The relationship between Yahoo and Google has survived a recent rocky patch and they’ve become cosier than ever. In fact, they’re now almost the same search service. While the move has been lauded in company media releases and industry articles as an improvement in Yahoo’s search results, I can’t help thinking it marks the final capitulation by the original search giant.

What was the Change?

It used to be that when you searched in Yahoo, you were given two major search options. You could choose “Website Matches”, which would give you websites from Yahoo’s human edited directory, or you could choose “webpage matches”, which were provided by third party search providers. Yahoo has gone through a string of providers, including OpenText originally, then AltaVista, followed by Inktomi and finally Google.

On October 7^th, Yahoo ended much speculation about who the next in line might be when they announced that they renewed the deal with Google, but they didn’t stop there. They’ve actually combined search results, so that now Google results are mixed right in with their own directory results. What’s more, they seem to have adopted Google’s search algorithm because on a number of tests we tried, results were identical or very close to Google’s search results.

Why Use Yahoo?

The question is, why use Yahoo? Right now, with a search, you get sponsored results from Overture and search results from Google. It’s true that Yahoo supplements the Google search results when a site also appears in their directory. In this case, you’ll get a link to the appropriate directory category as well as a red arrow icon. But it’s a feature that probably won’t be used by the majority of searchers. Yahoo has lost their uniqueness. They’re just rehashing search results from other providers.

Yahoo Got Passed By

Many searchers would argue that Yahoo had no choice. The original concept of a human edited directory envisioned by Yahoo founders David Filo and Jerry Yang had just become too cumbersome and outdated, thanks to the more user friendly, streamlined and relevant search results provided by new generation engines such as Google and Teoma. Yahoo, who once owned almost 50% of the search market, has been steadily losing marketing share to Google over the past 2 years, who with Yahoo’s recent announcement becomes the undisputed king of search. Google currently provides over 80% of all search traffic through its own portal and its search partners.

For Yahoo, the decision was whether to try to hang on to their uniqueness and watch their market slip away or adopt Google’s superior search architecture and bank on their one remaining asset.

It’s All About the Name

Obviously, Yahoo’s decision says that they know they’ve been beat by superior technology in the search game and their only ace in the hole is their brand awareness. The Yahoo name is still very well known. That fact alone generates a ton of traffic for Yahoo. So, it seems that Yahoo is content to trade on their name, try to improve the search experience for their users, and rely on revenue sharing models with Overture to turn around a damaged bottom line.

There’s just one problem with this scenario. The value of Yahoo’s name is significantly less than it was 2 years ago. Where once Yahoo ruled, now they’ve been relegated to also ran status. If you’re not giving users a reason to remember the name, brand awareness can only last so long. Without innovation and unique value, users will turn elsewhere, no matter what your name is. It’s a bit like the faded rock star who’s still churning out Best of packages and obligatory studio albums with no new material (can you say Rod Stewart?). Eventually, the fan base just dies away.

To me, there’s very little difference between Yahoo, where you get rehashed Overture and Google results, and Excite, which just shows Overture. The one difference is that Excite had to go bankrupt before they gave up on providing unique content.

Adopting a New Revenue

For me, there was one puzzling part of the announcement that a recent announcement by Yahoo had cleared up nicely. For the past few years, a big part of Yahoo’s income has come from the $299 Express Submission fee they charged new sites in order to ensure that an editor would look at the site and consider it for inclusion into the directory. In November of 2001, Yahoo announced that this fee would become an annual fee.

For website owners who wanted to be found, there was really no choice. In order to stand a chance of being visible to Yahoo’s shrinking, but still significant, audience, you had to pony up the money. It was so important, we actually built the submission fee into our charges.

With the Google announcement, however, the fee became irrelevant. The new search listings showed sites at the top of the rankings that weren’t even in the Yahoo directory. These sites got starring roles because they ranked well in Google. It didn’t seem to matter anymore if you paid the $299 or not.

Why, I wondered, would Yahoo close the door on this revenue? Then, an announcement by Yahoo cleared things up a bit. Thanks to their huge traffic numbers, Yahoo had realized a bonanza through their revenue share deal with Overture.  Although the details of the deal aren’t public, it’s estimated that Yahoo keeps as much as 65% of all the revenue generated from click throughs on their sponsored links provided by Overture. The Overture revenue alone accounted for $30 million in the last quarter, and gave Yahoo a profitable bottom line.

And with this news, a few pieces of the puzzle fell into place. With money pouring in from Overture, the $299 submission fee didn’t seem so important anymore. What became vitally important to Yahoo, however, was hanging onto their search audience. With each defecting searcher, their revenue from Overture dropped another notch. Yahoo had to find a quick answer to retain their audience. Obviously, the quickest fix was to beef up their search results by adopting the same technology as the leading search provider on the web, Google.

In the future, I wouldn’t be surprised to see inclusion in Yahoo’s directory give sites a bump in the rankings on Yahoo. Despite Overture’s revenue, it doesn’t make sense for Yahoo to complete ignore the potential revenue that could come from express submission fees.

On a side note, I think there’s a lesson here for other search providers. Although sponsored links keep your bottom line healthy, ultimately it’s the quality of the unpaid search results that keep searchers coming back. Please search portals, don’t ever forget this. Are you listening AltaVista, Hotbot, Excite, Lycos and Go?  Oops, too late!

Yahoo’s Achilles Heel

To me, this announcement marks the beginning of the end for Yahoo. They’ve given up, surrendered, compromised their integrity for the sake of the bottom line. Short term, the bottom line may look much healthier, but within a few years, Yahoo could well disappear from the online landscape.

In Yahoo’s current situation, there may have not been any choice. But how did they get into that situation? In a word, arrogance. Yahoo has consistently presented a “We’re Yahoo and you’re not” attitude to webmasters, searchers and partners alike. They never bothered seriously improving their search results because they always believed that their position was unassailable. While Yahoo remained in their ivory tower, the online world passed them by. Lesson learned Yahoo. In an industry that changes and evolves as quickly as search, a little humility can go a long way.