Was looking for a new car insurance carrier the other day and noticed the following ad on Google.

On the bottom right corner is an SideStep paid search ad. If its a little small, you can go to google and search for “all state car” and see for yourself (if its still up).

When I clicked over this is what i saw.

I would not even have noticed if not for the Kayak-SideStep merger news that came out a few weeks back.

So what the hell is SideStep doing buying “all state car” insurance key words? What the hell is SideStep doing having ad blocks TWICE the size of its input fields? Apparently SideStep is joining the growing rank of companies making good money in the click arbitrage business. How big is this revenue source for SideStep? I have no idea. Is this a systematic strategy or a side effect of a automated keyword buying algorithm? I cant be sure.

But I do know this. If SideStep-Kayak plans to go public, they better break out this revenue source as a separate line item. In banking speak, this is a classic “non-core” revenue stream which should be given a much lower (or even none at all) valuation multiple than its travel related revenue streams. I have no problem with arbitrage of any kind (I used to be in finance) but when you sell your stock to the general public as a “travel search engine” you better be making atleast 95% of your revenues from “travel” rather than arbitraging click prices for a bunch of tail keywords. If I want to buy into that business I can wait for the NameMedia or DemandMedia IPO instead.

Here is what I pulled out from the venturebeat post

Both companies are generating large amounts of cash through CPM (where advertisers pay per thousand advertising views), CPA (where advertisers pay when a user actually buys a fare or ticket) and CPC advertising (where advertisers pay when a user clicks through to their site), according to Marshall. The Techcrunch article reports Kayak is doing roughly $50 million in annual revenues, while SideStep does $35 million.

Emphasis/bold is mine. I have a strong hunch that “CPC advertising” is an euphemism for click arbitrage revenue. And if I had to guess, this is probably contributing about $10M a year to its bottom line. I could be wrong. . . this is certainly a lot of inferences from a few datapoints. All I know is that I, for one, wont be participating in their IPO - if they do end up going public.

Until this . . . (from NYT)

On Thursday night he told reporters in Orlando, Fla.: “We ought to have an immediate, very clear monitoring of our borders and particularly to make sure if there’s any unusual activity of Pakistanis coming into the country.”

On Friday, in Pella, Iowa, he expanded on those remarks.

“When I say single them out I am making the observation that we have more Pakistani illegals coming across our border than all other nationalities except those immediately south of the border,” he told reporters in Pella. “And in light of what is happening in Pakistan it ought to give us pause as to why are so many illegals coming across these borders.”

In fact, far more illegal immigrants come from the Philippines, Korea, China and Vietnam, according to recent estimates from the Department of Homeland Security.

Eh . . . ? Not mentioning that 99% of Pakistanis are good people even if they are “illegal” immigrants. Sounds like a man wanting to win so bad that he is changing his ideaology in response to some voter segmentation study. (are there such a thing?) Sounds like a desperate man trying to get a word in on a hot button voter issue anyway he can . . .

As for me, its back to Barrack Obama or Ron Paul again

Ok, Albert’s succinct and brilliant 5 words commentary is probably all you really need to read, but what the hell, if you prefer the long winded, convoluted, overly analyzed version, read on! (this shows exactly why I’m never dreamed of publishing anything my whole life, not even in my high school yearbook - and which Asian kid didn’t write for their yearbook? well atleast I played the violin)

In 2005, vertical search engines reached almost the epic hype proportion of B2B . Everywhere you turn, a vertical search engine was launched. . . one for video, another for blog, some for code snippets, others for medical information, others for houses. (I wont stump on their graves by linking to them).

Back then, I called bullshit on the whole thing for a slightly different reason than Tom Evlin . . . but both of us agree that the majority of them will fail. Which was highly controversial given that many heavy weights (Fred, Danny, and Jupiter) believed in its promise.

Well, the majority of vertical search engines followed the trajectory of the once mighty technorati blog search engine - vanquished by Google in one effortless scoop . . . killed by Google’s increasing indexing speed, ever expanding indexing capabilities (size & scope). . . and not the least of which, the quickly unbuzz worthy but hugely successful “OneBox.”

One of the main short comings of the Google machine was the speed in which it picks up new content . . . it used to be close to 2 weeks before any given page would be indexed. Today, for some content it could be in hours if not shorter. Google added new hardware and tied its indexing frequency algorithm to something like a pagerank. Many vertical search engines had hoped to win by focusing on categories where content relevancy is closely tied to timeliness . . . it turned out to be a dead end.

Other search engines tried to go “semantic” on Google by extracting meta data out of webpages and offering additional filtering and attributing functionalities. As it turned out, users only wanted to type once and click on the results. No one wanted to spend more than 2 minutes fiddling with drop downs and other filtering options.

Furthermore, despite, its public stance against the semantic web (perhaps simply a strategic posturing to stay ahead of competition), Google brilliantly used OneBox to extract information from webpages and presented in context of its more traditional search results. Video results is a great example. It used to be only only “oneboxed” with a few lines on the top of the search results and now its fully integrated into the SERP. (I wanted to throw in a Lord of a Ring reference here but decided against it)

Not all vertical search engines have failed though. Those that does not rely on web based data for its index has done pretty well (house hunting sites) - however they have turned into more of a traditional database + portal than a classic search engine. Others have relied on crawling the “deep web” where google bots do not/cannot visit to differentiate itself. One such category is travel search engines (where a lot of news came out last week). I’m, however, very very skeptical of the financial results of Kayak and SideStep - I have reasons to believe that a significant portion of their revenue have nothing to do with travel or search. (I’ll write about it later when I have time to do some screen caps).

So whats the final take away? Give the Google PM and the engineering team responsible for OneBox a huge raise and promotion. These guys fended off the biggest threat to Google’s paid search golden goose since Goto.com+Inktomi and didn’t even get enough respect to be poached by Benchmark to be “EIR’s”. (ok, maybe there hasn’t been many legitimate threats to Google so maybe its not that big of a deal . . . oh ya, and no, Facebook is not a threat to Google . . . yet )

I held off blogging for the month cause I wanted to show my solidarity with the hollywood writers union. ok not really . . . Its mainly cause I have some reshuffling of priorities for the new years . . . anyways more posts coming this week on this . . . such as

when vertical search died and no one noticed

why pay by touch was/is destined to fail

how Revolution Money is promising but needs tweaking

and a personal update . . .

anyways. . . I find that if I promise something upfront, it helps me get off my ass and do it . . . so this is really just another way to get me back to my regular blogging schedule after being slammed at work for the past month . . .