IPTS Workshop: Socio-Economic Challenges of Searchwww.pandia.com 1

Is there room for an independentEuropean search engine industry?

Per Koch

, Oslo, Norway, Pandia.comPosition paper for the European Commission JRC Institute for Prospective Technological Studies

September 2008

Summary

In this paper the author argues that the globalisation – or rather “Americanisation” -- of theEuropean search engine industry requires a rethink of innovation policies. The traditionalargument of supporting R&D and innovation in order to develop European alternatives to aUS hegemony makes less sense in a world where more and more of the Europeancompanies are acquired by Non-European firms.Instead of focussing on the development of companies owned and controlled by Europeans,the objective should be to develop Europe based search engine technology clusters thatgenerate innovation in general. As long as Europe has the required expertise, there will becontinued activities in this area on European soil, thus generating economic growth,innovation, and spill-overs in the form of new companies, competences and technologies thatcan be used elsewhere in the innovation systems.

How Europe failed to develop a viable alternative to Google

Early this year Microsoft bought the Norwegian search engine company Fast Search andTransfer

. Fast had once launched the AlltheWeb search engine, by many considered one of the few serious alternatives to Google. It was not to be. AlltheWeb was bought by AmericanOverture as early as in 2003

. Overture was then acquired by Yahoo! which ditchedAlltheWeb in favour of Inktomi’s technology when developing its new Yahoo! Search Engine.The remaining part of Fast became a company focussing on enterprise search solutions.This sounds like another European search engine failure. In spite of its strong research basein Trondheim, the Norwegians did not manage to conquer the search engine market with aEuropean alternative to Google. As a matter of fact, Fast will now help the Americansstrengthening their grip on the search market.This is not the only story of this kind. Spanish Terra Lycos failed in its time to turn theAmerican born HotBot and Lycos search engines into viable alternatives.

At the moment there seems to be only one “real” search engine – i.e. one having its ownalgorithm and index – that can be said to offer an alternative to the big three and that isFrench Exalead.

But even Exalead finds it close to impossible to make any headway into theNorth American markets.

Per Koch is together with Susanne Koch the owner and editor of the Pandia Search Central(www.pandia.com), a European English language site covering search and the search engine industry.He is also Director for analysis and strategy development at the Research Council of Norway. He wasfrom 2000 to 2006 a researcher at the Norwegian institute STEP, later NIFU STEP, in the area of innovation and research and innovation policy. He has been a Senior Analyst for the EU Trend Chartproject and is currently a delegate to the OECD Committee for Science and Technology Policy.

http://ipts.jrc.ec.europa.eu/

http://www.pandia.com/sew/594-microsoft-to-buy-fast.html

http://www.pandia.com/sw-2003/04-fast.html

http://www.pandia.com/searchworld/2000-44-europe.html

http://www.pandia.com/sw-2004/59-exalead.html

IPTS Workshop: Socio-Economic Challenges of Searchwww.pandia.com 2The American dominance had caused concern in European, and especially French, policycircles. The EU project Quaero

has been seen as an attempt to develop a Europeanalternative to Google.

Why do the Americans dominate the global search enginescene?

As far as we know, there has not been done a serious study of why US companies have somuch greater success in developing global search brands. We have a few hypotheses,though.

A large homogeneous home market

US companies benefit from having a home market of 300 million inhabitants. Yes, the EU isnow larger, but while Europe is divided into a large number of languages and nationalcultures, the US represents – in spite of all its diversity – a much more homogeneous market.What is more important: the area is totally dominated by one language: English. This meansthat US Internet companies immediately may tap into a huge potential user base withoutmaking special socio-cultural adaptations at home. This again makes it easier to reach thecritical mass needed to go into the global markets.The large home base also makes it easier to get access to competent manpower from other parts of the area. There is a lower threshold for moving from Virginia to California, than fromFrance to Germany.

Search as part of a larger portfolio

It is easy to forget that Google is not a typical search engine company. In fact, there are notypical search engine companies. Google is the only one of the “big three” companies whichwas originally built on a search engine.

Yahoo! started as a resource directory. When the company finally decided to put up a searchengine, they originally outsourced this service to others.It could also be argued that Yahoo! first and foremost is a media company, generating largeamounts of online content and other types of online services. Yahoo! remains the number 1web destination in the world, even if it lags behind Google in search. In other words: Yahoo’srole in the search market can partly be explained by the fact that it has developed differentweb destinations that attracts searchers as well.This is also part of the explanation for Microsoft’s inclusion among the big three. In spite of itsstrange strategy of weakening the MSN brand in favour of Live, MSN continues to deliver alarge number of searchers. The search field in the Explorer browser also plays an importantrole here. Moreover, Microsoft has the clout needed to keep on going, even if its businessstrategy in the search area is a bit clumsy.The European market is fragmented, and we have no similar media companies or technologycompanies that cover the whole of Europe. Similar developments have been taking place inparts of the European market (e.g. Eniro in Scandinavia and T-Online in Germany), but noneof these companies have a home base similar to the one of Yahoo! and Microsoft.

http://en.wikipedia.org/wiki/Quaero

http://www.pandia.com/sew/340-quaero.html

Ask is as well, but that search engine is now planning to turn itself into a portal.http://www.pandia.com/sew/629-ask-2.html

http://www.eniro.com/en/andhttp://www.t-online.com/

IPTS Workshop: Socio-Economic Challenges of Searchwww.pandia.com 3

An entrepreneurship culture

Much has been said about the need for a European Silicon Valley. The fact is that mostattempts to build Valleys outside California will fail, because Silicon Valley is the result of aunique socio-cultural framework conditions that cannot be replicated elsewhere.That is in itself not an explanation for why there is no European Google, though. There areother ways of developing innovative clusters that can lead to search engine innovation.Indeed, the Fast example tells proves that even a small Scandinavian cluster like the one inTrondheim can give birth to a technology that potentially can rival Google’s.At Pandia we get a constant stream of reports on new European based start-ups attemptingto make its mark on the search engine scene, and many of them are at the technologicalforefront. There is entrepreneurship and there is innovation.Some of our contacts report that it might be easier to get access to early-stage pre-seedcapital in the US as compared to most European countries. There is also near to no stigmaattached to bankruptcy in the US. That means that failure is considered part of a usefullearning process rather than a negative personal trait that excludes you from future businessadventures. Less risk-aversion may mean that more ideas reach the maturity needed for market application or acquisition by larger companies.

Different management practices

It has been argued that Anglo-American management practices are different from ContinentalEuropean ones.

If we let ourselves oversimplify a bit, we could say that Americanstockholders are looking for a steady stream of short term innovations that generate trust inthe market and increase stock value.One explanation for the promotion of Google Labs

is that the test site convinces investorsthat this is a company that constantly generates new ideas for future market developments.Steve Jobs puts on his black turtle neck twice a year to present some breathtaking newinnovations. One objective is to convince Wall Street that Apple continues to be the mostinnovative company in the ICT industry.Continental companies, especially family owned firms, may allow themselves a more longterm perspective, investing in more fundamental research projects that will need years todeliver commercial results. Their surrounding support system, including the EU FrameworkProgramme, also promotes long term R&D projects that will at least require three yearsbefore delivery, and then a few more for market adaptation. This technology push approach isnormally driven by researchers – even university researchers – who are often motivated byacademic, not commercial, objectives.Both strategies have their strengths and weaknesses. The European long-term strategy maylead to more radical innovations, but the lack of a more short-term market orientedapproaches means that the companies may fail to develop the competences needed to turntheir innovations into useful services and products. The socio-economic development of theWeb is also hard to predict, and the technologies delivered by the long-term projects may notbe the answer to future needs, and they may become obsolete before they are ready.

Product and technology lock-in

The US approach gives the companies a better sense of immediate market needs, but mayundermine their ability to fund the research needed for the development of “disruptive”technologies. Indeed, the focus on short-term gain can stop the companies from exploringradical new approaches, as it may undermine their present revenue-generating products.Microsoft’s failure to explore the Web as a new market for software as a service and itsinability to beat Google in the search engine game is partly caused by its Windows lock-in.