A discussion about Yahoo!

• May. 2, 2003

Over the past few weeks we’ve written many articles about the major acquisitions made by either Google or Overture.  We’ve talked about some of the new technology out there to measure the search engines.  We’ve even revisited some of our past articles to see if they are relevant in today’s search engine marketing industry.  Today I want to speculate about Yahoo!

We did pose our own hypothesis about a month ago on what Yahoo! was doing and today we are no closer to the truth.  Other than we know that at some point in the future they are going to pull the plug on Google, since they can provide their own results in-house with Inktomi, who they’ve recently purchased.  Fueled by the results of a recent study which showed that Google and Inktomi provided the most relevant search results, it only makes sense that Yahoo! can go it alone against Google and survive.

They have also done some major changes to their search, cleaning it up, removing advertising and streamlining the interface.  In addition to adding more customer centric services, like more streaming media content.  They are attempting to position themselves as the all inclusive internet portal that they used to be.

The only service they don’t have is a PPC component of their own (they are an Overture partner).  After all, we know that they offer a paid inclusion service.  To ensure your site appears in Yahoo! you have to pay to get your site reviewed by an editor before it gets added into the index.  Also, the Inktomi model currently uses paid inclusion for its listing.  We also did speculate some time ago that Yahoo! was likely looking to buy something else.  We mentioned that perhaps they had Overture in their sites.

Buying Overture at this point in time would be good for Yahoo!.  The company is struggling now after having lowered their income projections for the year, causing an outcry from shareholders.  While they are forging ahead in key international markets, they are struggling to maintain their image as a world class money making machine.  The current asking price of Overture stocks is around $11 per share, down from a 52 week high of around $35 per share, making the company currently worth about $625 million.  Since Yahoo recently borrowed $750 million it isn’t out of the realm of possibility that Yahoo! could snap up Overture for a song and still have money left over to buy dinner after the deal.

I say “for a song” because I do believe that Overture is heading down the right path.  They do need to diversify their markets by providing free and paid services to their partners.  Also, they stand a pretty good chance of losing one of their largest partners, MSN, who recently announced that they are developing their own search which will likely include a PPC component.  They are also facing fierce competition from Google who’s actively promoting AdWords, which is similar to Overture’s PPC, and developing technology to better place the AdWords on content related pages.

Yahoo! on the other hand is a recognized brand with a dedicated customer base.  They do need to keep developing new markets if they hope to stay ahead of the new MSN search which will roll out - it is only a matter of when.

The reason they want to stay one step ahead of MSN is because of Microsoft’s domination of the PC market as it is.  Many people use Internet Explorer and MSN search by default, simply because it’s easier to use what your computer comes with.  Sure Microsoft is forced to give people the choice to use other browsers but lets face it, most people don’t want to expend the time or energy, or may not know how to switch browsers.  Therefore they use Internet Explorer whose home page and default search are set to MSN.  As more people buy new computers there is a chance that more people will keep the default settings.  (Our research shows however that as people’s proficiency with the web and search grows, they tend to migrate to Google).

Therefore Yahoo! has to offer the complete service package ahead of MSN to win customers and keep them before MSN search can get off the Microsoft campus.

As you can see, Yahoo! faces a bit of an uphill battle – Google is steadily gulping up the free and paid search market, Overture is making huge inroads in the international markets, MSN is a threat which we can’t yet qualify (simply because they haven’t said what kinds of search they will develop), so Yahoo! has to grow and diversify to keep up.  We feel they are on the right path, now they have to convince their current customers and prospective new customers that they are indeed THE one stop shop for the web.

Rob Sullivan
Production Supervisor
Searchengineposition.com
Search Engine Positioning
specialists