In the lucrative world of search, not much has changed in recent years. Google is still running away with market share, handling an estimated two-thirds of all queries, followed – at a distance – by Yahoo and Microsoft. However, some changes may be coming, with a host of new search startups coming out of beta. The latest: Cuil. The highly touted and heavily funded startup created by some high-ranking former Google search employees hopes to dethrone Google. Do we believe it can accomplish that? Of course not; in fact, due to a less-than-stellar launch, it may have already lost.
Still, there is a small opening for Cuil and the other startups. Google has been mired in controversy for the past year over privacy concerns and regulatory hurdles, not to mention its ambitions to become a software application vendor. Those distractions at Google have encouraged venture capitalists, particular the more adventurous angels, to once again put money into search. Cuil has collected about $30m, while Blekko has received $6m. (The funding at Blekko comes despite the fact that the company, as it stands now, is nothing more than a promising idea from industry veterans and an empty webpage.)
Of course, the reason this new generation of search companies is getting VC attention is that there are natural acquirers for this technology. One example: Microsoft’s purchase of Powerset earlier this month for an estimated $100m. While that valuation may seem a bit low for Powerset, which was once as hotly hyped as Cuil, keep in mind that the price was essentially twice its post-money valuation in its latest round. Not great, but not bad in this market.
We suspect other search startups will ultimately sell for much the same reason that Powerset sold: scaling up these startups to deal with millions of users, and competing with multimillion-dollar R&D budgets of the ‘Big Search’ companies is not an easy or cheap task. With a proven willingness and desire of Yahoo, Microsoft and Google to make defensive or technology acquisitions in search, we believe the end game for Cuil, Mahalo, Blekko and the like will all be the same: acquisition. The bigger picture in the Cuil saga is that there is a batch of ex-Googlers up for grabs – Googlers who helped define the core technology of early Google search technology. Though Google is rumored to already be in engaged in talks with the company, how could Microsoft and Yahoo possibly resist swooping in for the coup?
Startup search engines
Source: Company reports