This afternoon Yahoo released their quarterly earnings. The results were disappointing: “a dip in quarterly profit, weighed down by weak display advertising, and a weaker-than-expected forecast through the end of 2007.” Yahoo’s market cap is now hovering around $35 billion.
That may sound like a lot of money, but consider this: the founders of Google could personally buy Yahoo at this point. That right – Larry and Sergey could become a two-man leveraged buyout team and own 100% of Yahoo. Google’s market cap, by the way, is currently $172 billion – five times that of Yahoo – and rising.
The dichotomy between Yahoo’s ongoing decline and Google’s ongoing ascent got me to thinking about just how exactly Google made it to the top. Had you asked me this question a few years ago, I would have explained that Google was just in the right place at the right time. Yahoo was focused on building their portal and biz dev deals, Microsoft was worried about their next OS release, and Google launched a very useful search engine at a time when consumers were ready for a better search. Combine that with almost 100% euphorically positive buzz and Google’s success was all but assured.
Today, however, I no longer buy into that argument. The fact is, Yahoo and Microsoft didn’t ‘drop the ball’ – there was no ball to drop. When Google was launched, search engines had been certifiably proven as failed business models. Just ask employees (or worse, investors) of Lycos, Excite, Ask, InfoSpace, Magellan, About, AltaVista, AlltheWeb, eTour, or any of the dozens of other search engines that either went out of business or got acquired for pennies.
So there was no reason for Yahoo or anyone else to be worried when some Stanford geeks launched yet another search engine. For that matter, you really can’t blame Yahoo for allowing Google to power their search results. Again, search was just a feature – the real money was in creating cool content and applications.
Google simply made search cool – and valuable – again. Google was so fascinatingly strange (an “I’m feeling lucky” button?) and simplistic that consumers were mesmerized. Moreover, Google actually respected consumers – instead of pop-ups, banners, interstitials, paid inclusion, and extra fees for product usage (read: Yahoo Mail) – Google limited their pages to just a few text ads and everything to consumers was free.
Google created the perfect app – more useful, cool, and free – with a perfect business model (non-obtrusive, highly relevant advertising). It’s not surprising that consumers ate it up.
Had Google never existed, would search engines be important today? Absolutely. But not to the degree that they are now. In other words, I suspect that the absence of Google would have had no meaningfully positive impact on Yahoo’s stock price. Google created it’s own market share rather than taking away market share from Yahoo.
As Google moves into a myriad of other areas (wireless, VOIP, word processing, video, offline advertising, payment processing, etc), it’s quite possible that Google will have the same impact on these industries as it did on search – creating new markets that others had long ago abandoned.
The prominence of search engines in today’s Internet is the result of Google, not the other way around.