• by Steve Smith , Staff Writer @popeyesm, April 8, 2004

When mega-portal Yahoo! evicted Google as its search engine provider in February and touted its own in-house technology as the new leader in search, a titanic turf war of Star Wars proportion seemed inevitable. Google's phenomenal success in becoming the Kleenex of Web search, and learning how to monetize the service with keyword advertising, had stirred the sleeping empire. Back in the day, when silly dot-com Super Bowl commercials mattered, Yahoo! had been the default brand for finding information online. But by February 2004, Google enjoyed 44 percent of online searches, compared to Yahoo!'s 26 percent, according to comScore Network's qSearch. Now, with strong revenues, ad relationships with just about everyone, more content than God, and some of the best technology money can buy, the deposed king wants his crown back. And according to the early buzz, "there seems to be a lot of confidence out there that the portals are set to eat Google's lunch," reports Andrew Goodman, principal at Page Zero Media.

And the value of that lunch, the explosive paid search market, is likely to grow to $2.5 billion - or about one third of current online spending - in 2004, according to eMarketer, [now about a third of all online ad spending]. While some argue that search spending is starting to level off, most analysts see the market nearly doubling in several years. Nate Elliott, associate analyst at Jupiter Research, estimates it will hit $4.3 billion by 2008. "That's a lot of money, and two or three big players will do very well sharing that pie," says Elliott.

A pricey pie they will have to share, no doubt, because no one expects either Yahoo! or Google to zap a Death Star blow to the other's world. And Microsoft Corp.'s MSN will enter the search market this year in an effort to grab its fair share of the pie. According to a Jupiter poll of media buyers, 85 percent place ads with Google and 68 percent with Overture, which Yahoo!'s acquired last year and which serves sponsored links into the portal's search results. Google boasts about 150,000 advertisers to Yahoo!/Overture's 100,000, although the latter has been in the business longer and actually has higher paid search revenues, estimates Forrester Research. What we are likely to see, most say, is an ongoing turf war at the borders over user loyalty, market share numbers, and bragging rights over index sizes, and an inevitable arms race of features like local search and personalization. To be sure, the still-young Google has a lot to lose in market share and brand reputation in these skirmishes. But at the same time Yahoo! is in the odd position of having to make a case with consumers that it is a serious search engine.

Yahoo! the Underdog?

Yahoo! didn't really cede the search crown, because the company never had full possession of the throne in the first place. From its earliest days as an edited directory of sites, Yahoo! viewed search as an ancillary feature that it outsourced to a string of partners: Open Text, Alta Vista, Inktomi, and eventually Google. "They really didn't see it as a prosperous business to be in," says Patrick Mahoney, an analyst at Yankee Group. By the late '90s much of the company focus was actually diametrically opposed to search, which is supposed to send you to other sites. The Yahoo! portal strategy was to keep the eyeballs on its turf, where they viewed more ad units, shopped, and bought premium services.

Only when a third of online ad spending moved to search within a few short years did Yahoo! decide to buy in big. The purchase of Inktomi for $235 million in late 2002 gave the portal the strong search technology with which to evict Google. In nabbing Overture for $1.6 billion, Yahoo! got the largest and oldest of the paid search services. And clearly, with 110 billion unique users across a bottomless pit of content, Yahoo! has the ability to promote its new, internal search service aggressively to the biggest aggregated audience online, says Charlene Li, an analyst at Forrester. "Yahoo! will excel in creating the portal experience... and it will continue to enhance and extend search throughout the portal network," she says in a recent report. "Google should be pretty nervous at this point," adds Mahoney.

Nevertheless, the portal de tutti portals has a steep hill to climb. "Yahoo! has zero track record in building user interest in its search engine," says Page Zero Media's Goodman. Google maintains patents on a lot of the technology that made its results so attractive to users and still succeeds in getting 4.7 searches per user to Yahoo!'s 3.5 (comScore). "[Yahoo!] could come out with a robust product, but it could also turn out to be a really big and costly failure," says Mahoney, "and that we won't know until the technology is fully deployed."

The Tech Scuffle

'Indeed, both Yahoo! and Google seem to agree that this is going to be a battle of technologies. "The future of search is the amount of information, the speed at which you deliver it, and the relevance," says Tim Armstrong, vice president of advertising sales at Google. In the first shot of what is sure to be an ongoing press release war over index sizes, Google responded to Yahoo!'s new search chops by announcing it has extended its reach to include 6 billion Web pages, and Armstrong says that one of the areas for further growth will be encouraging more offline information to become accessible online. Nevertheless, Google swears it is going to continue doing what got it here in the first place - good search, not one-upsmanship. "We have been successful because we kept our eye on the windshield and not the rearview mirror," says Armstrong. "The threat that we face from competition is not staying focused on our own business."

Google may have lost a lot of Yahoo! traffic, but it didn't lose any of its cool with users. In a forthcoming report, Jupiter finds that Yahoo! now has a slight edge in unique visitors, "but when you look at intensity and frequency [of searches]," says Elliott, "Google is the clear winner." Even if Yahoo! delivers comparable or superior technology, many analysts say it will take a long time for consumers to lose their taste for this brand's simplicity, clean results, and speed. The product is all, goes the Google mantra, not marketing and not simply funneling eyeballs to your search box. "Our intention is to innovate around the pockets of user demand," says Armstrong. Users respond most positively when search results are relevant, and so making search engines smarter and able to understand the meaning of queries will be a major push in coming months.

While conventional wisdom holds that Google has a firm hold of the technology and innovation edge, many feel that Yahoo! has achieved relative parity in purchasing Overture and Inktomi. "I would maintain that Yahoo!'s new index and new approach is just as good if not better than Google's," says Chris Sherman, editor at SearchDay.

While Google expands its index and hopes to add more offline material to the mix, Yahoo! is actively pursuing what it calls the "deep Web," up to 50 billion documents that engines don't crawl, says Jennifer Stephens, senior director of public relations at Overture. A new Content Acquisition Program (CAP) lets sites submit their URLs for inclusion in the Yahoo! index, ensuring that undiscovered content is included and that the crawler refreshes them in the index every 48 hours. Unlike Google, which relies mainly on technology to find content, "it's a structured, transparent relationship between content provider and the Yahoo! search engine," says Stephens.

"Our ultimate goal is to understand user intent," says Yahoo! spokesperson Diana Lee. As with Google, Yahoo! technology aims to decode the nature of the query, but the portal is trying to "create a whole solution for them rather than just a result," she says. A Yahoo! query for "digital cameras," for instance offers tabs to yellow pages and product pages that immediately help a potential shopper narrow the search to specific camera models.

The Ad War: Depth v. Reach

At savvy-as-they-come Yahoo!, almost all of the new selling points for the search engine are also intended to be a boon to advertisers. The greater integration of search results with other content allows the portal to sell clients bundles of ads and services across search, email, content channels, and especially the major e-tail presence of Yahoo! Shopping. "The shopping experience at Yahoo! is fantastic. Go to Froogle [Google's shopping engine], and it's pretty minimalist," says Forrester's Charlene Li.

But with its CAP program, which is hyped as a way to improve both search results and a company's inclusion in the index, Yahoo! may have started off on the wrong foot by introducing a new and potentially costly fee structure for marketers. Nonprofits get into CAP for free, but commercial sites enter the new Site Match service for $49 for the first URL, with subsequent URLs included on a sliding fee scale. Yahoo! is only consolidating under its single service a paid inclusion program that its subsidiaries Inktomi and AlltheWeb already practiced, Stephens insists. Moreover, Site Match is not going to corrupt the search process in favor of Yahoo! clients. "There is a guarantee you are included in the index but not in the search results," she says. The engine's algorithms still need to determine that your content is relevant to the specific query.

Some media buyers object to what is new about the model - Yahoo!'s charging Site Match customers for each click-through, 15 cents or 30 cents according to the content category. Sherman complains that cost-per-click fees for clicks in search results is the "really upsetting" part of the model. "You get the cost of paid placement without the control over where the links show up," he says.

"I don't like paid inclusion," says Page Zero Media's Goodman. "It's a strange mind game for anyone buying ads. You're paying to get judged by a search algorithm. I think this all plays into Google's hands. The glaring difference is that showing up in search results for free is still possible with Google, whereas with Yahoo! their whole bread and butter is an up-front inclusion fee and then you pay per click. You pay twice."

Yahoo! denies that paid inclusion invites bigger clients to try to buy their way into search results, and it defends the CPC fees as a way to ensure more relevant results for both the consumer and the marketer. "You as a business are submitting quality URLs because you are going to pay if someone clicks on them," says Overture's Stephens. "It aligns everyone's interests."

But Goodman worries that smaller marketers could be priced off of Yahoo! because they won't be able to afford success, showing up in search results and getting clicked. Ultimately, Yahoo!'s pricing may have its eye on big media buyers who can afford to pay for a ton of URLs and all the click-throughs they generate. "It feels like a bad deal for smaller businesses," says Goodman.

While Yahoo! can offer wide-ranging bundles and a great portal experience, Google still counters with massive reach, in large part because of its Ad Sense program, which distributes Ad Word placement to tens of thousands of partnered content sites. The company claims its ads reach 80 percent of the North American online audience, and in less than a year, it has become one of the largest ad networks online, says Forrester's Li. Unlike content-heavy, eyeball-glomming Yahoo!, Google is not competing with publishers, who will continue to sign up for AdSense. Yahoo! may win portal users and even many brand advertisers, but "Google will become the dominant pay-for-performance ad network," she says. "Overture will be hard-pressed to compete."

The Google counterpoint to Yahoo! for advertisers is simplicity. Performance-based media buyers are more focused on ROI (return on investment) than ad bundles, says Armstrong. With one-stop shopping for ads across a wide network as well as an online conversion tracking tool, "we have been trying to come out with product to make the ROI in ad spending transparent," he says.

Despite its steadfast gaze forward into the windshield, Google is going to have to meet some of Yahoo!'s challenges, admits Goodman. Many buyers prefer Overture's service and online campaign management tools. Google's relevancy requirements and click-through thresholds need to be more flexible, says Goodman, so that more sophisticated buyers will experiment with ads on the system. "Overture is probably 18 months to two years ahead of Google in knowing the larger customer," he says.

The Phony War?

Search media buyers are nothing if not numbers watchers, and most agree that their money ultimately will follow the engines that deliver the best-quality traffic and highest ROI. According to Jupiter's Elliot and the advertisers he has polled, current results vary from client to client, and from segment to segment. "It's hard to figure out who is throwing out the best traffic, but both sides are getting a lot of votes." And since most search buyers say they buy on both engines, neither is going to be eating the other for lunch. "Everyone wants to sum this up as a zero-sum game, but there are two winners now," says Elliot. "They are the only two no-brainer choices."

In fact, the search market of the future may look (and cost) a lot like the TV market of 1968 - few major networks and an ad client pool that buys across all of them to ensure coverage. Search has been a small-business game thus far, and we haven't even seen what happens when the Fortune 500 start throwing cash at keywords. "I see this as all but inevitable," says Sherman. "If GM [General Motors] decides to shift 20 percent of its budget to search engines, you can bet the price of keywords will go through the roof." Sure, small businesses may get priced out of the big engines and will need to look for cheaper venues, but this is a sign of a platform maturing, he argues.

It is nice to know that the Web still has some dreams left.

Get Ready for MSN to Jump Into This Fray - By Ross Fadner

In late January, at the World Economic Forum in Switzerland, Microsoft Corp. chairman Bill Gates conceded that his media conglomerate had taken "an approach that I now realize was wrong" by ignoring the search market. He said that Google has "kicked our butts" in the search market thus far, but added with deadpan assurance, "We will catch them."

Microsoft is expected to unveil its own search technology later this year. Google should worry that its decision to do so is based on its assertion that Internet search should be part and parcel of forthcoming versions of its Windows operating system.

In fact, according to a recent New York Times report, Microsoft has implemented scare tactics against Google's employees, warning them that their future stock options will lose value once Microsoft seriously enters the search market. Despite Microsoft's willingness to flex its muscles behind closed doors, the software giant has remained coy about its plans for MSN Search. MSN product manager, Karen Redetzki, told MEDIA magazine, "It's too early to go into any depth, but know that we are committed to bringing customers a more personalized search experience."

What do they mean by this? Microsoft is experimenting with different search technologies that are purported to perform Google-like searches on an individual hard drive. The software giant is testing technology that allows people to search from a toolbar on their browser, which could also retrieve music files, emails, and links as well as materials from other applications, in addition to being able to search the Web. The new multi-channel search function is believed to be accessible directly from the desktop.

Microsoft's Schrader says that the Redmond, Wash., company was expected to make several announcements regarding MSN Search at the MSN Strategic Account Summit in late March, as MEDIA went to press.