Google Took Different Approaches Than Yahoo
July 25 2016 - 8:02PM
Dow Jones News
By Jack Nicas
In early 2000, Yahoo Inc. stood at the internet's pinnacle,
commanding the world's most trafficked website and a $125 billion
market value. Around that time, an upstart called Google was
emerging as a destination for search.
Today, Google parent Alphabet Inc. is the world's second most
valuable company with a market value of $516 billion and a profit
last year of $16.35 billion. Yahoo, which posted a $4.36 billion
loss last year, agreed to be acquired by Verizon Communications
Inc. on Monday for $4.8 billion.
A number of factors led to their diverging fates, but at the
core of Google's triumph over Yahoo has been a consistent
management team that focused relentlessly on technology serving its
massive online-advertising business. Yahoo, by contrast, vacillated
across six chief executives who often emphasized content over the
technology itself, leading to a blur of business models.
Unlike Google, Yahoo's origins aren't so much rooted in
technology as they are human curation. In 1994, Stanford University
graduates Jerry Yang and David Filo amassed by hand an index of a
few hundred websites that floated disconnected on a nascent
technology called the internet. They hired dozens of workers to
sift through requests from websites to be added to their directory,
and added services like news, email and chat rooms to bolster their
position as the web's portal.
Fellow Stanford grads, Larry Page and Sergey Brin, took a
different approach with Google. They built a complex software
algorithm that "crawls" the internet to collect content. It was an
entirely automated approach that quickly outperformed Yahoo's index
and scaled far more easily as the internet exploded.
Indeed, in 2000, it hired Google to power its search engine.
"Google built up great expertise in automated-search technology
and Yahoo tried to continue along using human beings to catalog the
web," said Danny Sullivan, founder of the website Search Engine
Land. "And by the time (Yahoo) tried to reverse course, Google had
solidified itself as the top search engine."
Google's leadership team -- the founders and then-CEO Eric
Schmidt, all trained computer scientists -- stayed focused on
search. The quality of Google's search engine attracted millions of
users who revealed their needs and interests via their queries.
Google sold ads in its search results, boosting its revenue by
creating an auction for the space that encouraged relevant ads,
leading to higher prices and more ad clicks.
That ad business has become one of the biggest success stories
in modern commerce, fueling nearly 90% of Alphabet's $75 billion in
revenue last year.
Yahoo saw that success and tried to reverse course, purchasing
search and ad-technology firms and exiting the Google partnership
in 2004 to set up a competing business. But Yahoo couldn't gain the
same traction with advertisers, and continued pursuing revenue from
media strategies. Yahoo's current CEO, former Google executive
Marissa Mayer, tried several efforts, including paying $20 million
to broadcast an NFL game, but couldn't halt revenue declines.
Messrs. Page and Brin, known for emphasizing engineering skills
in the company's workforce, drove the focus on technology. That led
to seven products with at least a billion users, including maps,
Gmail, and its Android smartphone software. Virtually all funnel
users into Google's ad business.
Larry Kim, founder of internet marketer WordStream Inc.,
recalled Google founders asking him to come up with complex
algorithms during a job interview in 2001. "These were
sophisticated computer-science questions for an entry-level
programmer job," he said. "The company takes on the DNA of its
founders."
Messrs. Page, Brin and Schmidt still run Alphabet and control
the majority of its voting stock, helping keep its path consistent.
The executives say they formed Alphabet to search for the next big
technology business.
Yahoo, meanwhile, has hardly innovated since its peak, analysts
said.
Write to Jack Nicas at jack.nicas@wsj.com
(END) Dow Jones Newswires
July 25, 2016 19:47 ET (23:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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