• silicon.com
• Technology
• Networks

By silicon.com, 15 January 2004 09:10

NEWS Yahoo! will drop search partner Google during the first quarter of 2004 in favour of its own technology, opening a new phase in the battle for web search supremacy.

The announcement from Yahoo! CEO Terry Semel caps more than a year of speculation over the move, which has been widely expected since Yahoo! announced plans to acquire search provider Inktomi for $235m in December 2002.

Inktomi has developed so-called algorithmic search technology similar to Google's that indexes web pages and ranks them based on search terms.

Susan Decker, Yahoo! CFO, said: "We've been hard at work with the assets that we've acquired to develop our [own] algorithmic search engine. We'll be swapping that out in Q1."

Although expected, the announcement highlights the changing market for web-based search, which has been transformed in the past two years thanks to fast-growing and profitable advertising programs.

Google currently processes approximately 80 per cent of all search requests on the web through distribution deals with AOL, Ask and Yahoo! according to market share data compiled by research firm Comscore Media Metrix.

When Yahoo! ends its deal with Google, that share is expected to drop to about 54 per cent. Yahoo!'s reach, meanwhile, could jump to 42 per cent, based on its own search traffic and a deal that provides Inktomi results to Microsoft's MSN web portal.

Analysts said the shift means that, overnight, web search will change from a near monopoly situation to a two-horse race.

Danny Sullivan, editor of Search Engine Watch, said: "Competition-wise, this sets Yahoo! up to take Google on. The minute Yahoo! bought Inktomi, the idea they were partners and friends fell by the wayside. But Yahoo! has not given consumers a strong reason to think of Yahoo! as different from Google. They need Inktomi out there to get their own voice and differentiate themselves."

The change will likely have only a small impact on Google's and Yahoo!'s businesses, at least in the short term, Sullivan said. Google earned just $7.1m in fees from Yahoo! in 2001 for providing its algorithmic search results, he said.

The real money in search comes from advertising revenues. Keyword searches made up 31 per cent of the $1.66bn in US online ad sales for the second quarter of 2003, according to the Interactive Advertising Bureau (IAB), an industry trade group.

Since November 2001, Yahoo! has run advertising search links on its site from Overture Services - which it acquired last year for $1.6bn - meaning Google won't see any loss in its advertising reach when the deal unravels.

Sullivan said "this will mean virtually nothing to Google" from a business perspective. "I don't know how much money they were making, but I'd be surprised if it was in the tens of millions. The real money in search is in ads, but Yahoo! never carried Google's ads. What you really want to understand is the reach of their ad networks. That's not changing."

Sullivan said things will get even more interesting when Microsoft gets its Web search act together, something he said he expects by the end of the year.

Jim Hu and Stephen Shankland write for News.com