Idealab chief stakes out new direction in search

The founder and CEO of famed venture capitalist Idealab plans to unveil a new search venture Tuesday at the first annual Web 2.0 Conference being held in San Francisco. Meanwhile, his venture fund has bankrolled a new localized service that ties online yellow pages with social networking.

Called Insider Pages, the Web site lets people sign up to connect with friends and mine their recommendations for local shops and services. The free product, still in experimental form for Los Angeles residents only, puts a new spin on social-networking services like Friendster by infusing it with the local insider feel of Craigslist.

Wholly owned and funded by Idealab, Insider Pages has yet to make a public debut. But company CEO and founder Stuart MacFarlane said he plans to introduce the service more fully in additional cities in the first half of 2005.

Idealab has been a weighty force in Web search since Gross founded Overture, formerly GoTo.com, in 1998. Against popular dissent, Overture sought to commercialize Internet search by allowing marketers to bid for a higher position in query results. That business model has since been adopted by Web heavyweight Google and has become the biggest driver in online advertising's turnaround. Yahoo, which has profited handsomely from paid search, bought Overture last year for $1.63 billion.

Gross is now expected to unveil a new Internet search venture, apart from Insider Pages, which some executives speculate will bring a more personal touch to finding information online.

"Anything that Gross does in search can't be underestimated," said John Battelle, co-founder of Wired magazine and program chair of the Web 2.0 conference.

Insider Pages is entering a market rife with promise, at least as investors and big-league Internet companies see it. In the last year, Yahoo, Google and InterActiveCorp's Citysearch.com have invested heavily in improving local-search services and mapping in order to lure new visitors and to begin to attract regional advertisers online. The prize could be big; small and midsize businesses spend about $22 billion on local advertising annually, according to The Kelsey Group.

Insider Pages could also bring a more focused business model to online social networking, in which people sign up to meet new friends or date. Although services such as Friendster and Google's Orkut have been popular, investors and analysts wonder if they can keep people's interest and prove to be a viable businesses. Insider Pages plans to make social networking valuable by helping consumers find trusted advice on services. That, in turn, will be valuable to advertisers, MacFarlane says.

"The most important driver for people when selecting local business providers is personal recommendations," said MacFarlane, who has worked at Idealab for two and half years and spun off Insider Pages into a new company. "It's the way the real world works."

He added: "We're aggressively going after local businesses to advertise online."

Insider Pages will sell advertising space at the top of search pages, charging marketers only when people use their service, or with a "pay per lead" model.

Still, Insider Pages faces the uphill battle of drawing new subscribers in an environment laden with too many pitches to join other social networks. It also may have difficulty in maintaining the listings and recommendations of friends, given that people often move and listings could be biased. Finally, companies like Google and Yahoo are working hard to bring regional advertisers online, and Insider Pages is just a small voice in the market.

The company also faces competition outside of Yahoo and Google. Craigslist could be developing new business models, given that eBay just took a 25 percent stake in the company. And Seattle-based upstart Judy's Book plans to release a similar service in the coming months. The company recently received $2.5 million in funding from venture capitalists Ignition and Ackerley Partners.