It is reasonable to take on Google in search, I think DDG has done a great job in both differentiating their product and delivering a great user experience. The challenge is not search per se. There are probably 100 really hard technical problems between idea and search engine infrastructure, the challenge is the ads.

Search engines need money to operate (we, Blekko, pay a ton of cash every month to keep our portion of a data center in Santa Clara humming) and search advertising is an excellent product, but it is also a finite market. Let me explain.

So lets assume for the sake of argument that the amount of money everyone in the world is willing to spend on advertising is fixed [1]. You know like $32B/year. (I don't know the actual number that is just made up for illustration). These are "companies" (from single users to large multi-nationals) who are willing to pay money to a person who puts their advertisement in front of a potential customer.

So lets say Alice at BigCorp has an advertising budget of $1M/year. Maybe she is going to buy a TV spots with most of that and spend $100K on "Internet" advertising. She can either talk to a bunch of "properties" (which is what she would have done in 1995) or she will buy ads on "Google" which means they might pop up on AdSense for Content pages, or via AdWords in various searches, perhaps on your Gmail window, or your News feed. And she'll only pay for them when they get clicked on and she'll use her analytics to try to figure out how "impactful" that was. Or maybe she only has a $100 Ad budget and she will blow it all on AdWords for putting her ad on search queries that people might make when they were looking for her business.

The small search engine is at a disadvantage, not from a technology perspective (the searches can be better than Google's pretty easily for highly contested searches) but from a revenue capture perspective.

What is worse, bad advertising networks are really bad, they can serve up malware as a number of popular blogs have discovered. So people who are very brand conscious or burned by a bad ad network will shy away from those networks, making non-Google networks less effective (fewer advertisers so less competition for ad insertions) and search engines that use them get commensurately less revenue per thousand searches.

The one redeeming factor is that when you have the ability to crawl and index enough of the web, that asset gives you the ability to do some very interesting things. Fortunately things that others will pay for (because neither Google nor Microsoft/Bing will give you access to their index). The down side its not as lucrative (on a $ per kilo-core-cluster millisecond level) as running the combination of the worlds most used search engine feeding you the worlds most used advertising network.

If you ever had any doubt, Google's advertising business funds them like Microsoft's Office business funds Microsoft. If you ever split Google in two where its ads business offered services to anyone on a non-discriminatory nature, the world would be a more interesting place (and there would be several really interesting search engines with their own editorial slant, not just a few)

[1] This is largely true, although the "growth" in Internet advertising revenues has shown up as a decrease in other media advertising. From newspapers to radio those ad dollars are shifting to the net but the overall size of the pie is constant or shrinking slightly according to Advertising Age (http://adage.com/)