Google envy foments search wars

SAN FRANCISCO--Propelled by Google envy, new players and Internet industry giants are rushing into the online search market, setting off a burst of activity that contrasts sharply with the lull after the dot-com collapse.

To fend off its challengers, Google has furiously intensified efforts to add new services to its brand.

Last Thursday, it introduced Google Desktop Search, a program that is a direct challenge to Microsoft's control of desktop computing because it searches for information on a user's personal computer as well as on the Web.

In recent weeks, Google has also announced Google Print, to compete against the Search-Inside-the-Book feature of Amazon, and Google SMS, a new software tool for searching the Web from cell phones.

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But despite its push into new areas, some experts say that Google may be vulnerable because the search market--one of the Internet's most profitable areas--will increasingly be shaped by brand and other nontechnology factors. And that shift may play to the advantage of larger competitors like Microsoft and Yahoo.

In fact, Google's urgency in releasing a desktop search program shows that it knows the fight over search is moving to new ground.

"Microsoft will have a meaningful impact, they don't have to dominate to make a difference," said James Friedland, a San Francisco-based analyst for S. G. Cowen & Company, the New York-based investment firm. "If they start to gain share, it will slow down Google's growth."

Other analysts argue that there is plenty of room in the search market for both small and large competitors because profits from online advertising, much of it based on ads linked to search results, are growing fast.

"Every indication is that corporate advertising budgets are increasingly allocated to the Internet," said David Garrity, a financial analyst at Caris & Company, a Wall Street investment firm. Rising spending means that Google could continue to grow, even as more companies enter the field.

A test of these two views could come soon, perhaps before the end of the year, when Microsoft introduces its new search service, which will be broadly available on the Web.

Google's smaller rivals have also introduced new services in recent weeks. Amazon brought out A9, a search engine that allows users to maintain a running history of their Web travels. Vivisimo introduced Clusty, a search engine that uses artificial intelligence techniques to categorize search results. And Idealab, an investment company based in Southern California, has presented Snap, a search engine that permits easy sorting of search results.

While none of the new search services present an immediate threat to Google, the competitive pressure is certain to intensify even as its stock soars. Shares of Google closed at $144.11 on Friday. The company will report its quarterly earnings Thursday.

Ultimately, Google may have the most to fear from Microsoft, which could well use its Windows monopoly to dominate search functions. Such concerns have, in turn, caused Google to enter Microsoft's domain with Google Desktop.

For Microsoft, providing better access to information stored on a personal computer's hard disk has been a goal for more than a decade. Microsoft has said publicly it will soon offer a better search function for PCs. There is also widespread speculation in the industry that Microsoft intends to integrate its PC search functions with a Web search engine to combat Google.

Apple Computer has also become an active competitor in the desktop search wars. Earlier this year, Steve Jobs, the chief executive of Apple, showed off Tiger, the company's next-generation operating system, which will have extensive text and media search capabilities when it is made available sometime next year.

These industry developments have forced Google to go far beyond Internet search. "We really want to make this a photographic memory for computer users," Marissa Mayer, the director of consumer Web products for Google, said of Google Desktop.

For now, new products like Google Desktop are not expected to contribute directly to the company's revenue. But company executives would not rule out the possibility of eventually offering paid services or ads, using the technology that retrieves data from a user's computer.

The Desktop software, which can be downloaded from the Google Web site free, will retrieve information both from the Internet and the user's computer hard disk. For example, if a user searches for the word "flowers," he will be able to see Web search results as well as any e-mail messages and files stored on his personal computer that contain that word.

"We plan to learn a lot about how our users will use Google Desktop," Mayer said. She said that it took Google 18 months to figure out a way to turn its free Web search engine into a profit-making enterprise by selling ads linked to search terms. That business generated about $690 million for Google in the last quarter. Yahoo, Google's closest rival in search, reported last week that it had $765 million in advertising revenue for the quarter.

In the meantime, Internet innovations are becoming hot topics of conversations again in Silicon Valley. Web 2.0, a conference held in San Francisco this month, featured a range of new Internet start-ups and technologies.

"We're entering the period of the Cambrian explosion," said John Battelle, a prominent Internet entrepreneur, in comparing the new ventures taking root in Silicon Valley to the geologic period when many new species emerged.

At the Web 2.0 conference, much of the discussion centered on the next phase of Internet uses, described as D-to-D, or device-to-device, which would direct communications between computers, rather than between computers and human Web users.

Future competition for domination of the Internet may also mean refighting the battles of the past--in particular, the Web browser wars. There have been reports that Microsoft's control of the browser market may be loosening. America Online, for example, is thought to be preparing to re-enter the market with a new browser.

Google is also rumored to be developing a Web browser as part of its strategy to defend itself against Microsoft, whose new Web search service will almost certainly be integrated into Internet Explorer.

"If you drive by the Google buildings in the evening," said a person who has detailed knowledge of the company's business, "the lights that are still on are the ones on the floor where they are working on the browser."

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