Feb 13, 2008

Yahoo & Google - Can Lightning Strike Twice ?

Much has been written about the reasons for Google’s remarkable growth and the Global Power of its Brand. It’s worth reiterating that the first Google site was launched in ’97, at a time when literally no one was paying any close attention to Search. The key reason for the company’s success is that it’s able to provide core value to the 3 key Audience Segments which power the entire online services industry. Online Searchers, Search Advertisers and Search Distribution Partners.

The Google founders set out with one key goal in mind – to create a Search Engine which would deliver more relevant and hence, more useful results than any other Engine available at the time. The extrinsic value of the Page Rank Algorithm helped fuel the word of mouth buzz about the Google and its popularity grew amongst Internet Users, the most important Audience Segment. By the Year 2000, Google was synonymous with Search – and was becoming the World’s best known Pure Search Engine. That same year, Google started selling advertisements associated with Search Keywords. The popularity of the adwords platform helped create a second audience segment – Search Advertisers. The value created by the adwords platform was a clear win-win for Google & its Ad-buying customers and Internet Users were not deterred. The click threshold which Google applied to its keyword bidding model also helped improve ad relevance.

Around that time, Overture made a key decision to stop driving traffic to its own site, and instead syndicate its monetization platform to other search engines and general interest sites. By the end of 2001, Overture had distribution deals with most major sites, portals and Search Engines –with the exception of Google. By this time, Google was widely seen as the only Pure Search Engine and this further enhanced its popularity in the minds of Internet Users.

In 2002, Google started to aggressively build its own distribution network. It signed deals with Key Overture partners – including Earthlink, Ask Jeeves and most significantly, AOL. These distribution partners became the 3rd and final key Audience Segment. Overture was left with two major partners – Yahoo and MSN. Today, Google is far and away the Global Leader in Search Syndication – after re-signing with AOL, Ask and thousands of smaller general interest websites. Google’s Financial Reports and accompanying commentary provides some indication of the benefit of a strong distribution model on Google’s query volume and revenue.

I provide this historical context – in order to make the point that Google’s popularity and brand Strength didn’t happen overnight and it can be traced directly to its laser focus on providing a valuable offering to its core audience segments (Searchers, Advertisers/Customers and Distribution Partners). The core value proposition remains the relevance of its core web search results and the overall performance of its engine.

Yahoo was launched in ’95 – primarily as a web directory and later diversified into a Web Portal. Yahoo originally sourced Search Technology from Inktomi from ’98 – 2000. In June ‘2000, Yahoo and Google signed an agreement which retained Google as the default world-wide-web search engine for Yahoo sites. Google’s popularity grew in leaps and bounds as it benefitted from brand association with Yahoo and AOL – two of the leading General Interest Portals – at that time. Gradually, Google started adding features people normally went to Internet portals like Yahoo, AOL and MSN - to find. Including, Maps, News Aggregation Services, white pages-style phone and address look-ups, maps and Web site translation services. At the time, Yahoo was monetizing Google Search Results through Overture.

In Dec ’02, Yahoo purchased Inktomi, then in July ’03 it acquired Overture Services, Inc. and its subsidiaries AltaVista and AlltheWeb. On February 18, 2004, Yahoo dropped Google-powered results and returned to using its own technology to provide search results. At the time, the Overture deal seemed to make sense – even at $1.6B, because Yahoo was very much dependent on Overture for its paid listings and the control of both key elements (Search Engine & Monetization Platform) was supposed to help secure Yahoo’s future as a search destination. What has happened since then is instructive – Yahoo lost its marquee client – MSN.com and its Search Business has been in freefall ever since. The Company did invest in improving its YSM monetization platform, but it has not been able to maintain query share or
deliver sustainable Search Revenue. Although the Yahoo brand is a strong one, it’s not Synonymous with Search. Although it still provides a good Search Engine to Searchers – the organization has struggled to compete with the relevance of Google’s Search Engine and the efficiency of its ad platform. As a result, it’s Search Distribution Network has suffered, query volume & share is down Worldwide.

Ironically, recent reports indicate that Yahoo may actually be thinking about coming full Circle and once again partnering with Google – pure speculation at this point though, but it's not surprising that Jerry & David would consider this option. A sale to Microsoft would mean the end of a dream for both of them - although I strongly suspect the Yahoo brand would live on regadless. Google clearly fears that a combined Microsoft/Yahoo entity could slow the Google Juggernaut. At the very least, the online behemouth could provide a viable alternative to online advertisers, many of whom don't want to do business with Google. One things for sure, Google is not in a position to bail out Yahoo, regulators would be waiting with baited breath to kill that deal. They can't simply offer to host Yahoo's search or monetize Yahoo's search engine, as they did before. It's too late for that - $44B too late......

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