The small French search company Exalead has scored a surprising coup: while virtually all of America Online's 11 global Web sites use Google for their search requests, AOL France chose this home-grown brand.

“They wanted a French search engine,” says François Bourdoncle, Exalead’s president and CEO.

AOL France started using Exalead for searches on its AOL.fr Web site two years ago, replacing Inktomi, says Mr. Bourdoncle.

The local search company’s victory may seem small-time, but it highlights the challenges global search companies like Google and Yahoo face in international markets. These are growing priorities for the big players: international revenues accounted for just over a quarter of Google’s revenues in 2003, up from 14 percent in 2001.

But creating search engines tailored to specific geographies is easier said than done. One problem is that it’s difficult to tell what’s local and what’s not. For example, French or German Web sites often register under international domain names such as “.com,” rather than sticking with “.fr” or “.de.”Search engines then try to determine the location a site serves by its language. Even that tactic leaves a hole: Computers can't, for example, tell the difference between a French-language car insurance site based in France. and another based in Quebec.

“It’s not enough to have a French-centric search engine,” says Mr. Bourdoncle. “It has to be France-centric.”

Paris-based Exalead, a 23-person outfit founded in 1999, has some other search tricks up its sleeve. When a user searches using AOL.fr, Exalead’s software analyzes and categorizes the content in the pages of results on the fly. Search for “Madonna,” for example, and results appear along with a list of related topics such as “Guy Ritchie” and “MTV Video Music Awards.” This feature allows searchers to drill down to the pages they are really interested in – giving the feeling that the search results are interactive. Mr. Bourdoncle first started working on the technology in 1998 with Alta Vista, a search engine created at Digital Equipment Corporation.

Unlike Google, which processes searches for its partner sites, Exalead licenses its technology, leaving implementation up to its customers who can tweak the software for their own requirements.

Exalead isn't looking to take on Google or Yahoo, says Mr. Bourdoncle. Its main goal is to sell search software for internal use to companies, who can use the product to search across its own unstructured information and structured databases. Exalead also offers email search software, which indexes and searches messages stored on corporate servers. In addition to AOL France, the company's customers include Vivendi Universal, Danone Group, and Bouygues Telecom, a French cell phone operator.

Chris Sherman, an analyst with SearchEngineWatch.com, says that while there is no reason that global search engines can’t do a good job at local searches, smaller players like Exalead that have knowledge of local geographies and cultures are able to cut their own niches. “It’s basically going to amount to a race between the smaller companies to persuade regional sites to use their technology and Yahoo and Google investing more in local search,” he says. “There are still many opportunities for smaller players to be acquired.”

One advantage that the global search crew does have however: the brand and the marketing clout to trump local efforts. “They have the mindshare of users,” Mr. Sherman says. “The big players are predominant.” In France, for example, Microsoft and Google are among the top three sites visited, according to Nielsen//NetRatings.

Meanwhile, Google is growing its international capability, says spokesperson Debbie Frost. “While there is always room for improvement, we feel that our French and other non-English searches are very good,” she says. In addition, Google has opened development centers in Switzerland and Japan, and part of its mission is to improve search in specific languages in those regions, according to Google’s Web site.

Mr. Bourdoncle is taking the long-term view: “As a company, we think that the search market today is comparable to the steam engine market,” he says. “Someone has to come up with the combustion engine.”

Next Wave is an online column profiling the latest generation of startup companies and the issues they face. Have thoughts or suggestions for Next Wave? Email column editor at jthaw@redherring.com.