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Some of these affiliates use Google’s search services, but most do not. In fact, almost half of Google’s revenue and profits come from its external advertising network, a business where its superior indexing and search capabilities play a less critical role. Google also sells a “search appliance,” a Linux server running its indexing and search software, to organizations wishing to provide search services for their internal Web servers. This business, however, is quite small.

Yahoo’s search business is similar. Like Google, Yahoo earns a substantial fraction of its total revenue through search-related advertising, both on its own site and on a network of affiliates. Yahoo’s portal offers a wider variety of information services than Google, including news, dating, chat, and shopping. But Google is rapidly diversifying: in addition to allowing users to download its free personal search tool, Google’s website has news, shopping, e-mail, and photo storage services in various stages of development.

Today, the wholesale search market has significant barriers to entry. Economies of scale have asserted themselves, secondary competitors have folded, and the creation of new search engines by startups is becoming prohibitively expensive. Consider: to crawl, index, and search more than eight billion pages – still only a fraction of the Web – Google now operates a global infrastructure of more than 250,000 Linux-based servers of its own design, according to one Google executive I spoke with, and it is becoming a major consumer of electrical power, computer hardware, and telecommunications bandwidth.

But the consolidation of the wholesale market does not mean that the search industry is mature. Quite the contrary.

First, there is no lack of new competition. This comes from any number of sources: large firms, like Amazon and its A9 subsidiary, with sufficient resources to enter the market; startups commercializing a wide variety of new search functions; information retrieval and filtering firms such as LexisNexis or Vivisimo, whose products are competitive with or complementary to Web-based search services; and, in a class by itself, Microsoft. Moreover, while basic Web crawling is a mature technology with high barriers to entry, many other search-related functions are not. Secondly, services that have thus far been confined almost exclusively to the public Web are now expanding to personal computers, the dark Web, and other platforms. Finally, the search arena is still unstructured and without standards. Search sites are self-contained islands. They do not interoperate, and independent developers cannot use search sites as platforms upon which to offer specialized products and services, because, with minor exceptions, the search industry lacks open APIs. For the most part, each service is confined to what it can do on its own.

But the search industry cannot resist APIs, standards, and open architectures much longer. No single company can offer users all the functions they want. Users will demand search products and services that work across many different platforms. And Microsoft will almost certainly exploit both its ownership of the Windows platform and its search engine. Indeed, Microsoft has already announced that it intends to provide third-party developers with APIs to its new search engine, enabling them to construct applications based on it.

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