I bet if there were a period of time Terry Semel (former CEO of Yahoo) could back to he would choose the summer of 2002. Two years before Google went public and way before Google’s stocks were valued at $500 a share, Google had asked Yahoo to buy them for $5 Billion. At that time Google’s revenue was only $240 million a year, while Yahoo boasted a profit of $837 million. $5 Billion dollars was a huge gamble and Semel was infuriated. No way in hell was he going to make that deal. Instead he chose to go with plan B: to make his own search engine and beat Google at its own game (a very well thought out plan at the time). Eleven years and six CEOs later, Yahoo only controls a measly 11.8% of the search engine market, while Google has more than 60% of the market share. Now, even the term “Google” is synonymous with searching.
All this profit could have been Yahoo’s; in fact we could have been using the term “yahooing” instead of “googling”-doesn’t have the same ring. So how did two students’ side project surpass a rising media giant? Making a profitable search engine was harder than Semel thought.
Google, as we learned in class, makes almost all of its profit from the ads they put at the sides and top of the search page. Ads range from 1$ per click to a whopping $50 per click on mesothelioma lawyers (I learn something new every class!) AdSense also pays bloggers or owners of websites to add Google ads onto their site allowing Google to rake in even more profit. This method seems easy enough to copy so why isn’t Yahoo profiting as much?
In an article written in 2009, CNN reported that Yahoo draws just as much users as Google, however Google’s revenue was 11 times more. This is because while many people use Yahoo for content such as Yahoo Sports or Finance, most people still use Google as a default search engine to search for important stuff *cough* mesothelioma *cough* which allows them to be more profitable. Yahoo’s content and media ads have the same issue as TV ads because they are still not word specific so they are less likely to get clicked on.
Search engine is also an industry where being a first mover has many benefits. Search engines don’t have a virtuous cycle because there is no incentive to stick with a search engine, however, once a person defaults a search engine there really is no reason to switch. Yahoo also struggled with integrating Overture, the number one search engine at the time, and while Yahoo and Overture fought, Google was able to bypass Overture and become the most used search engine. Another flaw with Yahoo’s search engine is that it only factors in price when deciding which “sponsor” gets put on top of their ad columns. This means that even if the ad isn’t the most relevant, if the “sponsor” paid enough, their ad would be shown the most. This seems like an easy problem to fix, however, it actually means creating a whole new software and database to keep track of clicks. Yahoo also did not effectively push blog advertisement with matching subject matter like Google did.
The new CEO, Marissa Maya (yay for female CEOs!) stated that Yahoo search alongwith Mail and Yahoo homepage needed a major overhaul. They are planning to make big investments on search, but will their efforts be rewarded? Over the years, Google has been known for its quirkiness and its innovative projects such as the Google glass and Android platform, however Yahoo has acquired many start-ups that never end up seeing the light of day.
In the past, we’ve discussed about Dell’s transition to Dell 2.0 so here my question to you: should Yahoo keep working on its search engine or move on to bigger and better things? What are some suggestions you would make to Yahoo?
I myself, think that because search engine are such a commodity and there really isn’t any big distinguishing point between search engines, nobody will bother switching to Yahoo.
However, I think if Yahoo was able to make relevant ads on their content pages and push blog advertising better their profit will increase.
Interesting article about what happens after Yahoo acquires a company: http://37signals.com/svn/posts/2777-what-happens-after-yahoo-acquires-you
Interesting fact: Yahoo has actually outsourced most of its search to Microsoft Bing.
Last, but not least which search engine do you use?
I may be the black sheep in the herd, but Yahoo has always been my choice in homepage and search engine. I like reading their random articles and I made my first embarrassingly named email account on Yahoo. Thanks for reading my blog and comment below!