The World is Not Flat It’s Vertical

I recently had the opportunity to talk about verticalization at a Silicon Valley event. I described what verticalization means, why it happens, where it succeeds, where it fails and how it intersects with search. The focus of my talk was on verticalization of needs, rather than segmentation of users even though the two overlap. I am particularly interested in verticalization when it comes to the web and searching the web.

Verticalization is Everywhere

Look around you and you can see examples of verticalization everywhere. From the cars we drive to the sneakers we buy, to the television channels we watch. When the first automobiles came to market, many years ago, everyone drove a model T 100 Ford. Now we drive sedans for general purpose use, SUVs or mini-vans to carry our families around, or a truck if we have to move household goods. We have moved away from watching only CBS, ABC and NBC to watching one of the hundreds of channels available with a specific focus on science, news, history, travel and food. You can find similar examples all around you, if you pay attention.

What makes this verticalization possible? Most paradigm shifts or basic innovations center on building a single product and a simple product that the mass market can adopt. I use products to also represent pure web centric innovations. Yes, we go through the adoption curve where early adopters pick up our product first. We then go through the learning and fine tuning so the product is ready for the early majority, ultimately finding its way to the late majority and such. However, in this process, we are trying to build a single product that serves the needs of the mass market.

At this point three things happen in the marketplace:

* As customers go through a learning curve and become comfortable with the product, they become more sophisticated and more demanding. In other words, they expect more from a product.

* A market develops for the product from the users perspective, usage perspective and a revenue perspective.

* Suppliers become more sophisticated and armed with the knowledge about customer usage and developing market, they move into position to introduce more vertical, more specialized, products that are economically viable because the market is now large enough.

In summary, the three ingredients for verticalization are:

1. User sophistication
2. A developed market
3. Supplier sophistication

The New Search Economy

How does verticalization apply to web search? No doubt, web search has come a long way in last fourteen years. WebCrawler and Lycos were two of the first full text crawlers but they were used by a limited number of people. Today, more than 125M Americans use search engines. Search touches every facet of our lives whether it is commerce, entertainment or education. We have all become very comfortable using search engines. As we have come to expect more from them, we have become more demanding. We use search engines and we get frustrated because too often, we don’t get what we need. This is an example of the first ingredient for verticalization; user sophistication.

Now take a look at the market opportunity: search generates more than $10 billion in revenue every year and that is expanding at the rate of more than 20 percent year over year. You can call it a developing market or a developed market depending on your perspective. I prefer to call it a developed market or the second ingredient for verticalization which furthermore offers a fantastic opportunity to grow further.

What about the third ingredient, supplier sophistication? Retrevo, for example, has developed a good understanding of consumers’ online shopping behavior. We know what their needs are on one hand, and have built a monetization model that is very lucrative on the other hand.

Vertical search has the potential to be even more lucrative than horizontal search. Verticalization around product search results in a perfect blend of ingredients; user sophistication or demand, a developed market and supplier sophistication. This environment creates tremendous business opportunity.

The Verticalization of Search

How do you go about verticalizing web search? First you look at a segment of consumer need that has deep pain or deep emotion associated with it, has enough usage to make verticalization interesting and has a good economic model behind it. You can identify these opportunities across commerce, entertainment and education. Then you build a product that offers tremendous value to consumers, a value that’s compelling enough for consumers to break away from their comfort zone and try your product.

When we started Retrevo, we wanted to make buying and using technology products simple and fun for everyday consumers. We wanted to break two barriers that prevented a horizontal search engine from delivering such an experience. We knew that breaking these two barriers would unleash such a tremendous value to consumers that they would want to use our alternative.

Our first challenge was to understand the syntax and semantics of unstructured data that would allow us to summarize and simplify what was ordinarily complex information. We knew this simplification was needed to make buying and using electronics products simple and fun for everyday consumers.

The Retrevo Value Map, is a visual representation of analysis performed by Artificial Intelligence to make it easy for consumers to spot the best values in products. (this an explanation for Map)

Next we knew we needed to break away from the current user interface paradigm that offered a flat list of raw search results. We knew that in order to remove the complexity associated with technology buying and using, information had to be presented in a way that allowed consumers to search, discover, and personalize product information, visually and naturally. This recipe has worked well.

A search for “Canon SD1200 IS review,” on a vertical search engine such as ours, returns product information including our “Real Time Review.” We processes millions of data points to create a real time review and provide simplified buying advice like whether or not a product is “in it’s prime,” or “over the hill.”

By contrast, the same search on Google’s “horizontal,” search returns a flat list of links to articles about the Canon SD1200 on other sites.

Further simplifying the advice is a single thumbs up or down recommendation by us.

Verticalization is Here to Stay

Verticalization is a fact of life. It has happened before in many industries and it will happen in the web economy. In order to take advantage of verticalization opportunities, you need to pay attention to basic triggers, identify a need that requires a specialized product and go after it.

The author of the article is Vipin Jain, CEO, Retrevo.