Oh Boy…Yahoo really blew it!

semel

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.

searchenginesAll 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.

chart-of-the-day-time-spent-on-facebook-google-yahoo-jun-2007-aug-2010

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.

2013-04-24T033041Z_1240159166_GM1E94O0VWD01_RTRMADP_3_USA

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!

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8 thoughts on “Oh Boy…Yahoo really blew it!

  1. This was a great blog post and I learned so much from it! First of all, I thought it was very interesting what CNN said in 2009 about Yahoo drawing in as many users as Google; however, Yahoo’s inability to drive as much revenue. This is a great point and certainly shows that Yahoo might need to adjust its revenue-making strategy. Also, I thought your point about the first mover advantage was incredibly interesting. While it definitely is not difficult to switch search engines, it is certainly true that once you start using a search engine there isn’t a real reason to switch. I have been using Google for as long as I can remember, and like you said, I see no reason to switch.

    In order to stay competitive, I think that Yahoo might not have any other option than to move on to bigger and better projects (rather than focusing solely on its search engine). Clearly it is not having a lot of success generating revenue with the search engine, and I definitely think it might be wise for Yahoo to expand (or to reevaluate its core source of revenue). I’m curious to see what Marissa Maya has planned.

  2. Really interesting blog post! I have always used Google as my search engine, but I frequently visit Yahoo’s homepage, sports and finance sections as well. To answer the question you posed, I think Yahoo should focus on perfecting pages like their Finance page instead of continuing to lose their fight into the search engine field. Search engines clearly aren’t their core competency, but sports and other news may be. I don’t see the logic behind spending so much money to fight a battle in a field where Google is so dominant. Although Yahoo’s homepage is not perfect, I still visit it everyday and I believe there must be more they could do to it to maximize their profits from it.

  3. Very interesting topic extremely relevant to the class material! I myself have not used the Yahoo search engine in at least 3 years as Google has become the favored, dominate engine for me. However, there are millions of Americans who participate in fantasy sports such as football, hockey, and baseball. Yahoo is the favored company when it comes to participating in these leagues and they run limited ads on each page. According to MercuryNews, the fantasy leagues bring in a direct and indirect revenue estimated to be $3 billion a year. I also agree with Timothy as he says a huge portion of Yahoo earnings come from the finance page and they should continue to improve the major assets of their company. Yahoo should not focus too much on creating the next best search engine because it would simply only amount to be the “next best” behind the all powerful Google.

  4. Like you mentioned, Google dominates the search engine sector while Yahoo attracts more people with their finance updates and sports news. THIS is what Yahoo should focus on if they want to claim a slice of the internet for themselves. I remember setting up my first email address with Yahoo, more than ten years ago, and now, Gmail is the first thing that pops into my mind when I think of email. So in addition to search engine dominance, Google is the leader in many other online services and Yahoo is really going to have to pursue what they do best in order to stay in the game.

  5. Wow- impressive blog post! This was a very good connection to our class discussion on Google and its AdSense service. It really is too bad for Yahoo that they missed out on an opportunity to buy Google. It definitely makes you wonder what if… Personally I’m glad Google stayed solo and wasn’t bought out because I think they’ve transformed themselves into a much better company than they were several years ago. Despite the worries that Google Glass won’t be successful, I think that the fact that Google even created something like that is fascinating. They step outside of their comfort zone to try new things and it sometimes works out VERY well. I think Yahoo will stick with the search engine but will need to draw customers back in with something big.

  6. Great blog post! I liked your tone and how you kept it interesting up to the last word! It is so interesting to see how things change. It makes me think twice when I try to predict the future of a company. I, particularly, hate to use Yahoo or Bing (Because It’s Not Google) as a search engine. Every time I try to search for something on these search engines, I always fail to find it as quickly as I do when I use Google. It must be because of the importance Yahoo gives to price when ordering the search results. I believe that they should fix this if they want to compete with Google in the search field.

  7. Nice post. Yahoo has really been experiencing a lot of backlash recently, especially because of Maya’s decision to bring everyone back into the office-no more working at home. I do think that she is moving the company in the right direction, however. Very well researched, thanks for sharing!

  8. Great Post! I didn’t realize Yahoo had the opportunity to buy Google but turned it down in favor of starting their own search engine. I think Yahoo’s edge over Google is it’s specialized pages such as travel and finance that are great for people who just want to do a very general search. As other commenters have said, I think Yahoo should first try to strengthen those pages and its other unique features before it tries to take Google head on. If people are already coming to Yahoo to look at the finance or travel page, than it’s an easier transition for them to also start using Yahoo’s search engine since they are already there.

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