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Yahoo! Search Update
May 14, 2004

Yahoo! executives laid out plans to rev up their Internet search engine Thursday in an attempt to chip away at Google's lead in an increasingly lucrative business. Over the next year and beyond, Yahoo! users can expect to see more- personalized searches, better local searches and searches more deeply integrated into the company's Web site, according to Yahoo! executives.

The initiative is part of the Yahoo! effort to build the Web's leading search engine, a field in which the company got a late start. Although the site has almost always had a search function, the technology was licensed from a third party. Yahoo! waited until February to develop its own search technology after its previous partner, Google, became too much of a competitor.

"We thrive on competition, and the winners of competition will be our users," Terry Semel, Yahoo! chief executive, said Thursday at the company's analyst day in San Francisco. Yahoo executives said they are working on 50 different search projects but provided only a rough outline of them. Increasing relevancy, providing access to a bigger index of Web pages (including those that change frequently, such as auctions) and providing more frequent updates were all listed as priorities.

Jeff Weiner, who oversees Yahoo! search business, talked about the importance of a local search function, the online equivalent of the yellow pages. He also spoke of customizing results so that users could find the link they want after entering a query like "Chicago," which could refer to the movie, the city or the 1980s rock band. The search function is important because of sponsored search results, text ads that appear on search results pages. Google leads the search industry, with a 41 percent share of the market, according to WebSideStory, a market research firm. In second place is Yahoo!, the Sunnyvale Web portal, with 27.4 percent of the search market; followed by Microsoft's MSN with 19.6 percent.

Martin Pyykkonen, an Internet analyst for Janco Partners, an investment research firm, said that there were no surprises in Yahoo's plans for its search business. In any case, the search wars are going to be largely won through branding, not quality, because the results of all the major players are about the same, he said. "At this point, it's less about the technology," Pyykkonen said. "It's the branding and proliferation of it into everything you do." Mark Mahaney, an analyst for American Technology Research, emphasized that Yahoo's search business is strong, despite its second-place position. He added: "I just don't think the battle is over. It's almost a duopoly."

Furthermore, Mahaney said that Yahoo! business is far broader than Google's. He pointed to the company's international business and its efforts to attract subscribers to its premium features, which include broadband Internet access in partnership with SBC, personal ads and extra e-mail storage. This was a theme that Yahoo executives stressed all day, emphasizing the diversity of the company, which three years ago relied heavily on banner ads for its revenue.

"We will change the space of search," Semel said. "But if that's all we do, we will fail."

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