...a paradigm-busting attack at the CRM market," says Joshua Greenbaum, principal at Enterprise Applications Consulting. "It really set the industry on its ear."
So, barring a disruptive innovation, it looks like the best way to get a toehold in search is to think niche.
"There has been quite a bit of venture activity lately in the search market, but more in complementary technologies and smaller, more niche search companies," like search for photos, jobs and local classifieds, says Josh Grove, a research analyst at the venture capital research firm VentureOne, a Dow Jones company.
The number of search equity investment deals in the United States has risen to 31 so far this year, up from 27 in 2004, and just eight in 2001, according to statistics from VentureOne and Ernst & Young. The amount raised, meanwhile, has been $176.9m so far this year, surpassing last year's $164.9m and about three times what it was in the two prior years combined, the study shows.
Feeding that venture capital activity, Google and Yahoo are in investment and acquisition mode.
"Google and Yahoo are sitting on huge amounts of cash, and they are buying companies at extremely early stages. I've heard of a number of venture capitalists getting annoyed (with the fact that) before they can get to a company, Google has bought them," Haacke says.
Among the recent Google acquisitions are Web analytics company Urchin, photo-sharing company Picasa and mobile software companies Android and Dodgeball.
"Historically, our [mergers and acquisitions] strategy has been to look for unique products, technologies and engineering teams that can help us provide innovative products to our users or enhance our existing services," Google spokeswoman Lynn Fox wrote in an email response to questions.
For its part, Yahoo this year acquired Flickr, the popular photo sharing Web site, and Pixoria, whose Konfabulator technology is used in Yahoo Widgets, a service that lets people run small, customisable desktop applications.
"Start-up companies mostly are focused on developing specialised search technologies, vertical search, for things like travel, sports or health care," says Stewart Alsop, a partner at the venture capital firm New Enterprises Associates.
So what's next? Some think the search sector is already primed for some consolidation. There also are plenty of rumours that Time Warner is either looking for a partner or even interested in selling AOL.
But don't think the IPO gravy train has come to a halt for search companies.
Allen Morgan, managing director of the Mayfield Fund, which invested in general search engine Snap this year, still predicts that, though the only noteworthy IPO in the US this year was Chinese search engine Baidu.com, there will be a few next year and in 2007. That could give the latest band of start-ups time to mature.
There's no doubt that investors and entrepreneurs alike are still wistfully eyeballing Google's success.
"We are all blown away by Google," says Joe Bartlett, a venture capital lawyer and founder of VC Experts, a resource for data and analytics on private equity. Even "at the height of the bubble, nobody has ever seen anything like Google. I've been an investor in some pretty fancy companies, and counsel to others that have had meteoric climbs, but Google has people mesmerised."
"Nobody," Bartlett added, "thought you could climb out of Stanford and in a few years be duking it out with Microsoft."
