CurrentOfferings.com Story:

Yahoo and Google: Cold War redux

CNN Money, Eric Hellweg, January 19, 2004

When Yahoo announced its fourth-quarter earnings on Wednesday, investors drove down the stock price in part because the results weren't "boffo" enough.

But a small bit of news also released that day should appease the boffomongers for 2004: Yahoo will be dumping Google as its search technology provider sometime in the first quarter.

The move was hardly a surprise. The only question unanswered beforehand was when the company would do it. When Yahoo purchased Inktomi in December 2002, most observers saw it as a counterattack to the growing Google dominance.

But Yahoo needed to maintain its position as the one-stop shop for all things Internet, so it partnered with Google to provide strong search capabilities while it tinkered with the Inktomi technology to suit its needs. The Inktomi technology is finally ready, so Yahoo is finally ready to cut its ties to Google, the leading search company.

"You never want to feed your competitor," says Jonathan Gaw, an analyst with IDC.

Though Yahoo's move was expected, its timing is tough for Google. It is preparing for its upcoming IPO (maybe you've heard about it?), and with Yahoo as a partner, its technology powers roughly 80 percent of all searches on the Internet. Without Yahoo, that share drops to about 55 percent -- a precipitous fall for a company preparing for its debutante ball on Wall Street.

The elimination of Yahoo as a partner "has a dampening effect" on Google's IPO plans, says Jeffrey Hirschkorn, senior analyst at Current Offerings.

But is the bloom off the Google rose before it even blossoms in full? No.

While the loss of Yahoo is a significant chink in Google's armor, the hit to the company's revenue is slight: Yahoo contributed only a small amount per year to Google and didn't serve Google's ads.

More painful will be the loss of the high-profile placement of its "search powered by Google" tags, as well as the service that Web searchers provided to the company's technology: Every time a user searches on Google, it helps the company refine its search capability.