You had to be under a rock yesterday to miss the big news: Yahoo took a dose of poison to speed up its death. Rumor has it Steve Ballmer put on a Jack Kevorkian mask to trick Carol Bartz into the deal.
In all seriousness, search has been a confusing place from the beginning and it continues as such. I joined GoTo.com when it was entering the throes of the second phase of search. I have decided to write a different perspective on this with a little long forgotten history. It’s written from my perspective in the industry so if it comes across as self-serving or you want things more clean, just hit the Back button or go read what Danny Sullivan and Jason Calacanis wrote about the deal.
Phase 1: Netscape Built Yahoo, Excite, Lycos and Infoseek
Netscape was THE browser back in the day (I have to put it that way or my Old Internet Guy will be revoked card). It didn’t have its own search engine but it had a button you could press to get to one of the 4 main search engines. The best part was, it gave them traffic for the price of… FREE!
Mind you, Yahoo wasn’t a search engine. It was a directory that David Filo and Jerry Yang (oh, he commits infanticide later in this story) started as grad students at Stanford.
Not that many readers remember the other early players like: Excite (bought by ISP @Home and destroyed), Lycos (is that German for search?) or Infoseek (bought by Disney, renamed Go and successfully sued by GoTo over the logo before being shutdown… is Disney even on the Web anymore?), and Altavista (which was a project by Digital to prove the value of its servers. It was at altavista.digital.com. Catchy and user-friendly, huh?)
Phase 2: Netscape wants to charge
Imagine that, people realized there was money in search. The big four weren’t so keen on paying (well, the ones that were not Yahoo stuck around for a small amount). There was a group of upstarts with deep VC pockets and were willing to pay to play. GoTo.com was in there as were AskJeeves (IAC later committed “butlercide”), Looksmart (it was our goal that it didn’t look smart… sorry Claudine and Sean), Go2Net / Infospace and a few others. It was fun even if many portal execs (OK, most portal execs) thought we were doing the work of the devil.
GoTo had one thing going for it (this is the self serving part). Todd Tappin, our CFO, wouldn’t let us sign an unprofitable deal. He did let us bid them up to hurt the others, especially Looksmart. There was one deal Jeffrey Brewer, our fearless CEO, insisted that we sign and pray. It was a bet your business deal. It was, of course, Netscape.
Netscape had an annual bidding process for its search traffic. Minimum $30 CPM and maximum 15% of the traffic. I lobbied to have our offer go in at 25% and 35%. We sent in both with different CPMs and (HOLY SEARCH, BATMAN!) they said yes (after asking if we meant it). Panic. Jeffrey remained calm and said he could get the money if the deal went south. Well, the day it was announced the stock we up 40% (we went public 2 weeks prior) and, much to our surprise, it was profitable due to having 20 keywords listed whenever users saw it. That was an important point in the development of paid search. We briefly messed up the marketplace by driving traffic to specific keywords (at least when we let distribution partners do so).
Needless to say, Ask.com is the only survivor of this class (”We’re #3!!!”). GoTo and Altavista (along with FAST and Inktomi) were bought by Yahoo along with Tim Cadogan (who headed up Yahoo Search for a few years before leaving to found OpenX).
Phase 3: Yahoo Builds Google
Did I really write that Yahoo built Google? Yep. Sure Larry Page and Sergey Brin built the technology but Yahoo marketed the hell out of that thing. From 2000-2004 Yahoo continued to provide only the Yahoo Directory and had its search engine “powered by Google”. This legitimized Google by giving it credibility with Yahoo’s users who soon figured out they could go directly to Google.
Google didn’t have to pay for traffic and Yahoo’s former users didn’t have to search via navigating through 6 clicks to find a site in a directory.
Trip to Mountain View to pitch Google on paid search. Yes, we heard that paid search was not relevant and would never be on Google’s SERPs. And they meant it. It wasn’t a trick. Google’s investors later talked to Larry and Sergey and said that the fractions of a cent for Yahoo search was nice to fund development but was nothing compared to what Google could make with GoTo-like paid search. The VCs won and Larry and Sergei became billionaires.
Google figured out to sign a deal that was great for AOL (rumored to be as high as 100% of revenue plus pre-IPO warrants in Google). What did it get from that? It went from 0 to 100 (that’s in 1,000’s of advertisers) overnight as every GoTo advertiser wanted to keep the gravy train that was newbie AOL users.
Oh, MSN launched a search engine too. To its credit, Microsoft wouldn’t poach employees from its partners so Yahoo (which did) got Tim Cadogan.
Over at Yahoo, Terry Semel stepped in and asked why in hell did Yahoo not have a deal with GoTo to monetize search through text ads. Good question. My first call for GoTo (the week before I started) was to Ben Padnos at Yahoo. We spent a year and a half on a deal that got mucked with a handshake (it’s a long story about two people who used to work together and had the relationship turned upside down on this one… oh, and they didn’t like each other). Terry signed the deal and like it so much he bought the company. He didn’t like the idea that Yahoo didn’t have control of its advertiser base (Carol, are you listening? You really should be.)
Phase 4: The Death of Yahoo and the Rise of MicroLiveBing
You’ve all been following what happened to Yahoo when Jerry Yang turned down Microsoft’s $33 a share offer (Oops). You heard that Microsoft just stole Yahoo’s search business with the original Netscape-sized down payment of FREE.
Yahoo hasn’t done much to improve its search engine since Tim left a couple of years ago. Microsoft (as much as we like to knock it for its poor name choices) has been gobbling up every interesting search company it can find and has been trying to build a better search engine. Microsoft even admitted Google was better by using the exact format of Google’s search results (paid and natural). Now it’s buying marketshare.
That leaves us with Google just shy of 70% of the market (including it’s $1 billion dollar deals with AOL and MySpace), MicroHoo at around 28.5%, Ask.com with a few percent (and lots of Google AdWords results) and a few others.
Phase 5: Can there be new search engines?
I really want to say yes but I don’t see how. Back in the day (again, it’s required along with at the end of the day) search engines could start and they could buy traffic. The deals are sealed with BIG money now. They could also get press and get users. The biggest suck in this vacuum is that Google and Microsoft buy them up when they show any promise. And who amongst the giants wants to compete with Microsoft and Google? I’m hiding behind the handball backstop for this playground brawl. These guys are going at it everywhere!
Google has done a few things well.
- Google is a technology company. Yahoo was not, is not and will not be. GoTo wasn’t either. Microsoft isn’t really. By that I mean that Google produces excellent services. They are fast. They are what users want. They aren’t clunky and relying on old technology.
- Google innovates. Who cares if Orkut is only big in Brazil. Look at everything else that Google gives the world… for FREE!
- Google gives it away for free. Half of Microsoft is Windows and Office. If you wanted to hurt Microsoft, what would you do? Give away an operating system (Chrome OS) and a productivity suite (Google Docs). First Round Capital says that “if your company can take $5 of revenue from a competitor for every $1 you earn – let’s talk!” Google uses its significant revenue from search to give everything else away… for FREE! Why? People keep coming back. As much as I want to hate Google, I now have a G1, I use Gmail, etc., etc., etc.
Google isn’t great at marketing, Apple is. Google just builds great technology. It’s winning. If it keeps innovating, it has a good chance of becoming really scary (or even scarier). Think about how many entities’ livelihoods are based on changes to Google’s natural search algorithms and paid search rules. A couple of years ago I read an article on the half-life of tech leaders (I think it was by Josh Kopelman but I can’t find it). IBM’s dominance lasted for 30 years. Microsoft’s for 15 years. Google is past 7 1/2 years. Hmmmm….
I hope that Microsoft succeeds on this one. It hasn’t used its near-monopoly power well in the past. I hope that we can see the market stabilize at 60/40 or to have a real third player (kind of like how I’d like a centrist political party in this country).
My only prediction on this is that there will be a new battle for distribution. Microsoft needs more search traffic. It needs to provide a big base for advertisers to get the CPCs up and to make it worthwhile for us all to spend money there. And it needs the traffic to prove the credibility to the end users and the experts who make the noise that the general public hears. Steve Ballmer has stated that he is willing to spend BILLIONS a year on search for the next 5 years. The man is the world’s first employee billionaire. He seems to know a thing or two.
My only question is this: Microsoft is paying for the search traffic on Facebook. How is it that Facebook still provides 19% of Google’s traffic?


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