Can Yahoo! catch Google?
Yahoo! is one of the top 20 Innovators comprising the The Innovation Index, and is leading the top 20 Innovators in stock performance gain in 2007.
Here is Mac Greer's analysis on whether Yahoo! can catch Google, and his interview with David Vise:
--------Mac Greer analysis and interview-------->
According to preliminary reports, Yahoo Inc. (Nasdaq: YHOO) is recording some early success with its revamped search business, Project Panama. Online measurement company comScore Networks reports that since Yahoo! launched its new search business on Feb. 5, 2007, its click-through rate increased by 5% after its first week (ending Feb. 11) and another 9% after its second week (ending Feb. 18). But can a new and improved Yahoo! catch a tried-and-true Google (Nasdaq: GOOG)? I recently talked Yahoo! and other search-related business with Pulitzer prize-winning reporter David Vise, a senior commentator with breakingviews.com and the author of The Google Story.
Yahoo vs. Google
Mac Greer: David, Yahoo! recently launched what whey call their Project Panama, a new ad-ranking algorithm aimed at improving Yahoo's paid search. Do you think Yahoo! can compete with Google in paid search, or has the horse left the barn?
David Vise: I think that Yahoo! is a No. 2, but I think Google is a runaway No. 1. Google is synonymous with search. Look up "Google" in the dictionary, and it is the noun that has become a verb, "to Google." Yahoo! does have a space in search that is enviable to many people, but in reality, when you look at the numbers in terms of search, Yahoo! has less than 25% of the share. So Google is more than double its closest competitor, and that gap is growing.
Yahoo! has another problem with Project Panama that it is seeking to address. That is, Google is far better at converting searches and clicks into dollars than Yahoo! And Yahoo!'s ability to convert clicks and searches on Yahoo! into bottom-line profits has been very poor, and the company CEO, Terry Semel, has admitted as much. So it will be interesting to see how much Yahoo! can close the gap with Project Panama, and to the extent that it fails to do so, Google's lead will only widen. Remember, Google profits about 50% from searches done on Google.com, but it is the tremendous network that Google has created of literally hundreds of thousands of websites around the world that accept its ads and that it shares revenue with generously that give it a tremendous amount of market clout that goes well beyond its owned and operated sites.
MG: And David, I was stunned to see this stat from Piper Jaffray: Google earns two to three times as much on every user search than Yahoo!?
DV: That's right. It is a stunning figure, and you can bet that while Yahoo! is very publicly rolling out Project Panama, Google is very quietly also doing things to ramp up and improve its monetization of search. That kind of an edge between a No. 1 and a No. 2 in an industry increases the gap so widely that one could envision a time when you get to the point where Google essentially has little or no direct competition and where it really is in a monopoly position, as far as not only the information people are looking for, but also in terms of dominating Internet advertising.
MG: And if Project Panama doesn't take off, can we assume that Yahoo! CEO Terry Semel may not be Yahoo! CEO Terry Semel?
DV: Yes, I would say Terry Semel's future as the CEO of Yahoo! is tied directly to the success of Panama. If Panama succeeds, Semel is the CEO. If Panama goes down, Semel goes with it.
<--------Mac Greer Analysis and Interview--------
NY Times ran a story on the launch of Project Panama on Feb. 5. In this story, "Terry Semel acknowledges that Yahoo was late in starting the project (Panama). He said that happened partly because Yahoo's search advertising system, which the company acquired through its takeover of Overture Services for $1.6 billion in 2003, was performing well, and it took time for executives to realize just how much better Google's system was." ''Panama is a foundation for us to start sewing together all our advertising assets,'' said Tim Cadogan, vice president of Yahoo Search Marketing. Cadogan is also a realist. He believes the initial version of Panama will not get Yahoo! ahead, rather make Yahoo! compete more effectively versus Google.
Yahoo!, perhaps coincidentally after the launch of Project Panama, also began seeing more clicks directed at sponsored search ads, which generate more revenue than algorithmically generated ones. Sponsored clicks represented 10.6% and 11.1% of total click volume in the weeks ending February 11 and February 18, respectively, up from 10.1% during the week of February 4, according to comScore. Perhaps Project Panama is positively impacting the overall Yahoo! advertising business.In an unrelated story today, Yahoo Inc. (YHOO) Chief Financial Officer Susan Decker was appointed to the board of the venerable Berkshire Hathaway Inc. board. Berkshire Chairman Warren Buffett indicated that the board was looking for someone who was "owner-oriented, business-savvy, interested and truly independent."
Bottomline:
Yahoo!, beginning in late 2005 and 2006, has assembled an experienced team of managers, research fellows and economists to launch bold new initiatives, overhaul the search business beginning with Project Panama, and essentially take on Google in a twelve round boxing match. The first round was won by Yahoo!, the second and third round won decisively by Google; however, Yahoo! has shown that it has the staying power, and wants to now begin the next nine rounds of this long duel. This fight can easily take the next five or ten years. However, Yahoo! now wants to play this game on its own turf, and not get dictated by Google's rules. Case in point: Yahoo! Answers that won out against Google Answers. Yahoo! is also executing well on the mobile front with better, integrated solutions and key partnerships. Yahoo! perhaps has the senior management now that will methodically create the long term plan of attack versus Google. Then again, Google would make you believe that in the world of search, video, and Web 2.0, it is not the seniority that matters: rather unbridled passion and entrepreneurship. Managing and innovating through chaos is indeed the name of the game at Google.
If one takes a look at the financials, the discussion on whether Yahoo! can catch up with Google appears moot. In the quarter ending 12/31/2006, Google reported revenue of $3.2 billion; Yahoo! revenue in the same quarter was $1.7 billion. In the previous quarter ending 09/30/2006, Google revenue was $2.7 billion; Yahoo! revenue was $1.6 billion. Google quarter over quarter revenue growth is 19%. Yahoo! quarter over quarter revenue growth is 8%. A key measure is the widening quarterly revenue gap between Google and Yahoo!. The revenue gap for the 12/31/2006 quarter between Google and Yahoo! was $1.5 billion; for the previous quarter ending 09/30/2006, the revenue gap was $1.1 billion. The revenue gap quarter over quarter growth between Google and Yahoo! is a staggering 36%. If Yahoo! has to catch Google, not only Yahoo! has to increase its own quarterly revenue growth in the 25% to 45% range, but also grab market share and revenue from Google, and finally stall Google's revenue growth. Is this a lofty goal? Of course. Impossible? Nothing is. Unlikely? Only time will tell. Because it will take many years if Yahoo! is indeed going to catch up with Google.
Can Yahoo! catch Google? In ten years, would the headlines read: How Yahoo! toppled Google?
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