Mr. Gates and the Hunt for Search
Yahoo’s grab for Overture seemed to outflank Microsoft. But wait: Bill’s search-engine strategy is not what everyone thinks.
By John Battelle, September 2003 Issue
Like TV broadcasting and the automobile business before it, the Internet media industry has now resolved to the Rule of Three. Of the scores of companies that battled for dominance in the 1990s, only Yahoo (YHOO), Microsoft (MSFT), and Google remain serious contenders. They, along with AOL (AOL), own the lion’s share of Internet advertising and worldwide English-language traffic. Yahoo’s recent acquisition of Overture (OVER) reaffirms, if the idea needed reaffirming, that Internet media obeys the same urge to consolidate as every other industry.
It proves something else, too, about this phase of the Internet’s evolution. The key driver is no longer content, but intent. The business is no longer about selling advertisers the eyeballs you’ve caught with news, images, games, and the like. It’s about selling users at the moment they make their online desires known through their search queries. In plain terms, the engine of Internet media is once again search. (That, by the way, is why I’m leaving AOL out of this discussion. Preoccupied with many other problems, the dial-up giant — a corporate sibling of this magazine — is leaving its search functions to Google.)
Search will account for more than $2 billion in advertising sales this year. It’s predicted to grow at 35 percent annually, to nearly $7 billion by 2007, according to U.S. Bancorp Piper Jaffray. Beyond the numbers, search has become the most important commercial application on the Web. Not only is it the defining task of any portal, but it’s also the preferred doorway into e-tailers like Amazon (AMZN), as well as auto, home, and dating sites. An online consumer business can no longer afford to have poor search capabilities.
By the middle of last year, both MSN and Yahoo had realized that they needed to rethink their search strategies. To profit from search, a company needs three elements, all of which Google already had. First, you must have high-quality “algorithmic” search, which attempts to match users perfectly with what they’re seeking. For years MSN and Yahoo have outsourced algorithmic search to companies such as Inktomi and Google. Second, you need a paid search network, which allows you to display links to paying advertisers alongside your editorial results. Both MSN and Yahoo had outsourced this to Overture. And third, you need your own distribution. In other words, you must own the site where the consumer makes his or her query and the results are displayed. Until recently this was the only element that either Yahoo or MSN truly owned.
By buying Inktomi last December and then Overture in July, Yahoo has taken control of the two missing elements, which arguably leaves MSN in the worst position of the Big Three. Besides having the only site of the three that is consistently unprofitable, it is outsourcing both its algorithmic and its paid search technology to a major competitor. Not exactly an ideal situation.
But aside from Netscape’s early investors, not many people have ever gotten rich by underestimating Microsoft. (more via link below)
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