Internet search is not as hot as analysts want you to believe
Question: After the market close, Internet search company Looksmart revised its 4th quarter guidance. Revenue will be down to 16.5m – 17m from 18m – 20m. The net loss is now 1.4m – 1.7m. The original figure is less than 1m.
I don’t know why Yahoo has P/E of 100 and Google has P/E of 200. For me, I never read those pop-up ads. And if I have to use Google search to buy stuff, I always skip the items listing on the right and the top. The real bargains are those deep down in the list since they don’t pay Google fees so they can keep the cost down. By the way, Yahoo will report its earning next Tuesday. This time meeting the estimate or beating it by one cent won’t be good enough for investors. Apple has set the bar so high, now other companies have to blow away the estimates to keep the momentum going.
Answer: What scares me in this market segment is the relative low entry cost theses days. Building a good web crawler / search engine (by current standards) is not out of the reach of many young computer science students.
Just remember how Google started a few years ago.
With a minimum initial capital (less than 50k), a few bright ideas and little time, someone can set up a small search engine / web directory startup and claim a small share of the market quite easily.
Compare it with others sectors, such as semiconductors, pharmaceuticals, healthcare, energy, transports, financials, even retail sales. Startups in theses sectors need MUCH more capital to become key players and make their place, so new players threats are much less present.
The big names today in online searches might as well disappear tomorrow and new players are likely to emerge. Wait until a few open-source zealots decide to build the world best ads-free intelligent search engine…
Also, I think the business model itself is weak, since the customer is NOT paying for the service itself. I don’t think making people pay for web search is a good idea, but a sudden shift in internauts habits or Internet structure might disrupt the whole concepts of online advertising, which represent for most web search companies the ONLY revenue stream.
I think more tangible infrastructure needs to be developped to add a real and lasting value to the sector.
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