Web 2.0 (or whatever the fullness of the Internet Operating System ends up being called) is far bigger than search. Yes, search is currently the most valuable and monetizable Web 2.0 application–or perhaps better-named, subsystem. But look back at 1984: Lotus was bigger and more valuable than Microsoft ($153 million in revenues to Microsoft's $100 million, and growing faster — Lotus had tripled in size, while Microsoft had only doubled.) But we now know that Microsoft had the stronger position.
As I've said in my Web 2.0 talks from the very beginning, a platform beats an application every time.
True search innovation will come from something that doesn't look like search. Google's video search efforts foundered, while YouTube took off. (Google was smart enough to buy YouTube quickly.) Facebook took off in an area that could be characterized as "people search." Tweetspace is becoming a hidden transmission channel for information, one that Google doesn't yet search. Everything Microsoft (and other explicit search competitors, including most specialized search startups) is incremental innovation.
Google's search dominance will be toppled by a disruptive innovation that changes the game, not by playing catch-up at the same game.
The challenges that keep Google on their toes, innovating in search, will come from outside the current system.
I think Tim O'Reilly puts this much more clearly than I have been trying to for the last two years !
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