Search and ye shall find – can a search engine understand that?

In the first part of this post, we analyzed what the position of the dominant player (Google) is, where there are opportunities, and what they need to succeed. In this part, we will briefly review the one I interviewed recently, hakia. FYI, hakia is, indeed, spelled lower-case; this is not a typo. 

Given our list of criteria above for success, how well do hakia meet the requirements?

  1. User Requirements. hakia seems to really get this space. They are investing some amount in making the results more user-friendly, not just fancier-looking – which users are not looking for – but enough content on the search results page itself to reduce the number of unnecessary click-throughs. More importantly, they understand that users want: (a) to ask questions in a normal human manner; (b) to receive highly relevant results. Additionally, hakia understands the concept of credibility. People want not just relevant results, but credible results. Your local massage parlour home page is great and credible for deep-tissue massage and back rubs (Google pun intended), but extremely low on the credibility scale for cancer treatments. This is an area that I have not heard clearly expressed by any provider outside of hakia.
  2. Operations. This part concerns me. Even Google needs to struggle to index the exponentially growing Internet, and they have customized hardware, software, data centers and huge amounts of cash to invest in it. In FY2007, Google spent $630MM on R&D and $377MM on general and administrative. Although Google does not break down how much of that is directly related to crawling and indexing, $1BN on G&A and R&D, separate from sales costs, is a lot of money, and hard to play catch-up for anyone. hakia recognizes that they need to find a different model, one that is not as cost-intensive, but there is no avoiding the fact that the amount of Web content is enormous and keeps growing.
  3. Customer acquisition. I have not seen indications one way or the other on this. However, I have rarely seen a consumer-focused Internet start-up that really calculates the customer acquisition cost. I saw one recently in the virtual world space and another in a related semantic advertising space that may or may not have properly calculated this, but do correctly recognize that individual/retail acquisition is incredibly expensive. In their cases, they took a saner route and are instead becoming infrastructure providers to those who already have millions or tens of millions of users acquired.
  4. Business-model validity. hakia is building on direct advertising, unsurprisingly, yet is also diversifying into other areas where it can sell usage of the technology. They seem to have a good model but are hedging their bets, a good call, given the unpredictability of the cyberspace advertising market.
  5. Investor patience. hakia gets a plus one on this one. They seem to have lined up investors who get the idea of long-term investment, and are even, in this day and age, focused on IPO, not on being bought out. They will need to get a lot bigger to deal with the registration requirements (=expenses), Sarbox nightmares, and securities class-action exposures (possibly fewer since Milberg Weiss has been cut down to size) that so plague any company attempting to go public, but they seem to be prepared for it.
  6. Google response. Obviously, hakia has little control over this, although they seem somewhat dismissive of it. To their credit, they get that they need to focus on the first 5, get them right, and 6 becomes less of an issue.

Summary: good model, diversification, excellent customer grasp, investor management. Weakness or underplanning in operations and customer acquisition.

About Avi Deitcher

Avi Deitcher is a technology business consultant who lives to dramatically improve fast-moving and fast-growing companies. He writes regularly on this blog, and can be reached via Facebook, Twitter and avi@atomicinc.com.
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