Is there room for an independent European search engine industry?

8/14/2019 Is there room for an independent European search engine industry?

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IPTS Workshop: Socio-Economic Challenges of Search

www.pandia.com 1

Is there room for an independentEuropean search engine industry?

Per Koch1

, Oslo, Norway, Pandia.comPosition paper for the European Commission JRC Institute forProspective Technological Studies

2September 2008

SummaryIn this paper the author argues that the globalisation or rather Americanisation -- of theEuropean search engine industry requires a rethink of innovation policies. The traditionalargument of supporting R&D and innovation in order to develop European alternatives to aUS hegemony makes less sense in a world where more and more of the Europeancompanies are acquired by Non-European firms.

Instead of focussing on the development of companies owned and controlled by Europeans,the objective should be to develop Europe based search engine technology clusters thatgenerate innovation in general. As long as Europe has the required expertise, there will becontinued activities in this area on European soil, thus generating economic growth,innovation, and spill-overs in the form of new companies, competences and technologies thatcan be used elsewhere in the innovation systems.

How Europe failed to develop a viable alternative to Google

Early this year Microsoft bought the Norwegian search engine company Fast Search andTransfer

3. Fast had once launched the AlltheWeb search engine, by many considered one of

the few serious alternatives to Google. It was not to be. AlltheWeb was bought by AmericanOverture as early as in 2003

4. Overture was then acquired by Yahoo! which ditched

AlltheWeb in favour of Inktomis technology when developing its new Yahoo! Search Engine.The remaining part of Fast became a company focussing on enterprise search solutions.

This sounds like another European search engine failure. In spite of its strong research basein Trondheim, the Norwegians did not manage to conquer the search engine market with aEuropean alternative to Google. As a matter of fact, Fast will now help the Americansstrengthening their grip on the search market.

This is not the only story of this kind. Spanish Terra Lycos failed in its time to turn theAmerican born HotBot and Lycos search engines into viable alternatives.

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At the moment there seems to be only one real search engine i.e. one having its ownalgorithm and index that can be said to offer an alternative to the big three and that isFrench Exalead.

6But even Exalead finds it close to impossible to make any headway into the

North American markets.

1Per Koch is together with Susanne Koch the owner and editor of the Pandia Search Central

(www.pandia.com), a European English language site covering search and the search engine industry.He is also Director for analysis and strategy development at the Research Council of Norway. He wasfrom 2000 to 2006 a researcher at the Norwegian institute STEP, later NIFU STEP, in the area ofinnovation and research and innovation policy. He has been a Senior Analyst for the EU Trend Chart

project and is currently a delegate to the OECD Committee for Science and Technology Policy.2http://ipts.jrc.ec.europa.eu/

3http://www.pandia.com/sew/594-microsoft-to-buy-fast.html

4http://www.pandia.com/sw-2003/04-fast.html5http://www.pandia.com/searchworld/2000-44-europe.html

6http://www.pandia.com/sw-2004/59-exalead.html


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The American dominance had caused concern in European, and especially French, policycircles. The EU project Quaero

7has been seen as an attempt to develop a European

alternative to Google.8

Why do the Americans dominate the global search enginescene?As far as we know, there has not been done a serious study of why US companies have somuch greater success in developing global search brands. We have a few hypotheses,though.

A large homogeneous home marketUS companies benefit from having a home market of 300 million inhabitants. Yes, the EU isnow larger, but while Europe is divided into a large number of languages and nationalcultures, the US represents in spite of all its diversity a much more homogeneous market.

What is more important: the area is totally dominated by one language: English. This means

that US Internet companies immediately may tap into a huge potential user base withoutmaking special socio-cultural adaptations at home. This again makes it easier to reach thecritical mass needed to go into the global markets.

The large home base also makes it easier to get access to competent manpower from otherparts of the area. There is a lower threshold for moving from Virginia to California, than fromFrance to Germany.

Search as part of a larger portfolioIt is easy to forget that Google is not a typical search engine company. In fact, there are notypical search engine companies. Google is the only one of the big three companies whichwas originally built on a search engine.

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Yahoo! started as a resource directory. When the company finally decided to put up a searchengine, they originally outsourced this service to others.

It could also be argued that Yahoo! first and foremost is a media company, generating largeamounts of online content and other types of online services. Yahoo! remains the number 1web destination in the world, even if it lags behind Google in search. In other words: Yahoosrole in the search market can partly be explained by the fact that it has developed differentweb destinations that attracts searchers as well.

This is also part of the explanation for Microsofts inclusion among the big three. In spite of itsstrange strategy of weakening the MSN brand in favour of Live, MSN continues to deliver alarge number of searchers. The search field in the Explorer browser also plays an importantrole here. Moreover, Microsoft has the clout needed to keep on going, even if its businessstrategy in the search area is a bit clumsy.

The European market is fragmented, and we have no similar media companies or technologycompanies that cover the whole of Europe. Similar developments have been taking place inparts of the European market (e.g. Eniro in Scandinavia and T-Online in Germany), but noneof these companies have a home base similar to the one of Yahoo! and Microsoft.

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7http://en.wikipedia.org/wiki/Quaero

8http://www.pandia.com/sew/340-quaero.html

9 Ask is as well, but that search engine is now planning to turn itself into a portal.http://www.pandia.com/sew/629-ask-2.html10

http://www.eniro.com/en/ and http://www.t-online.com/


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An entrepreneurship cultureMuch has been said about the need for a European Silicon Valley. The fact is that mostattempts to build Valleys outside California will fail, because Silicon Valley is the result of aunique socio-cultural framework conditions that cannot be replicated elsewhere.

That is in itself not an explanation for why there is no European Google, though. There areother ways of developing innovative clusters that can lead to search engine innovation.Indeed, the Fast example tells proves that even a small Scandinavian cluster like the one inTrondheim can give birth to a technology that potentially can rival Googles.

At Pandia we get a constant stream of reports on new European based start-ups attemptingto make its mark on the search engine scene, and many of them are at the technologicalforefront. There is entrepreneurship and there is innovation.

Some of our contacts report that it might be easier to get access to early-stage pre-seedcapital in the US as compared to most European countries. There is also near to no stigmaattached to bankruptcy in the US. That means that failure is considered part of a usefullearning process rather than a negative personal trait that excludes you from future businessadventures. Less risk-aversion may mean that more ideas reach the maturity needed formarket application or acquisition by larger companies.

Different management practicesIt has been argued that Anglo-American management practices are different from ContinentalEuropean ones.

11If we let ourselves oversimplify a bit, we could say that American

stockholders are looking for a steady stream of short term innovations that generate trust inthe market and increase stock value.

One explanation for the promotion of Google Labs12

is that the test site convinces investorsthat this is a company that constantly generates new ideas for future market developments.Steve Jobs puts on his black turtle neck twice a year to present some breathtaking newinnovations. One objective is to convince Wall Street that Apple continues to be the most

innovative company in the ICT industry.

Continental companies, especially family owned firms, may allow themselves a more longterm perspective, investing in more fundamental research projects that will need years todeliver commercial results. Their surrounding support system, including the EU FrameworkProgramme, also promotes long term R&D projects that will at least require three yearsbefore delivery, and then a few more for market adaptation. This technology push approach isnormally driven by researchers even university researchers who are often motivated byacademic, not commercial, objectives.

Both strategies have their strengths and weaknesses. The European long-term strategy maylead to more radical innovations, but the lack of a more short-term market orientedapproaches means that the companies may fail to develop the competences needed to turn

their innovations into useful services and products. The socio-economic development of theWeb is also hard to predict, and the technologies delivered by the long-term projects may notbe the answer to future needs, and they may become obsolete before they are ready.

Product and technology lock-inThe US approach gives the companies a better sense of immediate market needs, but mayundermine their ability to fund the research needed for the development of disruptivetechnologies. Indeed, the focus on short-term gain can stop the companies from exploringradical new approaches, as it may undermine their present revenue-generating products.Microsofts failure to explore the Web as a new market for software as a service and itsinability to beat Google in the search engine game is partly caused by its Windows lock-in.

11Inside the black box of multinationals, Sverre Herstad (ed.) Report, Oslo 2005,Nordic InnovationCentre12

http://labs.google.com/


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Google may go into a similar trap. The company is constantly adjusting its algorithm to fight ofspammers, and has made incremental improvements to the underlying technology since1998. Still: the basis remains the same, namely its Page Rank technology. If someone,somewhere, comes up with an approach that gives much better search results than Google,Google may end up as the 1998 frontrunner AltaVista -- as a search engine has-been. In

short: Europe may give us the next Google, ifthe relevant entrepreneurs are able to approachthe market in a sensible way.

Again, the dichotomy between Anglo-American and European management practices is avery simplistic model, and the recent interest for open innovation on both sides of theAtlantic proves that there is much variation.

13But the idea of differences in the underlying

mentalities is definitely worth exploring.

Does it matter if the European search engine industry isAmerican?Much of the European debate on the role of globalization, multinational companies andforeign take-overs is dystopian in nature. Globalization is presented as a threat, and foreign

take-overs are considered at best a loss of national pride and sovereignty. In the worstcase scenario such acquisitions are seen as part of a foreign plot aimed at moving assets andtechnologies out of the country.

This understanding has been strengthened by the trend of moving industrial production tocountries that allows cheap production with low-skilled workers. The fact that India hasbecome a leading nation in the Internet economy make some fear that parts of the so-calledhigh tech ICT industry may be moved there as well. Indeed, at Pandia we have severalIndian advertisers that promote reasonably priced search engine marketing services toAmericans and Europeans.

The European Commission seem to legitimize its R&D and innovation investments based onarguments regarding the competitiveness of Europe as a unit. Europe is, according to this line

of reasoning, lagging behind the US and needs to catch up.14 It is as if Europe is a hugecompany competing with another company called the Unites States. The analogy ismisleading at best.

To us the opposite argument rings more true. The Norwegian case may again serve as anexample. The small search technology cluster based on the Norwegian University of Scienceand Technology (NTNU) and Fast Search and Transfer is considered to be world leading byAmerican companies. Not only has Microsoft bought Fast. Yahoo! and Google haveestablished their own development units in Norway in order to get access to this cluster. Inother words: Even if there are no big Norwegian owned companies left, there is a lot ofresearch and development going on.

The Israelis are often praised for their ability to attract foreign investments, and the fact that

companies like Intel and IBM are situated close to Israeli campuses is considered a sign ofstrength. It would make equally much sense to argue that the presence of big Americansearch engine companies on Norwegian soil will strengthen the cluster, not weaken it.

Google and Yahoo! want to access Norwegian brain power, and that human capital isembedded in human beings that cannot easily be moved to India. Much of the profit

13http://en.wikipedia.org/wiki/Open_innovation

14In the Lisbon Strategy the EU set itself a strategic goal for the next decade: to become the most

dynamic and competitive knowledge-based economy in the world capable of sustainable economicgrowth with more and better jobs and greater social cohesion, and respect for the environment.http://ec.europa.eu/growthandjobs/pdf/kok_report_en.pdfCp. also the report from the High Level Group

chaired by Wim Kok 2004: The Lisbon strategy is even more urgent today as the growth gap with NorthAmerica and Asia has widened, while Europe must meet the combined challenges of low populationgrowth and ageing. http://eur-lex.europa.eu/LexUriServ/site/en/com/2005/com2005_0024en01.pdf


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generated by Yahoo! and Google in Europe will end up in the pockets of American share-holders, but their activities will also lead to economic growth and employment in Europe.

Moreover, their presence means that Europeans working in their European units get accessto the internal learning arenas and networks of these companies. Some of these people mayeventually decide to start their own companies. In any case the big US-owned companies will

have to collaborate with local knowledge intensive service providers, suppliers andcustomers, and they might eventually form the nuclei of new European search enterprises.

A strategy for a future European search engine industryRegardless of whether the ultimate objective is to develop an alternative to an Americandominated search engine industry or European based search engine development in bothEuropean owned and American owned companies, some strategic elements need to be inplace.

The development of a European search engine industry is dependent on a large number ofsocio-economic factors, including access to venture capital, flexible laws and regulation, thedevelopment of language and cultural skills in the relevant companies, collaboration with

other companies and knowledge institutions locally and abroad, and more.

A development of a third generation holistic innovation policy can help these companies asit might help companies in other branches of industry. The work done within Pro InnoEurope

15may be of help in such a policy development, as may the research policy knowledge

base developed by Erawatch.16

In general there is a tendency to overestimate the role of research in industrial innovation.Companies may innovate by other means: through organisational change, incrementalprocess innovation, design, marketing, branding and so on. The successful search enginecompanies make use of all these types of innovation.

The fact remains, however, that historically nearly all the major search engine technologies

have roots in university research,

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and it is the combination of commercial search engineenterprises and relevant university research that attracts the American companies to Europe.A sufficient public funding of R&D in universities and research institutes is needed to keepthis knowledge base alive and to generate new technologies.

Needless to say the Commission will have an important role to play here, both within theEuropean Framework Programme for Research and the Competitiveness and InnovationFramework Programme (CIP).

18Quaero and its German offspring Theseus may provide

Europe with much needed search engine innovation19

as they are focusing on technologies ofhigh relevance to the development of a broadband based and social web oriented Internet,namely video and audio search.

If any of this research leads to a break-through in search technology, either as regards a

radical improvement of regular web search results or in accessing non-text information, it mayactually give Europe a second chance in developing an alternative to the big three. Thatrequires, however, that policy-makers manage to look beyond a simplified science-pushparadigm to supporting a wide range of innovation activities that takes socio-economic trendsand market opportunities into consideration.

15http://www.proinno-europe.eu/

16http://cordis.europa.eu/erawatch/

17Google at Stanford, Inktomi (now Yahoo!) at Berkely, AlltheWeb at NTNU, AltaVista at the University

of Cambridge (and others), Excite (Architext) at Stanford, Exalead at Ecole Polytechnique, Lycos atCarnegie Mellon University. The main exception to this rule is MSN Search/Live.18 Information Communication Technologies Policy Support Programmehttp://ec.europa.eu/information_society/activities/ict_psp/index_en.htm19

http://www.pandia.com/sew/553-quaero-2.html and http://www.pandia.com/sew/570-theseus.html

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Is there room for an independent European search engine industry?