Competition in Search Engine Market

By Zhao, Wugang; Tse, Edison | Journal of Business Strategies, Fall 2011 | Go to article overview

Competition in Search Engine Market


Zhao, Wugang, Tse, Edison, Journal of Business Strategies


Abstract

Google has been very successful in becoming the dominant search engine platform in the US and Western countries. In contrast to its success in the US and Western countries, Google does not have much luck in some Asian countries such as China and Korea. Google is far behind in terms of search market share in China and Korea. In this paper, we model the search engine market as a two-sided markets model and analyze the industry structure and competition of the search engine market. First, we present a mathematical model for a general search engine two-sided market. Then we use the model to analyze the search engine history and explain why multiple search engines could co-exist in the early days of the search engine history. We also explain how Google, a latecomer in the search market, could become the leading search engine, and how Google has strengthened its leading position. Next we apply the model to China and Korea's search markets and analyze how Google could lose the game to local search companies. In the end, we propose some strategies on how search engine market leaders could maintain and strengthen their leading positions.

Introduction

The World Wide Web has experienced exponential growth since its inception in early 1990s, and it continues growing rapidly (W3C, 2000). Today, it is used in almost every aspect of our everyday life, such as searching for online shopping sites, company and product information sites, online social networking sites and online news sites. Google was estimated to index around 20 billion web pages in Oct. 2010 (Kunder, 2010). Netscraft reported that the total number of websites reached 232 million in Oct. 2010 (Netcraft, 2010). These data indicate that there are huge amount of information out there on the Internet, with millions of websites and billions of web pages.

Search engines hold the key to the wealth of information available on the Internet. Users spend a significant amount of time on search engines looking for relevant information (Gandal, 2001). Very often a user starts with a search engine to get to a desired website. For example, an online consumer who wants to buy a digital camera may go to Google, search for digital camera, browse the products and reviews of the candidate sites, and pick one to make the purchase, or a researcher who is looking for a paper may go to a search engine, search for the title of the paper, and download the paper from a target site. Search engines play a critical role in disseminating web site information on the Internet and they have a powerful position in the web space. According to Alexa, search engines are among the most actively visited sites on the Internet. For example, Google ranks #1 in the most visited site in 2010 and several other search engines are among the top 25 (Alexa, 2010). With the central role search engines are playing, they have become very attractive options for online advertising and target marketing.

In the early days of the search engine history, there were many different search engines in the market. Google's entrance into the search engine market changed the market structure and competition landscape. Google, a latecomer in the search engine market, was founded in 1998 and rose to prominence for its advanced search technology in 2000. Google surpassed Yahoo as the leading search engine in 2002 and has strengthened its market leadership position since then (SearchEngineWatch; NETMARKETSHARE, 2010). Google also expanded into international search markets after it established its lead position in the US. Compared to its huge success in the US and Western countries, Google did not have much luck in some of the major Asian countries such as China and Korea. In China, which has the largest Internet population and potentially the largest Internet market in the world, Google is far behind the local search market leader Baidu. Baidu holds around 70% of the search market while Google has only around 21%. …

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