Part 1 of a Multi-Part Series on the “New Competitive Dynamics of Search”

by C.H. “Chandra”

Co-Founder and CEO, Yauba New Media 

C.H. “Chandra” is Co-founder and CEO of Yauba New Media, the developer of Yauba, the World’s First Privacy Safe, Real Time Search engine http://www.yauba.com. 

Yauba’s growing number of international versions are also available in Russia (http://www.yauba.ru), Brazil (http://www.yauba.br), India (http://www.yauba.co.in), Italy (http://www.yauba.it), France (http://www.yauba.fr), UK (http://www.yauba.co.uk). 

Why Are There So Many Search Start-ups with $40 Million in Average VC Funding?

Over the past three years, we have seen a proliferation of new, extremely well funded, start-up companies seeking to enter the search market.  At first glance, this may seem very paradoxical.  Given the tremendous global market share of Google, why would entrepreneurs want to attack this market?  Even more interestingly, why would venture capitalists throw (on average) $40 million dollars backing each of these new start-ups? 

Exhibit 1: Recent Total Funding for Search Related Start-ups

Source: Press reports, Crunchbase

Is this yet more evidence for bubble era folly?  Or is the answer is much simpler?  Are VCs just following the herd?  Is search such an attractive market that VC are willing to place such big bets knowing that if they succeed, they will generate several times their investment in total returns? 

The Attractiveness of Search

Any way you cut the data, the global search market is enormous.  Coming from almost nothing 10 years ago, global search revenues will hit over $33 billion this year and almost $50 billion in 2011.   

Exhibit 2: The Global Search Engine Industry Is Large

US$ billions, 2008-2011 (Forecast)

Source: JP Morgan

The Value of 1% Market Share

While the market size is very attractive, the valuations attached to search companies are even more appealing to VCs.  If we do some basic math calculations (exhibit 3), we can see that just 1% of market share in the global search engine industry is equivalent to up to $3.3 billion dollars of market value for the company in question.   

Exhibit 3: And Search Valuations Are Even Larger

Value of Each 1% Global Market Share

Source: Bloomberg, Reuters

So that is one part of the answer.  As VCs like to say, in order to become big, you need to swim in a big pond. 

But this obviously is not the whole answer.   

Preview of Next Post

In my next post, I will talk about the Google challenge, why Google does not present a “monopoly”, and why dethroning Google is not, should not, and need not be the goal for any of these new search engine start-ups.

This entry was posted on Wednesday, June 10th, 2009 at 9:07 am and is filed under CEO Views, Guest Authors. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.