Internet Search is undoubtedly one of the greatest innovations in the digital economy and has profoundly changed our interaction with the world outside and the way we seek and find information and knowledge.  Search has not only brought enormous utility to the users/ consumers through the instant delivery of information on the net, but has enabled a new model of advertising for business enterprises, based on a ready  analysis  of search history of all terms searched on the net. 

The online market place is the fastest growing of all businesses worldwide and in India as well. Search is the gateway to this large and growing marketplace. However, while search, on the face of it, is Free to the user, its lifeblood is online advertising. According to JP Morgan research, the global e-commerce business is around $680 billion (2011) and will touch $963 billion by 2013. And online advertising, presently a $61 billion market, is poised to grow to $103 billion by 2015. 

This enormous power of internet search is based on one simple underlying market principle: trust.  Trust in the capabilities of search engines to find exactly what users are looking for;  trust  for content owners  and advertisers in the neutrality and lack of bias in the processes used by search engines to rank search results, weighing  the conflicting aims of natural rankings based on relevance, quality scores and paid visibility. This trust is crucial for the sustainability of the online business model.

Today, this trust is implicitly vested mostly in one player, Google, which has built a natural monopoly through its innovative search algorithm and monetisation model, and resultantly dominates search as well as online advertising, with market shares for search exceeding 90% in several markets, and over 95% in India.  

Yet, amidst rising concerns being raised by several small and medium enterprises, which have now led to antitrust investigations in the EU and US, it is perhaps time to ask the big question:  Is search on the internet still neutral?  More important, why should it concern the millions of Indian SMEs that are getting inducted into the online market place as advertisers?

Businesses using search to list their offerings, for instance job sites or property sites, compete to bid on popularly searched terms (keywords) on search engines. Google makes money when visitors click on its sponsored listings (the coloured bars of advertisement) although not when they click on its natural or organic results listing (the plain body of the results pages).  Research shows that the top 3 results receive 88% of user clicks. Therefore, a prominent position on the first page is critical for advertisers to being clicked by the visitors. This is what drives advertising bids for pole position on Google's paid listings, and Google's online revenues.

As for relevance, India's online commerce will touch $10 billion by 2011, of which 80% will be in online travel purchases. There are over 52 million active Internet Users in India, and online advertising, clocking Rs 1000 crore ($220 million) in 2010, has grown eight times since 2007.  More importantly, India’s SMEs are increasingly turning to online advertising and marketing for their products, spending over 50% of their promotional budgets online.

As for the neutrality of search, at the core of the emerging concerns are three aspects, all linked to the black box of search algorithms:

a) The preferential placement of own and affiliate services on premium placements at the top of organic listings, unrelated to search popularity results.

b) The compulsion of businesses to bid on their own proprietary trademarks and even URLs as keywords.

c) Alterations in search results linked to manual over rides of search algorithms and hard coding of results to promote or penalise some sites in organic search results.

These manifestations are closely linked to the monetisation model of search and the functioning of the algorithm, both determined solely by the search engine, particularly Google.

Firstly, a search engine is assured of revenues from all clicks, even as advertisers bid against one another to get listings with the highest probability of being clicked. Further, the search engine also sets the minimum bid prices for keywords and categories based on historic popularity and traffic volumes, thus maximising its own revenues from the most searched terms. On the contrary, this only increases costs for the most popular businesses who actually originate visitor traffic by virtue of their being the most “searched".  

The second dimension of search advertising is that the dominant search engine does not recognise intellectual property rights in search keywords, even if these are registered proper nouns and trademarks unique to businesses. This generates a high potential for attracting  and diverting traffic by bidding on competitors 'brand names and even URLs as searched keywords e.g. an Audi car dealer  bidding on and using "BMW cars "' as an ad text  linked to an its website (check it out).  As a result, businesses are compelled to increasingly advertise on their own trademark terms as keywords to show up in the paid listings or to raise the bid prices for competitors. This is particularly true in short shelf-life transactional businesses, for instance, car loans or job offers. The more intense the competition, the higher the bid prices for the popular brands and higher returns to the search engine, because of its policy on trademarks.  This inability of businesses to protect their own proper names and trademarks from being bid by competitors is an anomaly of the online marketplace that is not to be found in the physical marketplace.  Interestingly, some names like Citibank, Microsoft, or Google, are not allowed to be bid as keywords, which throw up concerns of discriminatory application of Google's trademark policy. 

A third concern, now subject of the complaint in the EU antitrust case against Google, is that sites- particularly in businesses in which Google has competing interests or affiliations-  experience unexplained drops in their search result rankings.  The cases of Foundem a ‘vertical search engine’ based in the UK and OneNewsPage a news aggregator, are particularly interesting to understand these concerns. These unexplained changes in search rankings are alleged as search penalties; i.e. downgrading of site rankings based on manual overrides to the algorithm, which dispels the theory of search listings as a machine-based automated process without any human intervention.  

While the jury is out on these claims, it is important for SMEs depending on the online marketplace to realise that search advertising as we know it today, is, like renting space by the hour on a monopoly Internet Real Estate, with a necessity to be on it and a constant bidding for prime spots, on terms decided almost entirely by the estate owner.  Interestingly, even as Google itself experiences  a trend of reduction in its traffic acquisition costs (costs paid to content owners and partner sites to drive traffic) as a percentage of its expenditures,  advertisers in popular search categories are seeing increases in their traffic acquisition costs (incremental cost per clicking customer).  Thus, contrary to the argument of economies of scale, a fast growing internet market but may actually raise participation costs for the advertisers - referred by some as the Google Tax. 

In a rather short time, Google has earned our trust and goodwill not only through its brilliant innovation but also by unequivocally stating its intent on search neutrality. It is useful to remember what Google's founders, in an academic paper at Stanford, in 1998, warned:

“Advertising funded search engines will be inherently biased towards the advertisers and away from the needs of consumers” (Anatomy of a Large-Scale Hypertextual Web Search Engine, 1998).

That ominous warning is being held to test on Google itself now as its own Search Neutrality is put to scrutiny.

S V Divvaakar is the Executive Director of Initiative for a Competitive online Marketplace’s  India Chapter.