The Missing Business Analysis of new "Cuil" search engine

I was amused at the near total absence of business analysis in most of the coverage of, and commentary on, the new hyped "Cuil" search engine, the reportedly most-promising potential Google-beater.

Most commenters on Cuil totally miss that it is NOT their user perspective that determines success or failure of a search engine's business, but the BUSINESS perspective that matters.

• Saul Hansell of the NYTimes Bits Blog was on the right track in describing Cuil as the equivalent of starting a car company to sell a better transmission. Mr. Hansell gets the joke that Cuil will be bought by a bigger company -- not grow up to be a Google-beater.
• Most Cuil commentary suffers from user myopia and what I call the Internet Paradox.
  • Many people simply don't understand that their user view of the search engine marketplace is NOT the business reality of the search engine marketplace.
  • The paradox is that the vast choice and competition users enjoy in seeking content on the net is the opposite of the bottleneck that businesses have in successfully monetizing their content on the net.

What amused me most is that after several months of ad nauseum coverage of the Microsoft-Yahoo-Google soap opera "As the Search World Turns," which has now morphed into a "Law and Order" episode with the DOJ investigation of the Google-Yahoo partnership, so few commentators absorbed: WHY Microsoft sought to buy Yahoo, WHY Yahoo struggles to compete with Google, and WHY Yahoo partially gave up in competing with Google and partnered with them.

The reason for all this is that the search BUSINESS is now all about BUSINESS scale and scope.

• Cuil founders, who are former Googlers, are like the ill-fated French General Maginot, guilty of fighting the last war.
  • Because  a few years ago Google made its mark by crawling more content and having a more efficient and more powerful server architecture, Cuil is mistaken that engineering innovation is what currently drives BUSINESS success today in search.
• While Cuil toiled away innovating the search market tipped. What is needed to compete today is dramatically different than what a search engine needed to compete a few years ago.
  • Compreshensive and fast search is necessary but not sufficient to compete in the search market today.
• To use the apt analogy of Microsoft's CEO Ballmer, the ante for this game has increased while Cuil's founders were toiling away on their impressive engineering advances.
  • Only Google and Yahoo are profitable in search and together they control ~90% of search advertising revenues.
  • Why is that? To succeed in the search BUSINESS, one needs more than engineering scale or excellence but also networks of business relationships.
  • To succeed in the search BUSINESS, one needs scale and scope in an audience of users and a clientele of advertisers and website publishers. On this score:
    •   Google a user audience approaching a billion people, Cuil is starting from scratch. Even phenomenal growth off a startup space takes a long time.
    • Google has over a million advertisers, Yahoo ~300,000, Microsoft ~75,000 and Cuil... zero.
    • Google has over a million website partnerships of one type or another, Cuil has... zero.
• The competitive reality now is that search engines buy audience share -- in bulk.
  • Google's first business innovation was signing its first big deal with AOL to be their search engine and bring Google users from their traffic.
  • The monster myth is that most average users, not techies, choose their own search engine -- the reality is that most use the default search engine of the device or website they are on.  
  • Google spends $5 billion a year in traffic acquisition costs. Let's translate that for those who imagine Cuil to be a Google-beater. Google pays hundreds of thousands of business entities ~$5 billion dollars to use Google's search engine.
  • Microsoft recently acknowleged at its annual analyst meeting that it may spend upwards of $2.5 Billion more annually to compete in search.
  • Yahoo "partnered" with Google to get paid ~$800 million a year to obstensibly invest in search that Yahoo could not generate any other way.
  • Any way one slices it, the "ante' to compete in this market is orders of magnitude more than the ~$25 million Cuil reportedly has on hand.

Bottom line: The search competitive game has changed since Cuil's co-founders learned their special sauce. The search market has tipped. If Cuil's volume and efficiency innovations prove real they will be bought soon by Google, Yahoo, Microsoft, Ask.com or AOL.