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Friday, April 13, 2007

Search Market Share Matters, or Why Yahoo! Needs Acquisitions Pronto

The latest Hitwise figures show Google increasing its monthly share of searches again in March, at the expense of Yahoo (down slightly), and Microsoft (down slightly).

Microsoft's numbers can be attributed to a few glitches, depending on who you talk to. A rebrand of the search offering (bad, confusing idea, I think) or difficulties with Hitwise's methodology.

Netratings estimates a slightly lower number for Google, 55.8% for February. Unlike Hitwise, they seem to assign 5% share to AOL Search. Whichever ratings agency you trust, it's clear (again) that Yahoo is in real trouble of losing its status as any kind of default search box for anyone. That would spell big trouble for the organization as a whole.

So I'd like to focus a bit further on the danger Yahoo faces if they let these numbers slip any further.

* First, they've spent too much on search to abandon it.

* Related to that, they've invested too much in Panama, which was built *primarily* to monetize Yahoo Search and only secondarily as a platform to bid on content, to lose any more search share.

* Third, search is good.

The "typing stuff into a box" thing is too important a category to cede, no matter how navigation may shift in the future. It is not good enough to say that Yahoo has a great diversified model that will make them money from all kinds of ad formats and fees. True, but it's not powerful enough to compete "unfairly" as a real heavyweight, if users stop using their properties to search.

So how to acquire enough of those searches? Big ideas grown internally aren't necessarily the way to win people over from their Google habit. So how to acquire enough momentum to re-establish it as people's habit to search on a Yahoo property for at least some of their needs?

* One way to get some of this back would be to acquire local search properties - like the very hot Yelp. You don't have to get into unfathomable social search or expensive Facebook acquisitions, under that scenario. There are some growing, fairly conventional, properties with a slight cachet of cool that are doing quite well. Get them now, before the price doubles.

* Next, keep building out those verticals. If your leading properties are losing to upstarts, acquire the upstarts purely for traffic. Then get the AdSense ads off them.

* As stated above. Acquire specially selected content sites purely because they're AdSense sites. Revamp the monetization plans of those sites.

* Make sure to internationalize your search for these acquirable properties, of course. Yahoo has certain major international holdings, but they need more.

* Biggest of all: Ask is clinging to some market share, and would immediately add several "type it in a box" type properties to Yahoo's stable. Moreover, IAC owns other vertical properties that would work to reinforce other things Yahoo is doing. Although it could be painful, there's nothing that says Yahoo couldn't launch a bid for all of IAC, sell what doesn't fit, and keep what does. Yahoo's valuation is currently about 4X IAC's. People worry about Yahoo's executive bloat, but the best way to reduce the bloat ratio is in fact to grow your overall top line and overall traffic, as long as it's strategic and as long as a lot of it is scalable search type stuff.

* Try to absorb a handful of departing, cashed-out Googlers who are somehow going to be convinced that this is a really cool challenge.

* Least likely, but a good idea for both companies: convince Microsoft to give up on search and paid search platform building. Re-partner on both fronts.

* Piss off Wall Street somewhere around Q1 of 2008, by implementing a short-term de-monetization plan across all properties to increase user satisfaction and traffic growth. Basically, spend the rest of this year studying how you can monetize your traffic *less*. In verticals, in search, in apps, etc. I know that's already happened in a lot of places, but try to hive off a little more - your effective CPM probably bounces back anyway if you're patient. (See Godin, Seth. The Dip.) Don't think Google didn't just spend the last couple of years doing that after beginning life obsessed with it. The paradox of Google's gentle de-monetization initiatives is that it made them money hand over fist in the long run.

* Finally -- though it didn't work so well for Lycos, consider leaving acquired brands intact. (It works for IAC.) If you acquire Yelp, don't fold it into your overall plan but rather let it maintain its identity for the most part. Use your leverage to distribute it more widely and improve the product.

This post brought to you by the philosophy that launched this site in 1999: while the search & traffic ownership game is not quite winner-take-all, it is something close to that. Monopolistic-type advantages will make it more likely for people to default to your offering. When you own the traffic 100%, profit margin on monetization is superb. Profit margin on brokering media is highly squeezable. There are some searches out there that neither Yahoo nor Google own. It would make a lot of sense for Yahoo to swallow the price tag now, and begin owning them.

Go big or go home!

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Posted by Andrew Goodman




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