In October 2015, Yahoo Inc formally entered a service agreement with search engine giant Google. This is only the latest of a series of such agreements over the last 15 years.
Google will provide Yahoo with search advertisements through Google’s AdSense for Search service (“AFS”), web algorithmic search services through Google’s Websearch Service, and image search services. The results provided by Google for these services will be available to Yahoo for display on both desktop and mobile platforms.
On a day to day level, this won’t change the lives of most users. For most of us, the procedure for starting our computers every morning works the same way: power on, check email, and either before or after that, reflexively visit a search engine. We used Google to search for 1.2 trillion items a year, according to company reports. It hardly bears repeating that Google is the dominant search engine around the world. Its use has grown to the point that much like Kleenex and Panadol, Google has turned from a valuable brand name into a genericized trademark. Companies usually do their best to avoid having that happen, but on balance Google management ought to be ecstatic with the performance of its featured service.
Google and The Also-Rans
Google made almost $60 billion in advertising revenue last year. That’s not merely from ads on Google.com, however. It also includes ads on platforms including YouTube, which generates an estimated $6 billion in revenue per year. YouTube is Google’s most popular non-Google branded website, but there are others (Blogger, Picasa, etc.) In the first quarter of 2015, Google websites earned the company $11.9 billion, according to the company’s quarterly report. Without seasonal adjustments, that extrapolates to $48 billion annually.
Around the turn of the millennium, Yahoo and Google were somewhat evenly matched competitors – for a contemporary equivalent, much like Home Depot and Lowe’s as opposed to, say, World Wrestling Entertainment, Inc. (WWE) and Total Nonstop Action Wrestling.
However, Google’s revenue is now expected to be 14 times Yahoo’s this year, as the latter has fallen from its perch as “Yet Another Hierarchically Organized Oracle.” In 2014, Yahoos search revenue was $1.8 billion, according to the company’s annual report. Relative to your average company, that’s tremendous. But for a company that was supposed to change the world, and that still maintains designs on doing so, it’s paltry.
As for the third major search engine, Bing’s parent company Microsoft Corporation acknowledges that it has 19.7% of the market. That’s a distant second to Google’s 65% but still nothing to complain about, especially considering that Bing was founded only in 2009.
The Changing Search Landscape
Yahoo, founded in 1995 and stagnant for the second half of its two-decade existence, has 13% of the search market. But it’s impossible to discuss search engine market shares without mentioning that since 2009, Yahoo’s search has been powered by Bing. This deal is scheduled to expire in 2019. (It’s best to just accept the apparent conflicts of interest among tech companies, without examining them too closely.) The consequence is that Yahoo search, despite its branding, is really just Bing with a different logo. Try it yourself. Without correcting for the geographical location of your IP address, the two search engines’ results are almost identical.
Yahoo’s market capitalization is currently $38 billion, or over $6 billion less than the offer Microsoft made in 2008 to buy the entire company. Yahoo’s then-CEO, founder Jerry Yang, held out for more than the 62% premium Microsoft’s then-CEO Steve Ballmer offered. In retrospect, Yahoo’s refusal of such a generous offer was a boon for Microsoft. The most valuable asset the Redmond colossus could have received from the deal was a search engine, which it ended up supplanting with its own resources anyway. The current search deal might be the one thing keeping Yahoo from going the way of AltaVista and Northern Light: it’s responsible for 35% of Yahoo revenues.
Cracks in the Armor?
Will Google remain atop the search market forever? Most likely not, that’s not how competition works. But we can at least speculate as to what Google’s downfall will be. Already we’re seeing it in the general societal movement from desktop to mobile. (Ads are less visible on a smartphone screen than on a laptop or desktop screen, with a corresponding reduction in cost per click.)
For Google search was originally its raison d’être. The success of the search engine enabled the company to continue a path of growth and acquisition that shows no signs of tapering off. Meanwhile, Ballmer’s successor at Microsoft is still defending Bing, stating last year that the company would not be discontinuing it.
The Bottom Line
Searching on Google remains an everyday activity for most computer users; while searching on Bing or Yahoo often means that the user can’t access Google for whatever reason. While the latter two continue to attempt to distinguish themselves from the market leader, the task of eventually supplanting Google remains formidable. But with billion-dollar revenues and profits all around, this is one race in which third place is still a big winner.
So that’s what has happened to Yahoo, still around just not the original beast it once was.
