By Yi-Wyn Yen

These days, getting a large handout from venture capitalists is rare. It’s even tougher when your startup needs a lot of cash to compete with Google.

Kosmix, however, has defied the odds. In late October, the plucky startup raised $20 million, led by Fortune’s parent company Time Warner (TWX), by assuring investors that Google is not the only way to search on the Web. Kosmix says it takes a new approach to searching by categorizing everything by broad topics for those times when you don’t know exactly what you’re looking for.

“This reflects the fact that Kosmix has a unique technology that’s working well,” said Jonathan Miller, the former chief executive of AOL who is on Kosmix’s board. “No question it’s a difficult period to raise significant amounts of money in a late-stage round.”

A powerhouse of investors are banking on a future where search will evolve beyond typing in specific keyword terms on Google. Former Motorola CEO Ed Zander, who launched the popular Razr mobile phone, recently joined as a private investor and advisor to the company. The Mountain View-based startup, which has raised a total of $55 million in three years, is also backed by Amazon (AMZN) cofounder Jeff Bezos and Legg Mason fund manager Bill Miller.

Miller recently made noise for reportedly raising money from private investors to buy Yahoo (YHOO). Miller, a one-time Yahoo board nominee, refused to talk about Yahoo. He discussed the need for companies like Kosmix to take search to a new level in a way that Google (GOOG) does not. As CEO at AOL, Miller had tried to acquire Kosmix, cofounded by veteran entrepreneurs Venky Harinarayan and Anand Rajaraman. “How do you create breadth and depth in content pages and make it a satisfying user experience is a big and hard problem,” Miller said. “Kosmix has firmly established the lead in how this is going to happen.”

Take the phrase Mount Everest as a topic. Without more search keywords, Google broadly targets what you may be looking for. Google’s first three links include an empty graphics box from Google Maps, a Wikipedia entry, and a well-regarded news site for mountain climbers. The same topic on Kosmix returns a rich summary from Web 2.0 sources. Kosmix includes a short paragraph from Wikipedia along with photos from Flickr, videos from YouTube and video search engine Truveo, forum posts from trekkers seeking climbing partners to Everest, and top mountaineers who’ve climbed Everest.

Rajaraman insists his startup is not another search engine trying to take on the search giant. Google’s competitors – from tiny startup Cuil to software maven Microsoft (MSFT) – are struggling to make a dent in Google’s growing dominance in search despite spending billions. The approach, Rajaraman says, is to deliver relevant results with blogs, videos, pictures and news on a single page.

“We consider ourselves an explore engine. When you don’t know what’s interesting or know enough about a topic, you come to us. We’ve built algorithms based on topics that lead to a very different end point,” he said. “Google’s algorithms are about finding the best Web pages out there. It’s really, really hard to mess with that.”

By Yi-Wyn Yen

How desperate is Microsoft to compete with Google in search? The software behemoth is now giving away prizes every time you use its Live Search engine.

Microsoft (MSFT) launched the rewards promotion called SearchPerks on Wednesday to lure Internet users away from Google. SearchPerks, which runs through April 15, is similar to airlines’ frequent flyer programs. Every time you use Live Search you earn points that can be redeemed for prizes like ringtones, Xbox games, and t-shirts.

Rewarding consumers to search is one way Microsoft hopes it can increase search traffic. The company ran tests on SearchPerks and found that people were three times more likely to use Live Search when they were offered redeemable points than when they weren’t. “People like to engage with us a lot more when they use SearchPerks,” says Frederick Savoye, a senior director on Microsoft’s search team.

Google (GOOG) holds 63% of the U.S. market. Yahoo (YHOO) is second with 19% and Microsoft’s Live Search is a distant third with an 8% share, according to comScore’s figures for August.

The rewards promotion is an experiment to see if Microsoft can build loyalty with Internet users. SearchPerks is limited to the first 250,000 users in the United States that download a web application that records how many searches they do daily on Google, Yahoo or Microsoft.

Savoye says to maintain privacy the widget only tracks the number of searches and not the type of searches people do. SearchPerk users get one “ticket” for every search done on Microsoft, and can receive up to 25 tickets a day.

On April 15, SearchPerk users can cash their tickets for prizes. Microsoft has not yet determined how many points you need to claim the freebies. (However, another Microsoft rewards program, Live Search Club, shows that 105 tickets equals a free downloadable song and 1,000 tickets are needed for 500 frequent flyer miles.)

The program is currently available on Internet Explorer 6 or higher. Savoye says engineers are also developing a version for the Firefox browser.

SearchPerks follows Microsoft’s launch in May of the cashback program that pays consumers when they buy products through Live Search. Savoye says SearchPerks is another piece of Microsoft’s plan to “innovate the [search] business model.”

However, the company’s efforts to build search market share is steadily declining. Microsoft Live Search’s share has dropped 1.5% since the start of the year.

Wrote Collins Stewart Internet analyst Sandeep Aggarwal in a note to clients Tuesday: “Internal initiatives at MSFT need time to lift off and prove their merit, but sooner or later the company will have to face the realities and decide again if a combination with YHOO can speed the process.”

By Yi-Wyn Yen

It’s been four months since Microsoft introduced its cashback rebate scheme that pays people to use its Internet search service. But Microsoft continues to fall behind Google in search.

On Wednesday, Microsoft (MSFT) plans to unveil a new rewards program to get more consumers searching on the company’s Live Search engine. While a company spokesperson would not discuss details of the latest rewards gimmick, a Microsoft executive says the promotion is designed to generate user loyalty and more searches on Live.

The program gives consumers a discount every time they use Live Search to find and buy a product like a digital camera. The company is banking that as more people spend time on Live, the more advertisers will promote their products, and Microsoft will grab a bigger piece of the paid search market.

So far, cashback does not appear to be helping the company’s search efforts. For the seventh straight month, Google (GOOG) widened the gap with MSN’s Live Search. The search king extended its lead to 63% in August while Microsoft dropped to 8.3%, according to comScore’s latest monthly report for U.S. traffic. For the first two months of the third quarter, MSN Live Search has lost 14.4% of its traffic from year-ago levels.

A Microsoft executive says comScore’s figures do not accurately reflect how well the cashback program is doing. “Those numbers don’t seem right to me. We just had our highest month ever [for unique visitors in August],” says Brad Goldberg, Microsoft’s general manager for search.  “There is always going to be volatility with monthly metrics. Cashback is a long-term bet.”

ComScore’s numbers represent the total number of searches, not the number of users. Goldberg says the company is pleased with cashback’s progress though he would not reveal the number of transactions made or how many people that have enrolled in the program.

The cashback promotion is part of Microsoft’s broader goal to combat Google’s ever-growing share of the online ad market. The program marks Microsoft’s first major initiative to grow search traffic since the company ended talks with Yahoo (YHOO), the No. 2 search engine that owns roughly a fifth of the U.S. search market.

Goldberg hints that the company plans to offer consumers even more savings leading up to the holiday season. “We look at traffic, different tactics, and ways of execution… and we’ve learned that the higher the rebate [we offer], the better,”  Goldberg says. “I’m not joking. EBay’s a good example. They have a relatively high rebate level in the 20%-30% range and they had a big increase in traffic as a result.”

Analysts say that Microsoft needs more advertisers to join the cashback program to attract more consumers searching on Live. Cashback has enrolled than 700 merchants, including eBay (EBAY), Hewlett-Packard (HPQ), and Overstock.com (OSTK).

“Our assessment is that MSFT is gaining supply side traction with advertisers and if that remains sustainable, they should eventually gain traction with end users (traffic) as well,” writes Sandeep Aggarwal, a senior Internet analyst with Collins Stewart, in an e-mail to Fortune.

Microsoft, with its deep pockets, may be committed to cashback for the long haul, but industry observers say the company needs to produce results soon.

Search marketers put a January expiration date on Live’s cashback program. “The whole value of cashback is tied to the retail season,” says John Tawadros, the chief operating officer of search marketing firm iProspect. “I would think advertisers are thinking about it now and looking at adopting cashback to differentiate themselves with the competition. After the holiday season would be a perfect time to assess if this has taken off or not.”

By Michal Lev-Ram

LAS VEGAS — At a moment when Yahoo desperately needs to wow investors, the company unveiled a handful of enhancements to its mobile search service that are also being offered by rivals Google and Microsoft.

The announcement, made Wednesday at the CTIA wireless show in Las Vegas, includes a new voice-enabled search function that allows consumers to look up restaurants and websites by speaking into the phone. This could be a useful feature for people without QWERTY keypads on their phone, or for those who want to look up information while driving. The only problem is, Microsoft (MSFT) already offers a similar application on its Live Search mobile service.

Yahoo (YHOO) says its new voice recognition feature can adapt to a user’s voice over time and is now available for download on select Blackberry devices, including the Pearl and Curve. More compatible devices will be added in coming months.

Yahoo also unveiled a search box that will sit directly on a phone’s homepage, which will allow users to look up whatever they want without having to open their browser — a feature similar to a Google (GOOG) software “shortcut” for cell phones launched just last month.

On top of these features, Yahoo also plans to offer a downloadable application that tries to predict a user’s search as he or she starts typing. This is similar to the search assist function on Yahoo’s online homepage (accessible on a PC) but is the first such feature to become available on a mobile device. In other words, Microsoft and Google aren’t one step ahead on this one. Yahoo says its new recommendation tool can cut down on the amount of time it takes to conduct a search from a cell phone. Currently, this function is only available on Apple (AAPL) iPhones, which come loaded with Google applications like YouTube videos.

The new enhancements to Yahoo’s mobile search application will likely make it a smarter, faster and easier to use service. But, with the majority of the just-announced updates already available from the company’s rivals, it’s unlikely it will be enough to significantly differentiate Yahoo and deliver the much-needed pizazz investors are looking for as the company tries to fend off a takeover bid by Microsoft.

By Michal Lev-Ram

Starting off the new year with pink slips is never fun, but it looks like it will be a necessary move for Yahoo (YHOO). Reports that the “other” search engine will lay off hundreds from its workforce of about 14,000 surfaced earlier this week. Although company spokesperson Diana Wong would not specifically confirm or deny the rumors, she did say that “Yahoo has embarked on a multi-year transformation that includes making tough decisions about the business to help the company grow” and that the company “plans to invest in some areas, reduce emphasis in others, and eliminate some areas of the business that don’t support the Company’s priorities.”

As we all know, “tough decisions” and “reduce emphasis” are code words for layoffs, so expect some downsizing to occur at the Sunnyvale-based company, most likely later this month when it releases its fourth-quarter earnings.

At a party in Palo Alto Monday night, several Yahoo employees joked about who would volunteer to take severance packages. But the layoffs are a serious matter – in addition to sluggish revenue growth and a plunging stock price, Yahoo hasn’t delivered exciting new products in recent years. At the Consumer Electronics Show in Las Vegas earlier this month, the company failed to generate a lot of buzz in spite of the fact that it had a much bigger public presence than rival Google – CEO Jerry Yang gave a keynote speech and the company had a giant white tent set up at the show for media briefings and partner meetings. Yang did unveil a cool (though far from revolutionary) futuristic mail service that will combine e-mail, text and instant messaging along with multiple social networking accounts, but he didn’t say when it would be available. He also announced that the company would open up its mobile platform to outside developers. While welcome, neither one of these are quick fixes to anything.

What’s more, while Yahoo leads in display advertising and its various sites get more monthly visitors than Google (according to ComScore), it lags in search and other services. It’s got plenty of lackluster products that need to be dropped or consolidated, including Yahoo 360 (a largely unpopular social network), auctions and music. The popularity of social networking sites like Facebook and MySpace certainly hasn’t helped the Web portal either.

So at least theoretically, concentrating on its search engine, e-mail service and growing its online ads and mobile deals could be good for the company. Last June, when Yang took over as CEO of the company, he said that his “immediate and overarching priorities are to realize Yahoo’s strategic vision by accelerating execution, further strengthening our leadership team and fostering an even stronger culture of winning.”

Layoffs rarely instill a culture of winning among employees, but at least it’s looking like Yang is finally on his way to refocusing Yahoo’s efforts on the things that matter.

By Yi-Wyn Yen

A year ago the masses had never heard of the iPhone (AAPL). This year, it was the most searched word on Google.

The iPhone ranked tops in both the U.S. and globally among the 10 most searched terms. “It became increasingly popular throughout the year, starting with the announcement in January and continuing on with the release in June,” said Marissa Mayer, Google’s (GOOG) VP of Search Product and User Experience during a press conference Tuesday.

If Google’s Zeitgeist list is any indication of what trends matter to the public, then the presidential candidates should be worried. Along with the iPhone, the top 10 U.S. list included four social networking sites — Webkinz, Club Penguin, MySpace (NWS) and Facebook. The other five included entertainment searches — celebrity news outlet TMZ, Transformers, YouTube, Heroes, and Anna Nicole Smith.

“In search, there’s a lot of interest in celebrity culture, television and movies,” Mayer said. “New terms and new meaning of terms like the iPhone, Transformers and Heroes.”

By Lindsay Blakely 

StumbleUpon, the San Francisco startup acquired by eBay (EBAY) in May for $75 million, wants to personalize search – even if you prefer to use sites like Google and Yahoo.

As its name suggests, StumbleUpon helps you “stumble” around the Web and find new content. A downloadable toolbar suggests Web sites and videos and learns your preferences as you give a thumbs up or down to what you see.

On Tuesday the company unveiled SearchReviews, which brings personalized recommendations directly into search results on Google (GOOG), Yahoo (YHOO), MSN, AOL, Ask, Flickr, Wikipedia and YouTube. A registered user simply searches on one of the above sites. If any of the resulting websites have been reviewed by the StumbleUpon community, they will be denoted by a logo, star rating and link to user reviews.

So far StumbleUpon users have reviewed 13 million Web sites. Sixty-five percent of all search queries will include some recommended links and that number should grow as more people use the service.

The stumbling technology could eventually be a welcome innovation for the startup’s parent company. As eBay faces a dropoff in sales growth in its domestic online auction business, SearchReviews could potentially help people window shop on eBay and discover products they wouldn’t have found otherwise.

StumbleUpon CEO Garrett Camp says he can see SearchReviews enabling eBay users to “stumble across the marketplace” to find merchandise or sellers recommended by others. That kind of integration, he says, likely won’t take place for another six months to a year. “We want to let it grow on StumbleUpon first,” says Camp. He notes the the technology will need some tweaking so that it doesn’t, for instance, recommend merchandise in auctions that have expired.

For now the startup is launching SearchReviews without the collaboration of the search giants. Camp says that StumbleUpon can do this because it’s not reordering search results, which would interfere with the search engines’ revenue models.

StumbleUpon currently boasts more than 3.7 million registered “stumblers” that use the company’s website and downloadable toolbar. The company earns advertising revenue by targeting users and sending them directly to sponsored results that have been inserted into the mix of content.

Camp says the new SearchReviews feature was born of the realization that the company can’t compete with the major players like Google and Yahoo. “But StumbleUpon can improve what’s already there,” he says.