Steve Ballmer and the Future of Search Revenues

First published March 4, 2010 in Mediapost’s Search Insider

Steve Ballmer is an enthusiastic guy. As he climbed on stage with Danny Sullivan at SMX West, everyone was wondering how long it would be before he cranked up the volume and slipped into his typical Ballmeresque bombastic delivery. Steve didn’t disappoint. A few minutes into the interview, with Sullivan probing about Microsoft’s aspirations around search, Ballmer was yelling “Sell, Danny, don’t yell!” (ironic in the extreme) and roughhousing with poor Danny like a good-natured football coach having a little fun with the class math geek. I half expected Steve to give Sullivan a noogie.

I suspect there will be no shortage of coverage on the keynote and the areas explored. Ballmer was careful to tone down his enthusiasm about Bing with a realistic nod to Google’s current dominance. But there was one comment in particular that I want to explore a little further today. Ballmer made all the obligatory comments about us being very early in the game a search, an observation that has become rote in search interviews. And usually, that observation refers to the user experience, the functionality or the platform from which we search.  But Ballmer purposely singled out one area that is not generally talked about when we discuss the nascence of search — the revenue model.

The Crystallization of a Revenue Model

Search as it exists today proved to be the perfect crystallization of a revenue model, a beautifully simple evolution that had all the right pieces falling into place at just the right time. It was a rare occurrence in the messy and organic online world, one that Google capitalized on to the tune of several billion dollars. But it’s unrealistic to think that this crystallization of revenue opportunity can survive for long or morph into something equally universal, simple and effective.

Here’s what happened: Search solved a fundamental human need  — the need to access information. Google did search better than anyone else. All this searching happened in a small handful of places, with Google as the dominant destination. Much of this searching was for information that came from consumer intent.  And, because consumers were searching for information, sponsored messages could be informational in tone rather than overtly promotional. Search was a “click,” the natural and simple connection of burgeoning need with marketing opportunity.

It’s Not That Simple Anymore

But here’s what’s happening now: Search is not as simple as it was. Increasingly, our search activity is splintering over more platforms and through more interface layers. Search is going “under the hood,”  powering a number of different apps for a number of different needs. This means the ubiquitous and universal intersection point for search is going away. We’re demanding more from search — more functionality, more integration, more understanding of how we intend to use the information we seek. This raising of the bar of our expectations means it will become increasingly difficult for one interface to serve all those needs.

As we start doing more online — finding the functionality we need to take us not just from point A to B, but allowing us to continue on to C, D and even Z, with digital servants assisting with, or even allowing us to completely ignore, the interim steps — search will just be another piece of that functionality. This “usefulness” explosion is very unlikely to happen in one place. It will happen in thousands or millions of places. And search will be relegated from being an online destination to an online utility.

Google, Microsoft, and any other search provider, will lose the critical revenue-producing high ground, the touch point with the consumer, at least in the form it currently exists. This will require a rapid shift in revenue models, and I suspect it’s this impending shift that Ballmer was alluding to in his keynote. There will be revenue to be made — far more revenue, in fact. But Google and Microsoft may find themselves in the position of taking a much smaller slice of a much larger pie.

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