A document that I would highly recommend reading is Mary Meeker’s “The Age of Engagement” presentation given at the AdTech conference in San Francisco earlier this week. (I unfortunately, wasn’t able to attend the conference myself, but would be very interested to hear from someone who did).

The presentation strikes the usual chords: the impact of the Internet is large and only just beginning, mobile is going to become increasingly important, etc.

However, I would like to highlight pages 36 and 37 of the report where she cites data that:
• Search engine clickthrough rates go up as the number of keyword phrases increase (form one to five words).
• Search engine conversion rates rise as searchers increase their keyword phrase length from one to four words, but then drop with five and six.

Again, I didn’t attend the show to see this presentation first-hand, but the implications here are strong. Consumers, advertisers, and search engines are now in a virtuous cycle. As search engines are able to deliver better results with larger keyword queries, consumers are able to more often finding their desired information item, and advertisers are more likely to respond with an appropriate multiple sponsored keyword ad listing. Consumers find these listings useful and click through, which in turn, drives advertisers to further fill out the multiple-word blocks. As consumers become increasingly confident that they can find all of the information they need on the portals, search engines look for ways to improve the relevancy of all types of searches. And the cycle continues.

What does this fact mean for startups? Two important things:

1. As Meeker points out on page 22 of her deck, “on-going improvements in online ad tools are key.” While Google, Yahoo, and Microsoft will surely build features and functionality to their existing offering, there is a huge opportunity for start-ups to create effective tools for search engine marketers. Advertisers’ transitioning from one keyword to five keyword listings and beyond involves some complexity, especially when you figure everything into the mix like optimizing landing pages. These big players always face the make vs. buy decision, and in this case, they will be shopping for online ad tools providers in the upcoming few years.

2. Key vertical search players will be acquired by the portals as well. As Google, Yahoo, and Microsoft look to satisfying a consumers’ every wish for information, adding an full offering of structured search for things like travel, job, and event information is only a natural extension. Here, though, startups need to move quickly to establish themselves, before the big guys do it on their own, or try a novel approach like A9 has done with its Open Search featureset. It is my opinion that most of these vertical search startups will not gather enough critical mass to survive on their own (though some of the successful vertical shopping players provide a critical counter-example).