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The Pandia Post Newsletter No. 18, July 2003

Yahoo! buys Overture

Yahoo! buys Overture, and takes over Overtures pay-per-click service as well as the AltaVista and AlltheWeb search engines.

Search engine turmoil

Here we go again: another dramatic shift in the search engine landscape. Yahoo! buys Overture.

"The combined assets position Yahoo! as the largest global player in the rapidly growing Internet advertising sector," says Terry Semel, chairman and chief executive officer, Yahoo! Inc.

"Together, the two companies will be able to provide the most compelling and diversified suite of integrated marketing solutions around the globe, including branding, paid placement, graphical ads, text links, multimedia, and contextual advertising."

Whats it all about

For those of you who are not intimate with the ins and outs of the search engine industry, here is a recap:

Yahoo! is one of the oldest search sites on the Internet and one of the most famous. It started out as a search directory, i.e. an index compiled by human editors indeed, it still is.

At the moment, however, the main search results at the Yahoo! site are fetched from a competitor: the Google search engine.

While a search directory is edited by human beings and contains listings of Web sites, a search engine index is gathered by automatic robots or crawlers‰ surfing the Web and contains a huge number of Web pages. Google is currently the dominating search engine on the Net.

Recently Yahoo! bought Inktomi, a search engine, mainly in order to gain more independence from Google. Search engine experts have long suspected that Yahoo! would switch from Google results to Inktomi results on its main site this fall.

Pay-per-click text ads

Lets go one step further: In addition to search directory and search engine results search sites also rely on so-called pay-per-click results (PPC).

These are in fact paid text ads that are added to the regular search results. They have proved to be a very efficient form of marketing, and PPC has become a major source of revenue for the search sites.

Yahoo! is relying on PPC-results from another American company: Overture, the most influential pay-per-click search engine in the World.

When Yahoo! now buys Overture, it is finally able to offer the full package: a search directory, a search engine and a pay-per-click service. In this way it may offer other portals and search sites that do not have their own technology a complete set of search features.

The main competitor, Google, already has a highly successful pay-per-click text ad service called Google AdWords.

Consequences for the searcher

What does this mean for the average searcher, who is not that interested in search engine industry dynamics?

Although some people think so, no search engine covers more than a portion of the total number of Web sites out there. Nor do they all offer the same features for advanced searching and so on. As searchers we therefore benefit from having several search engines to choose from.

Moreover, the existence of several competing search engines ensures that there is competition driving innovation in this area. Much can be done to improve the quality and accuracy of search results.

By acquiring Overture, Yahoo! has reduced the number of competitors.

Overture recently bought the AltaVista search engine as well as the Web search division of Norwegian Fast (the AlltheWeb search engine). Yahoo! will combine the technologies of Inktomi, AltaVista and AlltheWeb. So where we have three search engines we will end up with three, probably sometime next year.

This means that we will end up with two major search engines next year: Googles and Yahoos. There are other alternatives, but the bottom line is that searchers will have less to choose from.

Strengthened engineering teams

On the other hand: The combined power of AltaVista, Inktomi and AlltheWeb could become a formidable search engine and a strong competitor to Google, especially if Yahoo! is able to keep the best brain power from the relevant search engine development teams.

That is definitely a good thing! This will force Google to intensify its innovation efforts even more.

Moreover, with the speed the search engine market is changing, we will not be surprised if there appeared another competing technology.

MSNs new search engine

We know for sure that Microsoft is developing a new search engine of its own. That will take time, even if they are able to hire experts from some of the other search engine development teams. This is complicated technology.

However, if MSN is able to present its own search engine in lets say 2005, competition should be ensured.

We suspect MSN will intensify its efforts to get a high quality search engine on the ground as soon as possible, given Yahoo!s new position. MSN is now dependent on Yahoo owned technologies, both for its search engine results (Inktomi) and pay-per-click text ads (Overture).

MSN may also try to develop its own pay-per-click service, or as Danny Sullivan of Search Engine Watch has proposed buy one of the minor pay-per-click search engines and use that one as a basis for a new service (most likely the new FindWhat/Espotting company).

When will Yahoo! drop Google?

Many search engine marketers are wondering whether the recent takeover will lead to Yahoo! replacing Google results with Inktomi results any time soon, now that Yahoo! has strengthened its position in the market.

There is no reason to doubt that Yahoo! will dump Google in favor of its own technology, but not until it is certain that the quality of its own search engine results is on par with or even better than Googles. Google has proved once and for all that searchers look for search result quality, not free mail and fancy Flash ads.

It seems to us that Yahoo! is not 100 percent that Inktomi can deliver the goods -- yet.

The Yahoo! people have two options: Stick to plan A and adopt Inktomi results as soon as they are satisfied with its technology. This may happen this fall.

Alternatively, they may go for plan B, and wait until the Inktomi, AltaVista and AlltheWeb teams have managed to merge their resources. That will take a little longer. It is our guess that a new unified Yahoo! search engine cannot be ready before late next year.

If we were Yahoo!, we would wait until we were sure we had a contender to the search engine throne. The worst scenario would be loosing Yahoo! searchers to Google the moment the searchers realized they no longer get the high quality results they expect.

Yahoo Press Release: http://docs.yahoo.com/docs/pr/release1102.html
Search Engine Watch article: http://www.searchenginewatch.com/searchday/article.php/2234821

Go to part 2: Recent search engine news!

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