Yahoo
The latest shift in direction will put rival Microsoft Corp. in control of the search results and advertising that appears on Yahoos highly trafficked Web site, assuming the proposed partnership is approved by antitrust regulators in the United States and Europe.
The 10-year deal announced Wednesday blows up a search expansion undertaken under Yahoos former chief executive, Terry Semel, who resigned under shareholder pressure two years ago. The repudiation of Semels strategy returns Yahoo to a philosophy embraced by co-founders Jerry Yang and David Filo in the companys early days.
Within two years of starting what was originally known as “Jerry and Davids Guide to the World Wide Web,” Yang and Filo concluded Yahoo wouldnt be able to index all the new sites proliferating on the Internet without more automation and sophistication.
Rather than spend its own money on expensive upgrades, Yahoo hired AltaVista to supplement its search engine and then later turned to Inktomi. Those decisions freed up more cash for Yahoo to spend on compelling content and developing other services that established its Web site as the biggest draw on the Internet.
As indexing the Web grew even more complicated in 2000, Yahoo sought the expertise of an ambitious young startup called Google.
In a move that the company later regretted, Yahoo promoted the Google brand next to its search box to show where it got its results. The exposure on one of the Webs most popular pages drove millions of people to Googles search engine, which quickly supplanted Yahoo as the go-to place to find stuff on the Web.
After Google came up with a way to make big money from text ads placed alongside search results, Semel wanted a bigger piece of the action.
Beginning in 2002, Yahoo spent more than $2 billion buying other search engines, including the remnants of AltaVista and Inktomi. Later, Yahoo invested heavily in search improvements that included a much-delayed advertising system called Panama.
Although it helped boost Yahoos profits early on, the search expansion never panned out the way Semel envisioned. Google widened its lead in search as Yahoos U.S. share shriveled from about one-third of the market in 2004 to about one-fifth of the market today. To make matters worse, socializing hubs like Facebook and MySpace supplanted Yahoo as the hot spots to hang out on the Web.
“They just lost their way,” said technology analyst Rob Enderle. “This (Microsoft deal) will let them rediscover what they once were – a place where a lot of people liked to spend a lot of their time online.”
While he was Yahoos CEO last year, Yang tried to lessen Yahoos financial commitment to search by forming an advertising partnership with Google. U.S. antitrust regulators threw a monkey wrench into the plans by threatening to sue to block the arrangement, a prospect that scared off Google.
Yang, though, didnt seem to want any part of Microsoft. In May 2008, he and the rest of Yahoos board rebuffed a Microsoft offer to pay Yahoo $1 billion in cash and buy $8 billion worth of stock in return for a search partnership. Now, they will only share in the ad revenue generated by Microsofts search engine.
“It really hard to tell whether (Bartz) just thinks Yahoo isnt that strong in search or whether she thinks she needs to jettison search to save the company,” said Danny Sullivan, editor of the online newsletter SearchEngineLand.
This much is certain: Microsoft has been stalking Yahoo for years because it wants to boost its meager U.S. market share of 8 percent to narrow the gap separating it from Google, which commands a 65 percent share. The Yahoo combination will boost Microsofts share to 28 percent.
“We found a partner willing and excited to put a lot of technology behind search,” Bartz said in an interview Wednesday. “So our customers are still going to get the same search experience or better search experience because of the investment that Microsoft is willing to make.”
Microsoft is no stranger to the concept of farming out search, having done that itself earlier this decade when it relied on Yahoos technology.
Another prominent Web site, AOL, has used Google for search results and advertising for years. Having the extra money to spend on other products and services hasnt proven that effective for AOL, which has been faring so badly for so long that its corporate parent, Time Warner Inc., is cutting the subsidiary loose later this year.