search engines have increased from two million unique visitors per month to well over 100 times that. Another unique factor is the centralization implicit within the industry. While early adopters such as Yahoo still have significant mindshare, at any given there 95% of all searches are conducted through only five search engines. The centralization of the industry tends to occur due to the convergence of users with common search metrics. Finally, the internet search market does not seem to have a strong first mover or early adopter advantage. Of the first five search engines to emerge on the market, only one currently retains more than five percent of the total internet search market share. The emergence of new players and quick adoption of technology speaks the fast paced growth of search engine technology in general.

Currently the largest market players within the internet search industry are Google and Yahoo, which collectively controls more than 80% of all searches on the internet on a global level. Both of these companies have a strong market presence in the top fifty world search markets. They also offer profoundly difference business and search philosophies. Googlei??s business and technology model is dependent on the interconnection of websites. It seeks to filter users to and from Google search as fast as possible, thus increasing the efficiency of their users and creating greater advertising CPM for their clients. Yahoo on the other hand focuses on capturing mindshare; it owns a suite of tools that are all fully capable of capturing the useri??s mindshare. Their fundamental strategy is to attempt to keep the user on Yahoo property at all times, thus maximizing their overall internal CPM. Both models have been revealed to be highly successful and each of these companies continues to thrive. The 20% of the market share not dominated by these two players are filtered to almost 15 other search engines, with 3.5% going to AskJeeves properties. The majority of these search engines are specialized for niche searches such as AltaVista.

The internet search industry is a highly lucrative and high growth industry. Revenue models through advertising have proven to be highly effective. Internet search revenue is projected to increase to 10 billion dollars by 2010, while affiliated search advertising will increase to 6 billion within the next three years. Over the next year, companies are realizing that internet search advertising may be much more focused and directive than traditional mediums such as radio, television, or newspapers and are transferring a significant portion of their marketing budgets for online search advertisement. A recent Forrester survey shows that internet search marketing will increase by almost 40% in the next year, with the majority of American Fortune 500 companies turning their marketing campaigns to virtual campaigns.

The future of the internet search industry is particularly bright for several reasons. First, internet access is still growing at an astounding pace on the global scale. The foundation of fiber optic technology through telecommunications outreach has increased the level the internet access by almost 6% annually. Countries such as China, India, and Russia are projected to grow its internet capabilities by as much as 15% per year for the next five years. The implication is that global search opportunities for market share are abundant not only for current market players but for new entrants as well. Furthermore, consumers and internet users in general have become much more sophisticated. Searches are now more targeted and the depth of their inquiry requires re-assessment of many basic assumptions about internet search technology. Therefore, the emergence of new technology or innovations in search could dramatically change the landscape of search as well. From a positioning perspective, the next stage of internet search growth will be expansion into global territories that are just starting in its search demand and user sophistication.

Target Country for Expansion: China

The growth of the Chinese internet market has made search engine technology and adoption a crucial question for the future of the internet search industry. With a current population of almost 200 million internet users, China will trump the United States and Japan as the largest internet consumer base in the world within the next year. The majority of users in China are new to internet access, with almost half having less than two years of direct experience with internet use. The implicit assumption is that customer loyalty within search technology has not become fully entrenched. According to Analysys International, 100 million Chinese internet users use search engines at least once a week, about half of the total internet population. The revenue generated from this industry is also expanding at a rapid pace. Overall revenue grew by 79 percent in 2006, with almost 950 RMB of revenue generated. This represents 32.2% of total online advertising market, with the majority of subsidiary advertising revenue flowing through revenue sharing with established search portals. The combination of user and revenue growth represents the ideal foreign market for AskJeeves investment and expansion on a global level. The following will engage in a PEST market analysis to determine the compatibility of China for access and viability of market penetration.

Political Factors:

One of the most significant barriers to entry for AskJeeves or any internet search player is the inconsistency and hostility of the national government. The Communist regime has firm control of internet content and access within the country. A special committee and government bureau exists purely for the monitoring and censorship of the Chinese internet demographic. In order for a search engine to gain access to the Chinese market, it must first come to terms with the Chinese government to ensure that they are fully responsible for the content that is displayed and filtered to their search engine. Governmental policy over viewable content as well as revenue sharing has a significant impact on the search industry. Google for instance, had to broker deals with the Chinese government to allow for filtering and censorship through its search portal in order to stay on the Chinese internet market. Furthermore, the Chinese government often grants exclusive privileges and access privileges to certain market players based upon their own internal agenda, which means that oftentimes the government can use policy and legislation to steer away users from established search players. From an economic perspective, the government wishes to monitor and control the growth of the Chinese internet market. It hopes to develop a stable infrastructure for E-commerce that is internally reliant. Therefore, it heavily favors Chinese internet search companies which will allow them to become less dependent on multinationals such as Google and Yahoo.

For AskJeeves to effectively penetrate this market, it requires a significant shift in their mentality and approach. A deep understanding of Chinese social, political and economic developments and needs will be crucial to gaining the trust of the government and permission to tap the Chinese marketplace. Major concessions in the areas of search filtering, privacy and government access to back-end data will be necessary in order to gain access to this demographic. However, several recent government decisions and commitments will dramatically help AskJeeves in their market reach into China. First, Chinai??s union into the WTO and the preferred nation status conferred between the United States and China has extended implications for the internet sphere. Concessions have already been made to Google, Yahoo and Microsoft to extend their search engine components into the Chinese market to compete against internal internet search companies. Another major political factor is that the recent ratification of the Internet Information Access Resolution, where specifically forces China to lift many of its censorship requirements on the internet. The combination of open trade and decreased censorship will imply a more favorable market penetration strategy for AskJeeves.

Economic Factors:

The growth of the internet economy has been astounding within China, since 1998, when the internet reached the critical 25 million user juncture, Chinai??s internet economy has increased almost twenty fold. Overall, its online advertising revenue has reached overall 4 billion RMB, and it continues to grow at a pace of almost 18% per year. Future projected growth of the online advertising revenue share reaches as high as 12 billion RMB by 2010. A third of these online advertising revenue shares go towards search engine marketing which implies a tremendous opportunity for any market player. On a broad macroeconomic perspective however, the Chinese economic situation is very volatile. Many concerns over the over heating of the Chinese economy is evident in several factors, such as the recent severe drop within the Chinese stock market. The current confusion over valuation of the RMB as well as concerns over foreign investment and liquidity has shaken the Chinese economy internally and externally. Although as an economic force it is still growing at a near frenetic pace of 12% per year, this growth sustained over the next five years could mean a severe economic backlash as the Chinese economic infrastructure may not be able to support such massive growth. Since the internet is not only the newest of its powerful industries but also one of the most expendable, many fear that a severe economic backlash from an over-heating economy would have severe consequences for the Chinese internet market in general.

Sociocultural Factors:

The broad liberalization of the Chinese population has become a dramatic model of change and identity crisis. While traditionally Chinai??s communist roots have created a driven and diligent populace with strong moral and social impetus, the combination of dramatic economic growth and reform has left to a nation ambitious and greedy for financial wealth. The result has been a polarization of the nation divided through a significant wealth gap, with the majority of the population suffering in severe poverty while a few have gained the status of the ultra-rich. The average internet user within China is relatively affluent and almost 90% of them are located within urban cities. Although they do not have a specific loyalty to Chinese products, the majority of Chinese internet users prefer to frequent established Chinese internet players than foreign competition. This may largely be due to the fact that Chinese companies have a better sense of the desires and needs of the Chinese internet user base. However, international players have gained a significant foothold within China; Microsoft has a near stranglehold upon the Chinese platform software industry with a commanding 68% market share. The majority of Chinese internet users are young, within the age demographic of 15 to 30 years of age. Therefore they are very much aware and interested in new technology and have little or no brand loyalty to established market players.

Technological Factors:

From a technology perspective, the Chinese internet search industry has significant weaknesses. The top rated and most trafficked search engine, Baidu, has commonly been associated with both slow and ineffective searches. While it currently has a dominant position within the market, it is believed that the search engine market in general will decrease significantly over the next 18 months. According to Analsys International, the i??actual performance of search engines is far from peoplei??s high expectationsi??. The combination of poor user experience, unstable advertising effects and irregular channel operations make most internet users suspicious of new search engine technology. The implicit assumption is that technology flaws within search engines have limited their effectiveness and taken away consumer trust.

The emergence of international market players within their demographic will change the overall perception of technology. Already Google and Yahoo China have taken the initiative of re-branding themselves as quality providers for search technology. This shift from Baidu and other Chinese search engines to established internet players have already begun. In 2006, 46^ of users turned to other search engines and portals outside of domestic search providers when they do not get what they want in a search engine. These results show a positive market for AskJeeves to entrench itself within the market share.

Market Servicing Strategy:

Entry into the Chinese internet search market requires a multi-channel marketing and distribution strategy. At the core level it requires local, regional and national level distribution. On the local level, viral marketing is the most effective measure for market entry. According to recent survey statistics, 68% of Chinese internet users hear about websites and portals from their friends. Local viral marketing is crucial for the success of AskJeeves because of the extremely urbanization of the Chinese internet demographic. Since almost 90% of all internet users are located within a relatively small urbanized demographic, a strong local viral marketing campaign can influence the spread of AskJeeves at a substantial pace. This mode of entry is most suited for the current internet generation, because everything operates upon word of mouth. Since AskJeeves is confident in its performance metric in comparison to other market players, a local campaign should be an effective implementation strategy.

On a regional level, distribution and marketing needs to occur through the internet realm itself, it must be distributed through multi-channel mediums on popular Chinese internet portals. The aggregation of Chinese internet users on a limited number of portals is a significant advantage for AskJeeves because it allows them the advantage of targeting a focused segment of the Chinese internet community without expanding significant resources. These portals include news websites such as Sina, and the online search conglomerate Baidu. A targeted market penetration strategy for user forums, online communication mediums, and news portals will be an important mode of entry as well.

Finally, AskJeeves needs to focus on a national level to filter users through government affiliation. The Chinese government and censorship department has significant leverage over users; the highest rated and most approved websites by the Chinese government also corresponds to being the most successful. Therefore, the ability of AskJeeves to negotiate with the Chinese government to promote their website will be a crucial component of its overall growth.

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