SAN FRANCISCO (MarketWatch) -- Remember Cuil, the Silicon Valley startup that was going to challenge Google Inc. as the world's leading search engine?

Apparently not many people do.

The stealth company burst into view at the end of July 2008 as a serious challenger to Google. GOOG, +1.06% Taking its name from the Gaelic word for knowledge, Cuil's (pronounced cool) search engine launched with an initial hefty index of 120 billion Web pages from which to browse.

Cuil's co-founders also have serious street cred. Chief Executive Tom Costello is an ex-IBMer IBM, +1.13% and was on the research faculty at Stanford University, where he got his PhD. His wife, President Anna Patterson, another brainiac with a PhD, was the architect of Google's large search index, TeraGoogle, still in use today. She also worked with the Internet Archive, the non-profit digital library of Web sites.

After the first flurry of news reports on the launch of Cuil, site traffic soared to more than 2 million unique visitors in July, according to Compete.com. One month later, though, traffic dropped by half. By September, Cuil had 400,000 unique visitors and in March, 140,000 visitors.

So what happened? At the time of the launch, the company's servers were unable to handle the crush. Its servers crashed and returned a message saying Cuil could not return results because of excessive loads. This alienated some users at the get-go, who would never return.

That wasn't the only problem.

"They just didn't have very good results," said Danny Sullivan, editor-in-chief of SearchEngineLand.com. "They have a really huge challenge now, because they came out with all this publicity."

No popularity contest

Cuil says that it's different from Google because it does not return searches ranked by popularity. Instead, its searches analyze the context of each page, the company says, with a unique algorithm. Cuil also is focused on user privacy, versus Google, which has sometimes been referred to as Big Brother. Cuil does not retain a user's search history.

"The thing people say about us in our feedback form is that we are fun," Patterson said in an e-mail. "We bring up other topics, we make it easy to learn about a topic you might not know much about. We bring up images from the pages so that you remember what that hotel looked like, we bring up timelines if you are thinking about researching a topic."

The company operates on a lean budget, with less than 30 employees, but it does not yet have revenue coming into its coffers. Cuil is talking to potential partners. It has about $33 million in venture funding, which executives believe can last the company a few years.

But Cuil's investors must be nervous about the sharp decline in traffic since the much-hyped launch. To be fair, the initial hype also came from the press.

One investor is Madrone Partners, the venture firm that manages the investments of Wal-Mart heirs. Greg Penner, a general partner with Madrone who sits on Cuil's board, is also on the board of Wal-Mart Stores Inc. WMT, +1.96%

"We all are taking a long-term view," Patterson went on to say, adding that Cuil's growth in the last two quarters is "starting off great again."

"Trends that you can see with Google Trends but not with Compete," she added.

Web havoc

TechCrunch, a Silicon Valley blog that writes about startups, reported in September that Cuil had unleashed an automated crawling program as part of its Web indexing methods. That brought some Web sites down by hammering them with traffic. Cuil said it has resolved the issue. Patterson noted that Web sites can opt in or out of being crawled by Cuil's software, and that for every 1,000 sites that allow Cuil to crawl, one opts out.

As Sullivan noted, Cuil's search results can be off. Another annoying aspect of Cuil is how sometimes strange but quasi-related images, or just title bars, come up within the search results. In a blog posting last week, the company said it is tweaking its image algorithm to improve images. So far, though, in some cases it still seems to be hit or miss.

Cuil's offices are in a quiet research park in Menlo Park, Calif. Early on, Cuil had AltaVista co-founder Louis Monier, as its vice president product. AltaVista was one of the hot search engines developed by Digital Equipment Corp. in the early days of the Internet. But Monier left Cuil in September, citing philosophical differences with management.

So what will happen to Cuil? Based on the company's traffic patterns and lowered visibility, I would be surprised if venture capitalists will fund future rounds, once the company's $33 million has run out. Sullivan predicts that the company could end up selling some of its intellectual property to Yahoo Inc. YHOO or Microsoft Corp. MSFT, +2.10%

Whatever happens, Cuil's story may end up being a cautionary tale for startup companies that launch either too early, or with too much hype and not enough substance.