Vertical Search will replace Search Ads

Imagine a search engine so good that it figures out your intent perfectly.

If you searched for “a upscale restaurant within 5 miles that’s open right now and serves steaks”, this mythical search engine’s top result would be exactly the one you want to go to. If you searched for “a radio controlled car available in a store within 10 miles”, it’s top result would be exactly the one you want to buy.

Such a search engine would never make money from search ads. The organic results would be so good, nobody would need to click on the ad. This is a critical insight: Search ads get clicks because the organic results are not perfect for some queries. If you believe that search engines will get better, you must concede that, all else being same, RoI from search ads will decrease.

The mythical search engine I talked about earlier – almost exists today. For my first query (about a restaurant), Yelp returns pretty good results. For my second query (a RC car), Milo returns pretty good results.  Truth is, for certain segments, companies have figured out how to present near-perfect search results to users. Kayak and Expedia do a good job for travel, Amazon and Google Product Search do it for products, and Yelp does it for local businesses. It’s also a growing market – Amazon’s latest quarterly profits were up 68% and Yelp’s traffic has increased 60% this last year. This growth comes at the expense of search ads.

Is this growth here to stay? I believe it is. And there are two reasons for it.

The first is just a generational shift: a new generation of web users is more web-savvy than the older one; the complex vertical search interfaces are less of a problem. The second is that the next surge of web usage will come from India and China – two countries where users are notoriously price-conscious. These “price optimizers” will not settle for an imprecise mechanism like search ads – they will want to express intent precisely, would want to compare and contrast offers from multiple businesses before making a choice. They will adopt vertical search interfaces at a faster rate, complex interfaces not withstanding.

This is not to say that search is going to die. Search is one of the most important technological problems of our age. But we’re going to have to find new ways to monetize it.

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2 responses to “Vertical Search will replace Search Ads

  1. Pingback: Google, Watch out to the “Mac Minority” « the human in the loop

  2. Pingback: Why Do People Click on Search Ads? « the human in the loop

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