Marketing: Search Engines: You Pay, You Play

In the old days, internet searches were easy. You typed in a term–say, motherhood–and Yahoo and other engines spit out a list of sites ranked by human editors or by a formula, such as how many times the word had appeared on a site. There was a purity to the old way, but something was missing: a profit stream.

That profit stream has been located and claimed by Bill Gross, founder and CEO of Internet “incubator” Idealab. Gross created GoTo, the leading pay-for-placement search engine, in 1998, and now it’s hotter than ever. Listings on GoTo are ranked by cold, hard cash: where a site appears on the results list is determined by how much money it pays GoTo.

Gross, a leading financier of the Internet revolution, has had some often chronicled setbacks lately, losing hundreds of millions in the dotcom collapse. But GoTo, based in Pasadena, Calif., looks like a winner. GoTo’s sponsored searches are ubiquitous. Along with the action on its own site, GoTo powers searches on most other major engines, including AOL, AltaVista, Lycos and MSN. GoTo’s stock has quadrupled in a year, and in a punishing investment market the company raised an additional $60 million in funding last week.

Gross insists that his impetus for creating GoTo wasn’t ad money–it was improving searches. Too often, he says, websites are loaded with commonly sought words in order to score better on search results. (Hide the word “motherhood” 1,000 times on your site, and on some search engines you’ll be No. 1.) The result: bad sites gamed their way to the top. Gross figured this kind of manipulation would be impossible if sites paid for rankings. He argues that as a rule, the sites that have the most to offer Internet users will pay the most to be ranked high. Sites that consumers don’t want to visit would be wasting their money by buying a top listing.

Critics of sponsored searches say the process perverts the quest for information online–that it’s like having a reference librarian recommend books based on how much she is paid by the publishers. Gross argues that GoTo is more like a Yellow Pages; users understand that the advertisers who pay the most get the best placement. He notes that GoTo’s site states clearly how much each site has paid. But on some search engines powered by GoTo, it can be hard to figure out who has paid and who has not.

Gross has an abiding faith in the free market, even for information. The system may work for rent-a-car companies–but museums and libraries? The results of Gross’s handiwork can have a mercenary feel. The first site Google brings up in a search for “motherhood” is the nonprofit “Safe Motherhood Home Page.” The first site on GoTo: “Nursing Apparel and Bras–Free Shipping.”

–By Adam Cohen

For more on this year’s series on Innovators, visit time.com/innovators