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If Search is Settled, Will History Repeat Itself?

Written By Drupad Sil | May 13, 2008 | Share This |

Google-Microsoft

A lot of talk on Google today, probably spawned in the wake of the failed Microsoft-Yahoo (MicroHoo?) merger. First up is a fantastic Financial Times article written by Richard Waters that discusses Google’s business outlook now that the company’s greatest short-term threat is out of the picture. From the article:

“The scale of Google’s victory over Microsoft in online advertising, sealed by the failure of the Yahoo takeover approach, is hard to exaggerate. By next year, half of the world’s online advertising – set to reach $55 bn in total – is expected to flow through Google’s systems. Of that, slightly more than two-thirds will come from advertisements that run on Google’s own websites. The rest represents advertising that the internet company, acting as a broker, places on other companies’ sites in return for a small cut of the action.

It is a stunning victory that raises two overriding questions. Will Google be able to use the respite provided by the disarray at Microsoft and Yahoo to carry its dominance of search over into other areas of online – and broader digital – advertising? And should it now be a cause for alarm that one company is in a position to control so much of the lifeblood of the internet?”

Even if Microsoft and Yahoo weren’t in disarray, it would be difficult to keep up with the sheer volume of projects that Google seems to be working on. Google has been sticking its fingers in every pie imaginable, from social networking to WiMax and mobile technology. Adding these to the already-placed bets on the growth of display advertising and online video with its acquisitions of DoubleClick and YouTube, Google is reminding some observers of one of its biggest competitors… Microsoft.

This has spurred some speculation as to which company will be bigger in the long run. Henry Blodget at the Silicon Valley Insider claims that Google Search will be bigger than Microsoft Windows in 2009 for the following reasons:

“Both products are natural monopolies. Google’s share of the search market should continue to approach Microsoft’s share of the operating system market (90%+).

Both products are wildly, fantastically profitable. Microsoft’s Windows business has operating margins of 75%-plus. So does Google’s search business (once you factor out the billions Google is spending on products that produce zero revenue).

Google natural monopoly is growing a lot faster than Microsoft’s. Google’s search business should be bigger than Microsoft’s Windows business by early next year (at the latest). Google is also growing faster than Microsoft’s two monopolies combined – Windows and Office. Google has yet to develop a second huge, fantastically profitable monopoly - the Office equivalent – but AdSense is getting there.”

While I certainly agree with Blodget’s general analysis, I think he’s missing a couple points. First off, I think the barriers to entry are a little more complex than described here. On the one hand, you could make the argument that barriers to entry in online search are low – there are a large number of engines out there with significant market share, especially outside the US market (Baidu comes to mind). However, the counterargument here is that while producing engines may be relatively simple, getting people to pay for ads on their pages is another story entirely. With Google dominating the online space the way it is, its conceivable that more and more people will have to turn to them to deliver the search volume required, leaving other engines out in the cold. And, as we learned in the late ‘90s, it actually takes real revenue to build a successful company, not just a cool idea.

That being said, people dismissing anyone else’s chance at competing with Google are forgetting the lessons of the not-so-distant past. After all, it wasn’t that long ago that Yahoo was cruising out in the lead. Then Google appeared with its streamlined search results and quickly crushed the apparent king. In order to avoid the same fate, Google has wisely diversified its services beyond just search, increasing the company’s long-term profitability and causing talk like that at SAI and this at HipMojo by Ashkan Barbasfrooshan:

“So in 2010, Google’s current historical growth rate projects a revenue figure of $34 billion, with 25% profit margin of $8.2 billion, and with a P/E of 35, could technically command an enterprise value of $287 billion. It currently boasts some $10 billion, so at these levels it would carry enough cash to push up its market cap northwards of $300 billion.

Today MSFT has a market cap of $284 billion, and that includes a wallop of cash.

Tale of the tape: Google $287 billion; MSFT $284 billion…

There you have it. Told you it’s not a bubble, we’re actually talking revenues, profits and P/E.”

That last was a posted estimate from 2006, but the general sentiment is echoed by many observers. While I agree that Google’s outlook is definitely strong, there’s a real danger in extrapolating historical data points to predict future performance, especially in Google’s case. The company hasn’t made a mistake yet, but there’s no guarantee of this going forward. Getting complacent, pushing a shoddy product out the door, a poor acquisition – these are all very real possibilities. Even the highly touted purchase of YouTube hasn’t generated serious cash yet, a la NewsCorp and MySpace. Furthermore, the company’s reputation may begin to create more problems than goodwill. Despite longstanding positive perception of its brand, Google’s growth and massive access to data have brought this angelic standing under some fire, both from individual supporters, who are starting to worry about the privacy of their data, or the monopolistic power the company is starting to wield, and companies it works with in other domains, like phone companies hesitant to partner with Google to serve ads on mobile networks. Today, however, Google is making all the right moves and is a tech story for the ages, but it’s still premature to declare victory, even just in the search domain.

Yahoo Holds it Together with Glue

Written By Drupad Sil | May 8, 2008 | Share This |

Yahoo! India

Despite all the questions swirling around Yahoo thanks to its rejection of Microsoft’s buyout offer the company has managed to implement an interesting new way of presenting search results called Glue. Barry Schwartz at SearchEngineLand expands:

 

“The Glue Pages combine classic search results on the left hand column with more visual information related to your query in the middle and right section of the page. The results contain images, videos, articles and more.”

I have to admit, searching on Glue Pages is pretty cool. The modules of information are split between traditional Yahoo directories (finance, maps, news, images) and well-known third party sites (Wikipedia, YouTube, Quick Facts, MonsterTrak) and change depending on the specific query. For example, a search for “Microsoft” pulled up the company’s stock charts from Y! Finance, job postings in India from MonsterIndia.com, and Yahoo! News postings. A search for “Mumbai” pulls up the city’s Wikipedia entry, train information, restaurant locations and phone numbers, and a gallery of Flickr images with the Mumbai tag. Finally, a search for “Ferrari” pulls in a Yahoo! Images gallery, HowStuffWorks.com, relevant eBay items priced in Indian rupees, and a set of YouTube videos tagged with Ferrari. Third party sites can sign up to be placed in a module by emailing the Glue Pages team.

Classic search results are still on the left-hand side of the page, and sponsored links modules also exist. Something no one is mentioning, however, is that the Glue idea is very similar to how Ask.com presents its results. Below are screenshots from Yahoo! Glue Pages and Ask.com searches for “mango”.

 

 

 

 

 

The most noticeable difference is the emphasis given to classic search, with Ask.com placing them prominently in the center, and Yahoo more shunting them off to the side. Glue Pages definitely puts more weight on the module content and consequently each module has more information then the corresponding one in Ask. Furthermore, Yahoo possesses more third-party sources of module content than Ask, with an emphasis on image and video multimedia. Overall, I’d say the conclusion is that while Ask.com has had the right idea, Yahoo’s Glue Pages has gotten it right in this beta.

If nothing else, it allows users to understand a topic they are searching for information on at a glance while creating a high probability of the user finding relevant specific information on the main page in an aesthetically-pleasing manner. For now, Glue Pages is only beta for India, which houses one of Yahoo’s key research and development centers in Bangalore, but between this and Google launching YouTube India just a little earlier, it’s definitely a good time to be a user in that large and rapidly growing market.

MicroHoo: Still a Mirage

Written By Drupad Sil | May 5, 2008 | Share This |

MicroHoo

Unless you’ve been in a cave the last three weeks, you’ll have heard of Microsoft’s unsolicited bid for Yahoo! and followed the complex tango performed by the company’s respective top executives, Steve Ballmer and Jerry Yang. The soap opera-like unfolding of this financial ordeal played out daily in newspaper headlines, with assurances and deadlines from both sides ultimately being worth less than the ink it took to print them as Microsoft pulled its offer, abandoning talks three months into the process.

Well, in the end the magic numbers were 19, 33, 37, and 24. $19 is what Yahoo was trading at on January 31, immediately before the Microsoft acquisition story broke. Overnight, Yahoo daily share volume increase tenfold and share price skyrocketed about 53%, where it remained during the three months of talks. Microsoft’s final offer for Yahoo was $33 a share (a 72% premium over January’s pre-acquisition talks price), with Yang holding out for a sky-high $37 a share. Not unexpectedly, as today is the first full trading day since the end of negotiations, Yahoo’s share price has plummeted about 15% to around $24, the biggest drop for Yahoo in two years.

The questions being asked are how will Microsoft expand its online market share without Yahoo, and what Yahoo’s next move will be. There is some speculation that Microsoft is eying AOL, or waiting to get back at the table with Yahoo in a quarter or two (about the time it’d take to think of a better name for this deal than ‘MicroHoo’). Since Yahoo’s share price is hovering above the original $19 a share, I’d wager the latter is getting priced in.

Another issue that is getting priced in is the potential of a Yahoo-Google deal. The two had a mutually-described successful implementation of Google’s search advertising on Yahoo’s properties, which could point to future joint projects ahead. However, I think Google may have pushed a little harder to get in with Yahoo because of the pressure from the Microsoft offer. Now that there’s no competitor at the table, Google can take its time in whatever it chooses to implement, leaving Yahoo the big loser in all of this.

Indeed, it’s difficult to get away from being negative on Yahoo after everything is said and done. Despite Yang’s assurances that all is well, there is little that points to investing in Yahoo as a defensible long-term strategy that will produce returns. No doubt this aggravates shareholders and execs, who could have escaped with a sweet profit from the Microsoft deal. Any combination of the Big Three would be subject to government review and antitrust regulations, but this first move represents the opening gambit of an acquisition chess game as Microsoft looks to combat Google on its home turf, search.

Yahoo Mobile’s oneSearch Goes 2.0, Now with Voice

Written By Sepideh Saremi | April 2, 2008 | Share This |

yahoo mobile onesearch vlingo

Yahoo is beefing up its mobile capabilities, today announcing key improvements in mobile search. According to the company’s press release, it will blow out its user-facing products, create standards for mobile widgets, and continue to develop monetization in the mobile space.

More specifically, Search Engine Land notes Yahoo is opening up its oneSearch platform, and also cut a deal with voice-search technology company Vlingo. Yahoo led a $20 million round of financing for Vlingo, which makes speech recognition software that will better position Yahoo against Google and other competitors. Mashable notes that speech recognition will likely become more integral to mobile search:

It’s evident that speech recognition is going to be pushed as a driving force for a good portion of development regarding mobile search over the next few months, to say the least. Perhaps Yahoo will even apply Vlingo more directly to some of its other mobile applications as well.

Google’s Search Share Keeps Rising

Written By Sepideh Saremi | March 19, 2008 | Share This |

comscore feb 2008 search stats

Google’s search share grew 0.7% in February 2008, according to stats released by comScore today. The search giant continues to eat away at Yahoo’s share, which declined 0.6% in the same period. Microsoft also lost 0.2% and Ask.com gained 0.1% (anyone wonder how much that has to do with their ads on Google?). From comScore:

comscore-feb08-search.jpg

When it came to overall query volume in February, comScore reported across-the-board slowdowns, for Google and everyone else, of 5% to 8%. ComScore notes that some of this decrease is seasonal. February’s missing a couple of days compared to the rest of the month; it’s unclear whether that’s what “seasonal” means or if the comScore data is at all adjusted for the difference.

In related news, the fight for search share has now landed on radio: CNET reports that Yahoo is currently running local radio ads in the San Francisco area, in an effort to convince Google users to switch over. This is a very strange strategy for an online media company that has a vast stable of properties and partnerships - rather than using a dying medium, Yahoo should be better at leveraging the Internet that it helped build.

Yahoo: Financial Plan as Negotiation Tactic

Written By Sepideh Saremi | March 18, 2008 | Share This |

yahoo.jpg

Yahoo yesterday filed its three-year financial plan from December 2007, detailing expectations of doubled cash flow by 2010 and reiterating that it believes Microsoft’s takeover bid offer of $31/share undervalues Yahoo. But it may be too little, too late, as the economy has taken a bit of a nosedive since December ($2 shares of Bear Stearns, anyone?), making those Yahoo’s financial forecast optimistic. Mashable lays it out nicely:

Unfortunately, they’re forgetting that in December 2007 Dow Jones was some 1500 points higher than it is today, and a lot of crappy things have happened for the US economy in the meantime. Thus, what they predicted last year probably doesn’t hold water anymore; and let’s not forget that they weren’t doing all that well in 2007, either. There’s a reason why Microsoft went with an unsolicited bid - they knew where Yahoo was at and they knew where it was heading.

Yahoo has been trying to fight off Microsoft’s $44.6 billion takeover bid, made at the beginning of February, by engaging in talks with AOL, News Corp, and private firms in efforts to avoid a union with the software giant. CNET notes that part of Yahoo’s presentation to investors detailed its investments in Asia, which are doing very well and Yahoo complains weren’t adequately taken into account when valuing the company. Despite the presentation (or maybe because of its slightly desperate timing), it’s looking more likely that Microsoft will end up owning Yahoo - something that analysts polled by Reuters are still convinced will happen.

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Searchviews: Week in Review

Written By Sepideh Saremi | February 29, 2008 | Share This |

searchviewslogolarge.gif

This week in search engines and social media: Yahoo launched a couple of new initiatives, Microsoft got a big fine from the EU, and fake Facebook profiles are proved more trouble than they’re worth, at least in some parts of the world. And in other news… (more…)

Mobile Browser Wars: Google Yanks Opera from Yahoo

Written By Sepideh Saremi | February 28, 2008 | Share This |

opera mobile browser google yahoo

Opera yesterday picked Google as its new search partner for its mobile browsers, giving the search engine a boost of about 130 million Opera users who browse 1.7 billion pages a month on their phones. The partnership will be effective on March 1 and applies to users outside the former USSR.

Google has been the default engine on Opera’s desktop browser for the last seven years. Yahoo, Opera’s old mobile partner, claims it is walking away willingly from its position as Opera’s default search engine, but it doesn’t make sense for Yahoo to give up 130 million users. Though Yahoo says that it and Opera continue to remain partners, with Opera users still able to access Yahoo’s mobile oneSearch from the browser, clearly being the default browser is the best position in a partnership like this.

Both Google have been working to close search deals with phone makers and mobile providers: Yahoo is the default engine for AT&T and recently bested Google in a fight for European T-Mobile, and Google will be in certain Nokia phones.

Yahoo’s SearchMonkey Cracks Open Organic Search, Will Intro APIs

Written By Sepideh Saremi | February 26, 2008 | Share This |

yahoo open search searchmonkey

Yahoo yesterday announced a very significant change to its search engine, introducing a project called “SearchMonkey” which allows third parties to annotate their organic search results. Sites will be able to utilize APIs to add images, deep links, reviews and ratings, and other data for their listings in Yahoo’s search result pages. (more…)

Yahoo Launches Yahoo Buzz: Like Digg, But With Search Data

Written By Sepideh Saremi | February 26, 2008 | Share This |

yahoo buzz

Yahoo has just launched Yahoo Buzz, a site that aggregates and highlights popular web content in one place, much like the highly trafficked site Digg.com. But unlike Digg, Yahoo Buzz relies on more than user votes to determine a story’s popularity, or what it calls “Buzz Score” - it also takes into account Yahoo’s live search data and how often a story is emailed from Buzz. At launch, users cannot submit or vote on stories from any sites but the just under hundred or so Yahoo has handpicked. But that’s not all. (more…)

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