Project “New Search Engine”
Budget (Financial Consideration)

The main objective of the project "New Search Engine" is to verify the quality of the new search algorithm and then to sell this algorithm to one of big players in the branch of Internet searching. Secondary objective, if this fails, is to realize and provide the New Czech Search Engine, i.e. real search engine for one country (Czech Republic). This search engine will be realized by completing the prototype (mini search engine) and including the Czech dictionary into it. After the New Czech Search Engine gains respect and substantial number of visitors, the technology and the search engine itself will be offered to Microsoft or to other appropriate and interested company again. This period is expected to last for three years.

I am seeking investment 2 million USD. The conditions of the investment are defined here: Investment into the New Czech Search Engine.

For the operation of the New Czech Search Engine Ltd or Inc company will be probably originated.

Below in the text is the budget of this part of the project for the first three years.

In the first three years, the revenues of the New Czech Search Engine will be mostly from paid advertising on this search engine. For every searched keyword, 1 graphical position (banner) and 3 textual positions (paid links) will be available. The price of the banner will be 50 USD/months, thus 600 USD/year (12 months), the price of the paid textual link will be 5 USD/month, thus 60 USD/year (12 months). Initially (for the first two years), only the advertising for the period of one year (12 months) will be offered and sold. Selling advertising on the month basis would be too difficult given the limited number of employees. Of course, the more interest from customers, and therefore higher revenues than projected in the following statement, it will be possible to increase the number of business workers, and thus allow the sale of monthly advertising or alternatively advertising “pay per click” (PPC).

Division of the investment 2 million USD:
Preliminary: 200000 USD.
1st year of operation: 985400 USD.
2nd year of operation: 787600 USD.
Total: 1973000 USD.
Reserve: 2000000 – 1973000 = 27000 USD.

Preliminary 200000 USD:
Investment into the New Czech Search Engine, buying the licence of the algorithm of searching and the software for searching.

Budget for the first three years of operation:

1st year of operation
Revenue: none.
Expenditure: 985400 USD, paid from the investment.
Founding of the company: 10000 USD.
Czech Dictionary (purchase): 25000 USD.
Servers (purchase): 10 servers, 10 x 10000 USD = 100000 USD.
Disc arrays (purchase): 10 arrays, each 24 terrabyte, 10 x 10000 = 100000 USD.
Server hosting plus connection (hire): 10 GBPS, unlimited downloading, price 1000 USD per months, 12 x 2000 = 24000 USD.
Office plus equipment (electricity): 10 rooms, 4000 USD per months, 12 x 5000 = 60000 USD.
Cars for management and businessmen (purchase): 5 x 30000 = 150000 USD.
Petrol: 20000 USD.
Mobile phones (purchase): 16 x 300 = 4800 USD.
Mobile phones (operating): 12 x 16 x 300 = 57600 USD.
Advertising and marketing: 50000 USD.
People: director, technical director, commercial director, 2 programmers, 2 technicians, 2 fulltext administrators, 2 helpdesk workers, 1 marketing specialist, 2 businessmen, 1 accountant, 1 secretary. Altogether 16 people, average salary 3000 USD, together 12 x 16 x 3000 = 576000 384000 USD.
Share on the Czech market Seekers: 1 percent.

2nd year of operation
Revenue: 60000 USD.
Banner 100 x 600 = 60000 USD.
Expenditure: 787600 USD, paid from the investment.
Server hosting plus connection (hire): 10 GBPS, unlimited downloading, price 1000 USD per months, 12 x 2000 = 24000 USD.
Office plus equipment (electricity): 10 rooms, 4000 USD per months, 12 x 5000 = 60000 USD.
Petrol: 20000 USD.
Mobile phones (operating): 12 x 16 x 300 = 57600 USD.
Advertising and marketing: 50000 USD.
People: director, technical director, commercial director, 2 programmers, 2 technicians, 2 fulltext administrators, 2 helpdesk workers, 1 marketing specialist, 2 businessmen, 1 accountant, 1 secretary. Altogether 16 people, average salary 3000 USD, together 12 x 16 x 3000 = 576000 USD.
Profit distribution:
Petr Hejl: 18000 USD.
Big investor: 18000 USD.
Smaller investors: 18000 USD.
Management: 3000 USD.
Reserve: 3000 USD.
Share on the Czech market Seekers: 5 percent.

3rd year of operation
Revenue: 3 million USD.
Banners: 2500 x 600 = 1500000 USD.
Paid textual links: 25000 x 60 = 1500000 USD.
Expenditure: 787600 USD.
Server hosting plus connection (hire): 10 GBPS, unlimited downloading, price 1000 USD per months, 12 x 2000 = 24000 USD.
Office plus equipment (electricity): 10 rooms, 4000 USD per months, 12 x 5000 = 60000 USD.
Petrol: 20000 USD.
Mobile phones (operating): 12 x 16 x 300 = 57600 USD.
Advertising and marketing: 50000 USD.
People: director, technical director, commercial director, 2 programmers, 2 technicians, 2 fulltext administrators, 2 helpdesk workers, 1 marketing specialist, 2 businessmen, 1 accountant, 1 secretary. Altogether 16 people, average salary 3000 USD, together 12 x 16 x 3000 = 576000 USD.
Profit: 3000000 – 787600 = 2212400 USD.
Profit distribution:
Petr Hejl: 663720 USD.
Big investor: 663720 USD.
Small investors: 663720 USD.
Management: 110620 USD.
Reserve: 110620 USD.
Share on the Czech market Seekers: 15 percent.

After three years of operation an attempt to sell the searching technology (principle and algorithm of searching) and/or the New Czech Search Engine will be made again.
If successful, the profit will be divided between Petr Hejl and between the investors and the project will finish.
If unsuccessful, in next years the operation will continue, using the budget of the third year of operation.

The New Czech Search Engine will gain the share on the Czech market of Internet searching mainly at the expense of another search engine called Seznam.
Current distribution of the Internet searching market in Czech Republic:
Google 50%, Seznam 50%, other smaller search engines have a negligible traffic.
Projected distribution of the Internet searching market in Czech Republic after three years of operation of the New Czech Search Engine:
Google 65%, Seznam 20%, New Czech Search Engine 15%, other smaller seekers remain negligible traffic.
Note: for Google and Seznam, all servers are counted, on which is their search technology is used (google.cz, google.com, google.sk, seznam.cz, zbozi.cz).

Estimates, that the New Czech Search Engine will have, after three years of activity, 15 percent of the search engine market, were carried out as follows:
1. Derivation from Seznam
Seznam lost in year 2010 10 percent of users. This trend is, due to the poor quality of Seznam searching, to continue in the next 3 years. In those years Seznam will lose 30 percent of its users, half of them will get Google, half of them (i.e. 15 percent) will receives the New Czech Search Engine.
2. Derivation from Google
The server google.cz is running for about 5 years. Over the years, Google gained 50 percent in the Czech search engine market. Annually, thus gaining 50/5 = 10 percent. Granted even that the New Czech Search Engine quality will be a little less than is the quality of Google and thus gets about half the fewer users. For three years therefore, the New Czech Search Engine will receive 3 x 10 x 1 / 2 = 15 percent of users on the Czech market of Internet searching.

Initially, no big investment into marketing and advertising will be necessary, as the New Czech Search Engine will be such interesting novelty that it quickly enters the Czech Internet public. If there appears a new and useful thing on Internet, the report concerning it spreads quickly and users quickly find it. To the New Czech Search Engine above all those users will convert, who are dissatisfied with the searching on Seznam and at the same time do not know or do not use Google.

Revenue and profits above are calculated from the prices of advertising banners and links, from their expected number and from the number of workers who will deal with business.
Here is a balance sheet, derived from the income from advertising in the Czech Internet market:
Seznam has a total annual income of approximately 1 billion CZK. Suppose that (only) one fifth of them comes from the placement of paid links in the search engine (so called Sklik) – e.g. from Sklik on mobile phones Seznam expects to receive tens of millions of CZK per year. So it is 1 billion / 10 = 200 million CZK, which account for 50 percent users, which Seznam has on the search engine market in the Czech Republic. Thus, to one percent of the market correspond advertising revenues of CZK 200 million / 50 = 4 million CZK. I suppose that in the third year, the New Czech Search Engine receives 15 percent of users on this Czech search engine market. Then advertising revenue will be 15 x 4 = 60 million CZK. The amount of 60 million CZK, i.e. approximately 3.5 million USD, derived from the share on the search engine market, almost exactly corresponds to the estimate that was made on the basis of the price, of the number of banners and advertising links and of the business staff, i.e. to the amount of 3 million USD (see above, the third year of operation). For the third year of operation, it is "almost" the cross-check of the accuracy of the balance sheet.

The New Czech Search Engine will have another two sources of income, unique among the search engines:
1.
It will offer the opportunity of express paid indexing, thus connecting a WWW server and search engine by information channel and indexing new or changed WWW pages within 24 hours.
2.
It will have own SEO department, which will advise webmasters how to optimize their WWW pages for the search engine. By this it will acquire part of the revenues, which currently receive SEO agencies.

Brno, Czech Republic, February 10th, 2011.

Ing. Petr Hejl, CSc.
Ondrouskova 15, 63500 Brno, Czech Republic
tel.: (+420) 608 374 535
email: phejl@lednice.org