Well in my case (@Blekko) I'm a startup that has worked at taking market share from Google organically. We actually crawl the web and index it, and that takes hardware and network bandwidth. I recently had the opportunity to look again at what a 'small' cluster would cost to run in EC2 (about $2M/month so $24M/year). We don't do that, since it would be impossible to make any money if we did, but even just break even on that sort of investment is hard to achieve without advertising support. Trust me when I say that the search advertising business is very much a sausage factory.
You're just a startup so you're money strangled, but $24 million is pocket change for other companies - so what stops a bigger company that already have their own data-centers and enough talent, such as Microsoft, or Apple, or Facebook, or Twitter, or whatever, to create a better search-engine? I think that's simply because it's a very hard problem to solve.
Thanks. Is the point that it's chicken-and-egg? You need users to get ad revenue, but you need ad revenue to improve search quality and thereby attract users?
