Yahoo’s Search for Net Supremacy

December 28, 2005 0

In an evolving web war, Yahoo combines online social networking with search technology.

Amid the hoopla of Google’s soaring share price, which has doubled to $400 (U.S.) this year, the Yahoo CEO said his most aggressive competitor "does not seem to have a real plan." Google was rolling out initiatives every other week, but its strategy lacked focus.

Created in the early nineties as an Internet search engine, Yahoo has transformed itself into a media giant that now rivals newspapers, magazines, and radio, television and phone companies with a content-driven formula…

It is a key piece of Yahoo’s strategy as the Internet world’s tectonic plates begin shifting. This week, Google and Microsoft’s MSN both vied for a strategic alignment with America Online Inc., in a multibillion-dollar deal that could alter the balance of power on the Web.

Should Google win the bidding war, it would gain access to AOL’s stockpile of news and entertainment content, which could be paired with its cutting-edge search technology. If MSN emerges the victor, Microsoft immediately becomes a bigger force in the world of on-line portals and searches, rather than the mid-sized player it has been in recent years.

Either way, one of them — if not both — will end up gunning for Yahoo.

When Yahoo spent a reported $20 million to $30 million in March to buy Flickr—a photo-sharing website run by a husband-and-wife team in British Columbia—two aspects of the tiny deal raised eyebrows: First, Yahoo already had the most popular photo-sharing site around. Second, and more important, instead of merging Flickr with its existing photos team, Yahoo placed Flickr in its search group.

The deal, it turns out, was a salvo by Yahoo in the evolving web war over search technology. The company wants to take the trendy concept of online social networking—most recently in the news after Rupert Murdoch spent $580 million for MySpace.com—and combine it with its search technology to challenge Google’s lucrative information-seeking dominance. “We believe it’s the next wave,” says Bradley Horowitz, the Yahoo executive who championed the Flickr acquisition.

Yahoo has realized the best way to compete with Google is not to try to beat Google, said tech analyst Safa Rashtchy of Piper Jaffray & Co. in Los Angeles. They have become the un-Google.

The race that is unfolding to attract on-line audiences — either to search engines or portals — is more about content than tech wizardry.

But Yahoo is trying to push the strategy further, expanding into content production. Beyond indexing and repackaging existing Web content, it has taken the unusual step for an on-line portal of hiring its own reporters, including a war correspondent and a travel writer, to produce columns, video clips and to interact with visitors to the site.

While Yahoo has carved out its share of the multibillion-dollar on-line search market, just over 30 per cent, an equally important portion of its ad dollars are made using a much older strategy.

Branded advertising builds flashy ads around the content on Web pages designed to appeal to the people who are drawn there. An article about nutrition might carry an ad for vitamins.

"Yahoo is sort of like your magazine or your newspaper," said Maura Hanley, a senior vice-president of Toronto-based Media Company who negotiates on-line advertising deals for clients. "You pick it up every day and there’s a thing in there that you like and things in there that you want to see."

Google and Yahoo illustrate two different advertising philosophies for the Internet: The former connects its advertisers directly to surfers; the latter also sells itself as a "branding site," where a marketer can use movies and sounds to reach a broad demographic, in addition to search-based advertising.

Ms. Hanley said most of her clients are not sure which strategy is more effective. "I would be hard put to say which one is better. A lot of advertisers are often doing both."

The ‘UnGoogle’
With Internet goliaths Google Inc. and Microsoft Corp.’s MSN both vying for an alliance with AOL, the Internet could soon be headed for a collision of giants. As the on-line world unfolds, here is how Yahoo Inc., the world’s busiest website, plans to take on a bigger version of Google or a bolstered MSN.

Technology is a tool. But entertainment keeps people surfing.
Strategy: Embrace media. While 90 million people use Google for on-line searches in a month, more than four times that number visit Yahoo’s content-driven portal, which pumps out self-generated news; blogs and video as well as financial data, on line music and chat.

One of the Internet’s biggest draws, it’s what gets many people in the door.
Strategy: Keep pace with the leader. Google holds nearly 40 per cent of the search market, while Yahoo’s share is roughly 30 per cent. Yahoo has added video and shopping searches to its platform, as well as local search capabilities. But Google is the fastest in the industry when it comes to introducing new technology.

The road beyond e-mail is paved with on-line phone service and social networking.
Strategy: Build on-line communities where users chat, share new, listen to music and plan a schedule, which keeps them on the site longer. It’s like being in the same room as your friends no matter where you are in the world. Yahoo also announced this week that it will offer Internet phone service for 1 cent (U.S.) a minute in the U.S.

Can’t blog from home? Try moblogging. Your web portal is in your pocket.
Strategy: To keep people connected, Yahoo and others are pushing their software and content into portable devices, such as BlackBerrys and cellphones. Not having access to a computer is no longer an excuse for losing touch with the on-line world.

Ad dollars are how Google, Yahoo, AOL and MSN make their money.
Strategy: Differentiate. The on-line ad market was worth $3.5-billion (U.S.) in North America last quarter. Google is the leader in search-related ads, but Yahoo is trying to become the dominant player in magazine-style branded advertising, attracting campaigns such as BMW and Doritos in recent months.

Yahoo and Google are racing to create more features to entice users to their sites.
Strategy: Do not give up any ground to the competition. After Google launched its Google Answers feature, which allows users to state a price for a question they need answered by researchers, Yahoo responded with a similar service. Rather than charge for answers, Yahoo lets other users weigh in with their own information free of charge.

The del.icio.us innovation: By allowing users to share their tagged bookmarks, the site effectively transforms its 200,000 users into web librarians. Though quirky, it can be effective. The “fuel cell” tag on del.icio.us, for example, delivers 597 well-targeted sites. An equivalent Google search generates 29 million results, many of them old or unrelated. And just as on Flickr, del.icio.us users can subscribe to a continually updated list of bookmarks related to a given person or tag.

Yahoo hopes it can trump Google someday by combining MyWeb’s shared bookmarking with Yahoo’s existing search engine.

Yahoo’s Horowitz refers to it as a “Petri Dish” for the company’s search experiments, and it’s unclear whether users will take to “social search.” Still, the concept seems to have more than a flicker of a chance

Yahoo; despite being less than half Google’s size, with a $57-billion market cap, is the world’s most popular website, pulling in more than 400 million visitors a month and the ad dollars that come with them.

For the winner, the profit potential is huge. The on-line ad market is expected to top $12-billion in the United States this year.