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Searching for a Business Model

August 16, 2004

An a:c operative recently attended a search industry conference in lovely San Jose. All the players were there, big and small. As with most conferences, the real value of the gathering is to meet with industry peers, do some networking, and maybe strike a deal or two. As he wandered the floor of the conference hall, what struck our man on the ground most was the total lack of differentiation between many of the newer search engine optimization, search engine marketing, and contextual advertising companies. He put the question bluntly to one search optimization company: “How are you differentiating yourselves from all these other search optimization start-ups?”
“Um, good question,” was the response he got.
Cutesy name + stupid company = Chapter 11
It is a good question – and one that investors in this sector should bear in mind. The companies currently swirling around search remind us of the Web design category in the late ‘90s. It started with companies like Organic Online and snowballed with the likes of Viant, Scient, MarchFirst (the combination of US Web and CKS), and iXL, all of which tried to position themselves as interactive agencies.

As it turned out, no one company was substantially better than any other, traditional ad agencies showed that they weren’t as inept as the new “interactive” agencies wanted us to believe, and ultimately there weren’t enough client dollars to support all these shops. The tanking economy of 2001-2002 didn’t help, but even if the economy had remained steady, some of these companies were headed for the bankruptcy courts.
Look for a less spectacular version of this consolidation to happen in the search sector. The main reason it won’t be as sensational a flameout is that many of the small companies will go out of business before they can get much bigger – or they’ll be sold for parts. AOL’s purchase of suggests a premium on maturity, something many of these minnows may never achieve. More on this story as it develops…
Read – Scient files for Chapter 11 []
Read – iXL Reduces Web Design to Focus on CRM, Tech Clients [@newyork]
Read – Scient, iXL ink deal to become one []
Read – MarchFirst files for Chapter 11 bankruptcy protection [SF Business Times]
View – MarchFirst’s Pathetic Homepage


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