Yahoo is between a rock and Google. As Yahoo’s board decides today whether or not to accept Microsoft’s $44.6 billion offer to buy the company, we’ve argued that it really only has two choices: accept the inevitable and go with Microsoft, or outsource search to Google. Both, are in their own way, admissions of defeat and riddled with potential problems. There is another option to consider, though. That is to hit Google where it hurts by truly opening up search. I will explain what I mean below, but first let’s go through the two obvious options.
Giving up search to Google might boost profits in the short term—because Google squeezes more than twice as much money out of every search—but it would set Yahoo on a long-term path towards oblivion (see, AOL). Merging with Microsoft is clearly the better option, but it may not be enough.
Big mergers tend to fail more often than not, especially when companies are trying to combine operations as opposed to adding on new standalone capabilities. One of Microsoft’s biggest mergers was Great Plains Software, which was a success specifically because Microsoft pretty much left it alone for a couple years and let it operate independently. That is not an option with Yahoo. the merger is a collision waiting to happen. Integration is going to be rough and will slow down the merged company. Nobody believes that a combined Microsoft-Yahoo will be a nimbler competitor than either bureaucratic organization is today on its own.
Not that any of this matters from Microsoft’s perspective. The logic of the deal is to gain scale as an advertising platform and as a Web publisher. the two go hand in hand. The more Web pages and traffic you have, the more ad inventory you have to sell. Everyone is focused on search, because that is where Google is so dominant today. But remember, while search ads make up about 40 percent of Internet advertising revenues, display ads still make up about a third. And that is where Yahoo is strongest. Microsoft needs to bulk up on display ad inventory before Google’s DoubleClick deal goes through. If it can fix search, that would just be a bonus.
A combined Microsoft-Yahoo will help it compete against Google in display advertising, which is still an open game. But giving up on search is not an option. Those display ads are becoming just as contextual and targetable as search ads, and soon the market will no longer separate the two. Advertisers will want to buy both as part of the same campaign. And Yahoo actually has an advantage here because it’s advertising system is set up to do that.
Which comes back to the question of how does Yahoo, or a combined Microsoft-Yahoo, make inroads in search. Every quarter Google adds to its market share in search. It seems unstoppable. Combining Yahoo’s and Microsoft’s existing search efforts won’t do much to reverse that trend. After all, two dogs don’t make a right. But there is a long shot Yahoo can try that could just turn things around. That is to open up search in a radical way.
The only way to fight Google is to use its own weapons against it. Google enters new markets by embracing open standards in areas where it does not currently compete. But when it comes to search and advertising (how it makes money), it is a black box. If Yahoo were to truly open up search, it could rally the efforts of hundreds of thousands of outside developers to take on Google on a hundred thousand different fronts.
While it is debatable whether or not they would collectively come up with a better algorithm than Google, they most assuredly would come up with better algorithms—better search engines geared towards specific types of searches (informational versus transactional) or particular niches (health, travel, business). Entrepreneurs could also use Yahoo’s index as a foundation to create entirely new ways to search (semantic, social,etc.). And over time, Yahoo could cherry pick the best of these and incorporate them into Yahoo’s official search engine, or simply sell search ads on thousands of different search engines across the Web. Imagine each Website, with its own customized search geared towards its audience. This has been tried before but has failed for several reasons.
As one former Yahoo executive tells me: “Yahoo should just open up their search APIs and let anyone take their search without ads, and hope the ads come later. Out-open Google.” What do they have to lose?
But wait, don’t both Yahoo and Google do this already? Not exactly. Yahoo does have open APIs for search, and one of Yang’s turnaround tenets is to open up Yahoo to developers more generally. But those search APIs are limited to 5,000 search queries per day. Anything above that, you have to negotiate a special deal with Yahoo. One startup CEO who has a such a deal with Yahoo tells me, “If we had more exposure to their raw data and better access to the paid search results, including conversion rates and the data behind them, it would help us a lot. We are limited in the amount of information we actually have.”
Also, while the APIs make it technically possible to mash up Yahoo’s search results with other results, or tweak them with your own algorithm, Yahoo prohibits developers from using any “non-Yahoo sponsored search elements.” As for Google, it has its own search APIs as well. But if you take Google’s search results, you are not allowed to re-order them, and you must also show Google’s ads alongside the results.
Letting other people re-order the rankings is the key to moving the ball forward on search. Yahoo has a very valuable asset in its index of the Web and its basic search algorithm. Letting others improve upon these is the only way to beat Google in the long run. Google’s greatest strength, its almighty algorithm, is also its Achilles Heel. Opening up its search results to all comers would destroy its business model. Yahoo has less to lose and more to gain. It would still have to be careful not to give away so much information that people would be able to game its regular search results, but there are technical ways to do that.
This would not be an easy road and would require a long-term commitment that is unlikely to come from Yahoo’s shareholders at this point. Yahoo’s board seem to have already lost patience with Yang, Decker, and the rest of Yahoo management, and might lack the confidence in Yang & Co. to pull this off. But here is an even more radical idea: what if Microsoft were to adopt this strategy post-acquisition?
Openness is certainly not in Microsoft’s blood. Yet Microsoft can afford to open up search even more so than Yahoo because it makes up such a miniscule portion of its current revenues. Again, the key to using openness as a strategic weapon is to be open in areas where you don’t compete, or don’t compete effectively. If Microsoft is truly serious about this being a “transformational” acquisition, then it should take the opportunity to try to transform the search industry, not just chase after Google.
Embracing openness would also transform Microsoft in another way. Even though, startups are not as scared of Microsoft as they are of Google, they still don’t trust Microsoft. A sincere commitment to opening up search would go a long way towards winning over the hearts and minds of those “developers, developers, developers.” Yes, it would go against pore in Steve Ballmer’s body, but it would also reinvigorate Yahoo, reinvigorate Microsoft, and maybe even reinvigorate Silicon Valley.
they have to throw their search away anyway and do a semantic search engine
Great little article, I enjoyed learning about the idea of open-search. I don’t think the business will go for this as they would lose too much money up front. It’s a huge risk as well.
great post, great logic, fabulous concept….. and they won’t get it. can’t, actually, they would have to be other than they are
it’s even beyond google now
but there are a few 18 year olds somewhere, eyes alight
“two dogs don’t make a right”
what?
“two wrongs don’t make a right”
and
“two dogs make a puppy”
http://www.gabbr.com
haha this is brilliant. There’s a lot of anti-Google sentiment out there, and if Yahoo suddenly became a lot more open i think they would find a lot of allies in the war against Google.
Kudos for the article. I still think that Yahoo should merge with Ms and open their merged engine combined with a stable ad platform
Intriguing. Very. Let world-wide developers prop up Yahoo’s search position and promise. If the board can justify this to shareholders, definitely worth trying it out. The sad thing is that if they are discussing it already today and haven’t thought of this before, such intriguing proposal may surface too late.
Nice thought, but it won’t gain that much against GOOG. One monolithic API vs. another won’t really change matters.
First, Google’s open API is a joke — it’s a way to let you customize presentation of their results, nothing more. Yahoo goes further with their API, but it is still in this same vein.
If you really want to compete with Google, look at where they are vulnerable — the search index. Not because it’s overflowing with lots of system-generated spam, but because it’s centralized.
Google’s index in 2008 is the equivalent of Microsoft’s desktop in 199x. It’s centralized control of the marketplace. In the early days of PC computing, if you wanted to succeed, you tried to get onto the MS desktop. Now, you try to end up at the top of Google’s search results. Notice the similarity?
Here’s a strategy: open up the index, not the API. Expose the index, and let everyone throw every algorithm they can at it. Make the index a service I can include in my application or web site, in conjunction with someone else’s algorithm (which I can download & use). Heck, even roll in several other specific data sources to create a niche search.
Yakov, they already do have a semantic search engine. Check out their YahooGo app with OneSearch – it is semantic a hybrid of a semantic and regular search.
one of the best posts I’ve seen on TC in a long time. Not just reporting on gossip, but actually an analysis.
Please try maintain this quality.
It’s too little too late for Yahoo! Inc.
From a developer’s perspective, I think Yahoo! has the best API’s /ever/. It would be rocking if they just opened up everything they had.
Google’s don’t even compare in that respect.
Too late I guess. If they have this plan already and right now showing this to board of directors, there is a chance of buying time. But I guess writing is on the wall now….
Amazon already offers a web search platform that many developers use to test search algorithms and build custom search engines. I don’t think this idea is new. Do a Google search for Amazon Web Services.
Good post Erick.
It’s an interesting avenue that Yahoo should look at. They don’t have much to loose if they decide to give this idea a chance.
But I always felt that search was not Yahoo’s core business, it just seems that they forgot about it. They should not try to compete with Google in search, that is not their strenght.
Google is search, Yahoo is content. Monetize those page views in an effective way. Yahoo still have more visitors and page views than Google, but Google’s Ebitda(ttm) is $6.05B versus $1.35B for Yahoo. What the heck.
Yahoo is sitting on a gold mine, but they don’t realize it, Microsoft does. That is why they will do everything to acquire it. I’m just surprised they waited that long.
“Open Source here to save the day!!”
Snicker, Snicker… Sure, thousands of OS devs and users will build a better search engine, out-Googling Google, and boost Yahoo’s revenues in the next 2 to 3 months successfully thwarting an almost 50 billion dollar hostile takeover.
“That means that Open Source is on its way.
Yes sir, when there is a wrong to right
Open Source will join the fight.
On the sea or on the land,
Penguins got the situation well in hand.”
GOOGLE= The Evil Empire whose Stock will eventually tank.
Yahoo= TOP QUALITY
Microsoft= Proven long term track record
I say do the deal and tell Google the force is No Longer in their favor
WAY too long. This isn’t a magazine Erick, it’s a blog – please start acknowledging the difference.
@18, exactly I second that motion. This wasn’t even based on news, just some rant.
Great post, however its not in MS nature to pay $44b then open up the APis
The key is ‘unranked search’ – presenting search results in an open frid format onscreen, with no numerical rankings. Or presenting them in a map or relational, 3D format.
Very interesting article! I really learnt a lot abt open srch by reading it.. I definately agree with wht being said.
and I would like to see the brand MSN getting disappeared…!!
Sorry, I will go with the crowd and say: this is a wgreat and insightful article, Erick! Deep analysis of the situation! Lllllloved it!
As for Yahoo’s future: future will show; I just hope they take some good decisions in this important moment.
Erick, this was a great article.
The idea behind it is amazing and it could work as it would throw Google of guard. Yahoo could offer many search engines (algorithms) developed by users and the ones that people like will be the ones most successful. Out-googling Google, perfect.
Great idea
Similar to Doc Searl’s post from a few days ago.
http://www.linu...-openness-asset
It’s a great idea but suffer from immense technological complexity and scalability issues. Basically search engines are giant indexes. In order to support an index you need massive amounts of computing power. For every customized search engine, you would need to replicate that farm of indexes.
Wow…very few blogs i’ve ever read has been so insightful and refreshing!
I’m so tired of the typical reporting around this proposed acquisition. Finally someone that has a better vision for what’s possible! Thanks for the contribution!
I would much prefer Yahoo to go with Google. They could work to bring the giant down.
I can’t wait for all the ’social search networks’ that will spring up once yahoo opens up
Microsoft should just take the $44B, invest it in munis or something and get a 5% return = $2.2B per annum.
It should then take that $2.2B and proceed with a massive campaign of hiring everybody it can at Google.
They should call it MSNHOO?
…more seriously though….The problem is that you are betting the farm on two things:
1) an index of the web becoming a commodity
2) google sitting on its ass
While you may believe the long term effect is that Yahoo will benefit and in the short run they will suffer by opening up; I think the net effect will in fact be the opposite – they will benefit in the short term but in the long run they will suffer.
As a web user this might be fine, but as a shareholder this is not and that is what this all boils down to.
Stop thinking like a damn communist.
I’m amazed at all the clueless Google bashers. Yahoo has best APIs? Google has a single, coherence, IETF standardized API across most of their properties. Learn REST Atom protocol once, and you’re done. Yahoo and MS have a hodge-podge of incoherent APIs. Yahoo has nothing close to Google Web Toolkit, nor Google’s Javascript Expertise. Look at the brainpower behind Google Caja (Mark Miller, et al) and tell me Yahoo can come close. Microsoft Volta sucks in comparison. Google Maps is still the #1 maps API. Google Talk is based off of standard Jabber/XMPP, not proprietary chat protocols like Yahoo and MS. Where’s Yahoo equivalent of Gears?
Yahoo has one nice API, YUI, one that has been made irrelevent by people who extended it and bettered it (ExtJS for example).
One reason why Yahoo is going down the tubes, among other things, is their incoherent acquisition strategy since IPO, of buying a plethora of companies, and failing to integrate them into the Yahoo in a consistent and coherent way. Yahoo APIs are a mess, and it is unlikely that any open-source managed project by Yahoo is going to change that.
Just like IBM used Linux to compete with Windows, Microsoft could use open search to compete with Google search. Smart.
Interesting piece. An open search engine is an interesting idea, just seems like a complete nightmare to manage. And cutting out ads = insta shareholder revolt, storm the castle, pitchforks, torches, etc.
Google’s Custom Search Engine isn’t totally open, but it’s quite good at creating niche search engines. I haven’t tried altering the search results yet, but apparently it can be done:
“Another reason for uploading annotations in one of these file formats is that you can also associate scores with url patterns, a feature not currently available in the control panel or the Google Marker. These scores can be used to control the ranking of search results.”
http://www.goog...label_file.html
One of the main issues with Yahoo has been the clutering of the site.
Yahoo search is becoming comparable to googles in terms of quality but I want something that is better than googles.
With all the talent they have its stupid they havent gotten anywhere. They need a less managed approach and more creativity. Even MS can’t help in search result improvements.
They should give me 30 mil and ill sort it out for them else ill give them all the money back. Can’t say fairer than that. Shame it takes so much hardware to launch a search engine otherwise id be doing it.
“But if you take Google’s search results, you are not allowed to re-order them, and you must also show Google’s ads alongside the results.”
Hmmm…Mahalo *seems* to return Google search results when it can’t match your search term(s) but does *not* display Google’s ads in the result set. example: http://www.maha...h?search=gunite
In any event, I think Mahalo is an example of the kind of value third parties can add to search.
Look at all this yahoo-goog back and forth.
and some of you want a partnership!! bahahahaahahaaa
Great writeup. I’ve been wanting to search with something better than Google for a long time. The problem is nothing out there is better. An open search platform could produce a search better than Google’s.
I think this is the worst post and the worst set ofcomments I have read on TC. Erick – you are drinking too much before writing.
We are not talking about a deal between lucy’s pizzeria and joe’s pizzeria to compete against Pizza hut. This is MS, Yahoo and Google, and combined they have more smarter people than the many readers and writers at TC. Do you really believe that they have not thought of all the possible combinations and permutations? Also, open up the search – noble thought but the shareholder will just say – show me the money, honey!
Also, open api’s and index will only result in more crappy search engines all over the net.
I am sure ppl must have discussed it, but just to jump in the trash here, how about a combo of google’s search results and ads mixed with display ads from yahoo. That would be some deal. Yahoo gets google’s search and text ad inventory and also use their display ads inventory. If google wants to keep its page clean, they may go lick it white and right. Yahoo has never stepped back from display ads. Show them with Google Search results as well. The revenue sharing will be a fight between the two dogs, but atleast it creates more advertisers for yahoo.
It might be conflict with Google’s advertising, but i am sure they will bend a little to get yahoo’s search share and defend against MS. And yahoo gets to share revenue with G and also run its ads inventory there.
It will be interesting to see how this will work out.
Interesting suggestion Erick. I see the end goal as “being everywhere” and being open is the means to get there. This is the same strategy vigorously pursued by social networking sites.
Very interesting. I like where you head’s at Erick.
I hope the right people already realize this or are in the process of acknowledging it.
Great post!
Excellent post! Keep it coming.
Yahoo will never do it. Their problem has been an awful lack of product vision and lots of turf battles. They are dead meat.
Yahoo’s search API is way more open than google’s as it is. Google took away their much more useful soap api and replaced it with what is really just a programmable widget. They don’t allow any manipulation or storage of reults. Yahoo provides a real web service, allows commercial use (though you can’t use ads from competitors, it doesn’t rule out subscriptions or other commercial models). The query limit is a problem. There’s also a minor gotcha, in that you can’t get beyond the first 1000 search results (which is a problem for anything related to data mining). The 5k query limit obviously precludes any meaningful use of the api, for sure. Love the article – especially since I’ve been looking at this myself!
I would prefer for Yahoo to go with Google to defeat Microsoft
. It would be nice.
Great post Erick. This is the sort of coverage that I read and think about – not the same old.
Erick – Great work, let’s hope Microsoft gets the message.
Hi I am looking for info about AOL acquisition of Quigo. Would anybody know exact price? I heard numbers such as 300 and 350 million dollars, also what was Quigo revenue and profits for 2007? Any help is appreciated!
The query limit is a problem.