Amazon Invades Google's Turf

SAN FRANCISCO (AP) -- Online retailing giant Amazon.com Inc. is betting it can muscle into one of E-commerce's most profitable niches--search engines.

Seattle-based Amazon.com has set up a new Silicon Valley startup called "A9" that will develop a commercial search engine and potentially put the company on a collision course with another Internet icon, Google.

Based in Palo Alto, Calif., offices just a few miles from Google's Mountain View headquarters, A9 hopes to launch in October with 30 employees and grow much larger as it develops a search engine that will be licensed to other Web sites, said spokeswoman Alison Diboll.

"This is part of Amazon's ongoing evolution from an online bookstore to a technology services company," Diboll said.

Unlike Google, A9 isn't trying to develop an all-purpose search engine that indexes billions of Web pages. The startup instead is zeroing in on one of search engines' sweet spots--E-commerce.

As more consumers have become comfortable with the Internet, a growing number are using search engines to review products and compare prices. The research frequently results in online sales, prompting more advertisers to pay for prominent listings in the commercial sections of Google and other search engines.

Privately held Google won't provide details about its finances, but the company is believed to be profitable, with revenues this year expected to range from $700 million to $1 billion.

Emboldened by its success, Google said Thursday it is opening its 21st office, in Madrid.

Also Thursday, Google also provided the latest evidence of its search engine's moneymaking power with a disclosure that 150,000 advertisers have paid to be included in its paid listings program.

The figure reflects an increase of 50,000 advertisers in the last six months and broadens Google's lead over Overture Services Inc., a search engine about to be acquired by Yahoo for $1.7 billion.

Pasadena-based Overture boasted 95,000 advertisers in its last quarterly update provide in July. Those advertisers should generate about $1 billion in revenue this year, Overture spokesman Al Duncan said.

Industrywide, search engines this year are expected to collect $2 billion for paid listings, a niche also known as "pay-for-performance because the fees on based on people clicking on advertising links. Some analysts expect the market to swell to $8 billion annually, but other observers think the potential is being exaggerated.

"A lot of advertisers who are paying a lot of money to be listed under certain keywords are going to be wondering if they got their money's worth a year from now," predicted Chris Winfield, president of a Web-site design firm that helps businesses get ranked higher in search engines.

Amazon hasn't disclosed how much it is prepared to spend on A9.

A Google spokesman declined to comment on Amazon's expansion. The two companies have long enjoyed a good working relationship; Amazon even uses Google's search engine on its home page.

But business relationships have been changing as more companies enter the search engine fray. For instance, the once-close ties between Yahoo! and Google have been fraying as they increasingly compete against each for advertising revenues.

Yahoo has been using Google's search engine on its site since June 2000, but recently has been de-emphasizing the Google technology as it builds more resources internally.