Vertical search engines add value to the END USERS in two main ways . . . creating semantics around data (metadata) and using those meta data to enable a more interactive search experience (which hopefully translates to higher relevancy). As Google become smarter and smarter around solving both problems (look at froogle and google local), vertical search engine are beginning to feel the crunch. In any industry the natural response to competition coming from a horizontal player is to move up the value chain in order to focus on the entire end user experience using integration as the main competitive weapon.

For content providers, the main value proposition of vertical search engine is simply traffic. The problem with vertical search engines is that most of them do not have the traffic scale of Google to be able to hold content owner hostage - preventing site owners from closing their site to search engines despite of the obvious threat of dis-intermediation. Om has taken up the torch in grilling these guys on this topic at the Search SIG and no one have a good response. (mp3 here). Again, the “out” for vertical search engines is to go the “application” route. The hope is to convince the content owners that veritcal search is creating an application ontop of their content rather than simply adding value through aggregation (which translates to disintermediation).

At SDForum’s Search SIG , a lot of vertical search engines are beginning to reposition themselves for the incoming onslaught by calling themselves vertical search application. Giving credit where its due, Dave McClure of SimplyHired has championed this cause since the very beginning before other players jumped on the bandwagon. His comment in John Battelle’s Service to Application post is characteristic of his usual stance.

There is two major problems with the vertical search application angle. (both could be overcome but still an issue).

1. From the end user perspective, having an more “inter-active” experience is not neccessarily important. Anyone who have been building search engines know that users rarely “interact” with search engines. Perhaps Google have trained searchers to be instantaneously critical but users rarely go beyond the first few page of a search result and rarely do more than hit “next page” What this means is that all the semantics that the vertical players have created around the data is only good for the user to evaluate relevancy but not to IMPROVE relevancy. Users are not likely to learn to click on functionalities to filter and re-rank search results. Perhaps Ajax will solve this problem in the future by improving user friendliness, but for now, this is a serious concern for many vertical search players. That despite their effots to add more application functionality around the search engine, the users refuse to see it as an application.

2. The content providers themselves also want to be application providers. Old school offline content owners are adept at repackaging data and selling them through multiple channels and formats. Building applications will be the obvious growth strategy for jump starting thier flat revenue base and/or stock price. The online content owners will also have to learn to do so to survive. Perhaps a few of the vertical search app providers will be acquired strictly for this purpose, but these players generally do not have the equity or cash horde to be able to pay for premiums of internet acquisitions.

Perhaps there is hope for the vertical search app companies, but I think the answer lies not in search applications BUT in “transaction” applications. Look at eBay, without paypal, it would look not so different to a vertical search app/engine. But with paypal, eBay is a much more valuable and defensible. Moving beyond solving “dicovery” issues to “settlement” efficiency could be the next phase of growth for vertical search apps. . . but again. . . they will run up against web 1.0 startups that already do both (ie. simplyhired versus. monster).