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Google Buys Applied Semantics

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Google has acquired Applied Semantics, a company that provides domain name, contextual advertising and enterprise search solutions. Terms of the deal were not disclosed, in the announcement made Monday. Both companies are privately held.

"We think this will be a valuable way to enhance of some of our ad products and build out an engineering team in Santa Monica, as well," said Susan Wojcicki, director of product management at Google, about the purchase.

Google's Gain Could Hurt Overture

The acquisition gives Google new traffic for its paid listings, new strengths in the contextual advertising space, which Google entered into last month, and also potentially hurts major Google-competitor Overture.

Applied Semantics is one of Overture's top ten partners, generating traffic for Overture's paid listings through its DomainPark program. It seems unlikely that Google will allow Overture's paid listings to remain part of the DomainPark program in the long-term. That would deny Overture traffic while simultaneously giving Google new exposure.

In addition, the purchase gives Google a presence in Southern California, where it hopes to recruit new engineering staff. Overture is already based in the area, and its Pasadena headquarters is only 30 miles from Santa Monica-based Applied Semantics. The close proximity means that if Google and Overture are both after a particular engineering candidate in Southern California, accepting a Google offer will no longer require relocation to Northern California.

When this article was originally written, Overture had not yet responded to questions about the impact the acquisition may have on the company or whether it had been considering a purchase of Applied Semantics itself. Since then, Overture has said that Applied Semantics is no longer one of its top ten affiliates nor that it expected the sale to have a "material impact on revenue." The company also did not see Google opening an office in Southern California as hurting its recruiting efforts. A follow-up SearchDay story provides more detail from Overture's perspective.

As for Google, it had no comment about the potential impacts of the purchase on Overture, not even to say if this was a consideration in the purchase. Instead, Google played up the "fit" between itself and Applied Semantics, in terms of technology, ad programs, corporate culture and even a personal connection. Google cofounder Sergey Brin has long been friends with Applied Semantics cofounder Gil Elbaz, Google pointed out.

Domains Make Money For Applied Semantics

Interestingly, both Google and Applied Semantics had similar beginnings, as search engines with funky names launched in the late 1990s. However, they soon headed down different paths. Google focused on web-wide search and developed into today's incredibly popular service. In contrast, Oingo (as Applied Semantics was formerly known -- it changed names in 2001), remained a relatively-unknown showcase site to demonstrate the company's categorization technology to would-be enterprise search customers.

Today, Applied Semantics still provides enterprise search products. But the company also found a new and apparently profitable service of applying its content-classification and taxonomy technologies to domain names. Throughout 2000 and 2001, Applied Semantics signed agreements with various domain registrars to help those companies suggest good domain name alternatives to customers when top choices were already registered.

Domains also provide revenue to Applied Semantics in another way. The company uses its technology to help web sites with good domain names but no real content of their own. Through the DomainPark program, paid listings from Overture (and perhaps other providers) are shaped into directory-like categories. This gives the web sites in the program revenue-generating content, money that Applied Semantics shares in. (A recent article for Search Engine Watch members explores the program and competing ones in a bit more depth).

DomainPark Program Means Big Traffic Gain

Google has nothing like the DomainPark program. Acquiring Applied Semantics means that Google will now have the opportunity to insert its own paid listings into web sites that are part of the network -- and a substantial network it is. Until October 2002, Nielsen NetRatings listed the Applied Semantics network as a search engine, giving it a 7.6 percent share of the searching audience in that month. That made it the sixth largest search engine, at least in terms of unique users.

A challenge Google will face, however, is better disclosure of paid listings offered through the DomainPark program. Presently, sites I've reviewed using the program fail to follow the US Federal Trade Commission recommendations for paid listings disclosure. In contrast, Google has always met such recommendations, even before they existed.

"There have been some differences in the philosophy there, but the approach will be to work together and come up with the right solutions," said Wojcicki.

Indeed, adding disclosure would be a simple change to make and one I'd expect will happen soon. A bigger change will be what happens to the current partnership between Overture and Applied Semantics, which runs through August 2003. It may be that Google could insert its own paid listings in addition to those from Overture's on DomainPark sites or perhaps even be able to drop Overture listings entirely before the agreement expires. For the moment, Google isn't saying what will happen.

"It's too early for us to comment on any specific deal or set of deals. These are all things we'll need to work on, as it rolls out," Wojcicki said. "They [Applied Semantics” have a number of complicated contracts in the space. Those are things we'll have to work forward to be beneficial to everyone."

It may also be that the DomainPark program itself could change dramatically. At the moment, the emphasis for sites I've seen in it is on directory-style listings, with a search box offered almost as an afterthought. Google might turn the program around and make it more web search oriented.

"All of those DomainPark pages don't have web search on them, and that would be something Google could bring to the table," Wojcicki said. "We'll want to find the right solution for those pages."

What About Contextual Ads?

To some degree, the DomainPark program could be considered contextual advertising. However, Applied Semantics recently moved more properly into the contextual space last October, when it launched its AdSense program. This places paid listings into web pages, by analyzing the content of those pages and then selecting ads that seem most appropriate. A test deal signed in February has placed these ads on USA Today's web site, and in March, ads also appeared through pilot programs on Excite and iWon.

Google's contextual program has run only since early March as a formally announced program. Nevertheless, it certainly has a much wider-distribution than Applied Semantics. In addition, Google was comfortable launching the program without having technology from Applied Semantics. What does Applied Semantics really bring to the table for Google, then, in terms of contextual ads?

"We already have a solid product, but there's a significant amount of manpower required to power and reach the goals we have," explained Wojcicki. "Bringing on additional engineering support is also a key component."

So by acquiring Applied Semantics, Google gains employees already versed in the contextual ad space, an engineering team with its own unique ideas and methods of powering contextual ads plus a few existing partnerships.

And Classification Technology?

A hallmark of Oingo, that former search engine that grew into Applied Semantics, was its attempt to help users refine queries through suggested categories and related terms. The company has continued to refine this technology while Google has never unveiled anything like it.

Indeed, Google is unique among the major search engines in not offering any type of query refinement feature, such as Teoma's Refine suggestions, AltaVista's Prisma links or even the simple Related searches that have long been at Yahoo, not to mention similar features at other search engines.

In the past, Google said that it didn't think autocategorization worked well enough to use for web search. Now that it owns a company that specializes in the technology, it could be that such Teoma-like Refine links may finally come to Google.

"We might bring it into web search," Wojcicki said.

The classification technology may also help Google in the enterprise space. Like Applied Semantics, it offers its own enterprise search solution, the Google Search Appliance. Enterprise search classification technology from Applied Semantics may be added to that.

"They have a heavy emphasis on classification, and we think combining these two [enterprise” products is very complimentary and will help the offerings," Wojcicki said.

Geo-diversity In Engineering

As mentioned, another element that comes with the purchase is that Google will be able to build out an engineering staff in Southern California. However, this will now be the company's third major engineering center, not than the second. A New York office opened a few weeks ago, in addition to the one at Google's Northern California headquarters in Mountain View. Having multiple centers is aimed at helping Google gain staff.

"We want to recruit top engineers, and top engineers live in different cities around the US. We want to be able to offer locations that attract more top talent," Wojcicki said.


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