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January 21, 2007

A Story About Google and Yahoo

Wired unfolded an interesting story this week. How Yahoo blew it tells us how Yahoo tried to buy Google, was turned down and tried to be better than Google in search and advertising.

As Semel and his top staff sat around the table in a corporate conference room named after a Ben & Jerry's ice cream flavor (Phish Food), $5 billion sounded unacceptably high. Google's revenue stood at a measly $240 million a year. Yahoo's was about $837 million. And yet, with Yahoo's stock price still hovering at a bubble-busted $7 a share, a $5 billion purchase price would essentially mean that Yahoo would have to spend its entire market value to swing the deal. It would be a merger of equals, not a purchase.

Terry Semel -- a legendary Hollywood dealmaker, a guy who didn't even use email -- had not come to Silicon Valley to meekly merge with the geeky boys of Google. He had come to turn Yahoo into the next great media giant. Which might explain why the face of the famously serene CEO was slowly turning the color of Yahoo's purple logo, exclamation point included. "Five billion dollars, 7 billion, 10 billion. I don't know what they're really worth -- and you don't either," he told his staff. "There's no fucking way we're going to do this!"

Semel could talk tough because he had a backup plan. Yahoo would go out and buy its own top-notch search engine and its own search-advertising technology, and it would beat Google in the emerging arena of little text ads that pop up next to search results. Semel's decision to opt for this plan B was a fateful one. It was a smart play -- but Yahoo fumbled, bungled, and mishandled its execution at every step. (More on that in a moment.) As a result, Google today controls nearly 70 percent of the search-related advertising market, an industry worth more than $15 billion a year and growing at roughly 50 percent a year.

And now Yahoo's CEO regrets they didn't buy Google. Yahoo's mistake was that it didn't understand the importance of search. When web pages started to grow exponentially, they said it's just a commodity and used third-party search engines (Altavista, Google). Why invest in a technology that just sends people away from your site? Now Yahoo has a good search engine, but most of its users don't use it because it's better (it's not), but because they use other Yahoo services and it's more convenient.

1. What would've happened to Google if Yahoo had bought it?
2. What is the main difference between Google and Yahoo?


  1. 1. I think either Yahoo would have shoved Google's good ideas under the table or absorbed them wholesale.

    2. The main difference, IMO, is that Google started with a focus on search, while Yahoo started with a focus on cataloging (i.e. as a web portal or directory). The cataloging model doesn't fit well with the structure of the modern web (relational instead of hierarchical, vast, rapidly changing).

  2. 1. If Yahoo had bought Google we would have today a company that would be larger then Microsoft. Bringing together Yahoo's content and media with Google's search and technology would have created in my opinion the best company on the web. Imagine only the Yahoo Mail team and the Google Mail team working together :)
    2. The main difference is that Yahoo is a media company while Google is a technology firm. One example: Yahoo News buys the right to distribute news from the big news agencies while Google News indexes the content of different news sites and the result is Google News (they do not pay YET for this content, that's why they are being sued on a regular basis).

  3. 1. I can see yahoo branding everything of Google's and watering it down, ruining its potential value.

    2. as for the main difference, Google to me still feels like a really plain page with an excellent search engine, because that's how I grew to Google, now they have all these other features but they aren't thrown all over the front page of the website, they're neatly placed elsewhere. So I suppose the main difference is organizing, and content, yahoo definitely has more media to the front page, and honestly way more cluttered. I have to say I like how yahoo's email runs through html, and dislike how Google does it... the ajax and whatever other javascript running makes gmail painfully slow sometimes, where as yahoo breezes by on my computer.. so I don't know really, I have troubles deciding who I like in that realm.. google wins hands down in search engine ability though.

  4. 2. The main difference, as stated in the final lines of the article, is that Yahoo! is run by marketers and media folks while Google is run by engineers. I think that ultimately, companies are discovering that when empowered, people want to take control instead of being fed things, and thus a focus on technology (which empowers people) is more effective than a focus on media/marketing (which just force-feeds people).

  5. 1. What would've happened to Google if Yahoo had bought it?

    Semel is kidding himself if he thought that Page & Brin would have sold Google to Yahoo in 2001. The last time Yahoo had a chance to buy Google was probably sometime in mid 2000, before Google had rolled out Adwords. By June/July 2001, Google had figured out how to monetize search with Adwords to the tune of $85 million. And this was before Adwords featured the auction and pay-per-click features, which really started to turbo-charge search revenues.

    The Google guys at their core, are problem solvers. There is no way they would have given up the chance to really figure out how to make their search engine into a revenue machine OR sold their company and let someone else get their fingers into it and muck things up. From the perspective of their academic backgrounds, it would have been about setting precedence for solving a big open problem.

    Also, I agree with Douggie that there's no way that Page & Brin would have allowed the Google brand to be absorbed into and their technology subsumed by Yahoo. Search is a Computer Science problem, and what greater glory could there be than to be the Search Engine of choice for the heterogenous Data Structure that is the Internet?

    2. What do you think it's the main difference between Google and Yahoo?

    Google is a Search Technology Company run by Computer Scientists with commercial instincts, while Yahoo is now primarily a Media Conglomerate run by a "Deal Maker" which uses search as one of many services.

  6. Douggie,

    > I have to say I like how yahoo's email
    > runs through html, and dislike how
    > Google does it... the ajax and whatever
    > other javascript running makes gmail
    > painfully slow sometimes

    Just click on "Basic HTML" on the bottom of any Gmail page, and voila, no more Ajax :-)


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