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How did Google become #1? Was it Larry and Sergei’s massive brainpower? Perhaps it was the plentiful free food provided to employees?

Of course, there are many reasons that explain why Google is Google, Yahoo is Yahoo, and AOL is Google, I mean, AOL. Here’s my brief list of the seven most important strategic decisions and idiotic blunders that have defined the search industry as we know it.

The Good: Super-Smart Decisions

1. Google’s partnership with Yahoo Search: June 26, 2000 – a day that will live in infamy. On this day, Google and Yahoo announced their partnership whereby Yahoo would pay Google to power search queries on Yahoo. This deal for Google was like Microsoft’s deal to provide the Operating Systems for IBM PCs. It was like getting paid to get tons of free publicity and market share. I could also put this event in the “worst events” category, since Yahoo basically gave what would turn out to be their biggest (well, bigger) competitor a desperately needed shot in the arm.

2. Yahoo’s acquisition of Overture: OK, so Yahoo created a monster by falling asleep at the search wheel for five or six years. To a degree, they redeemed themselves by acquiring Overture in July of 2003. The total acquisition price was $1.6 billion, which probably repaid itself in about a year. Just imagine what sort of trouble Yahoo would have been in had MSN or Google made this acquisition.

3. Google’s acquisition of Applied Semantics: In April,2003, Google acquired Applied Semantics, a “producer of software applications for the online advertising, domain name and enterprise information management markets” according to Google’s press release. More to the point, this acquisition was key to Google’s development of their multi-million dollar Domain Park and AdSense Distribution businesses, businesses that exceed the revenue Google makes from running ads on its own site.

4. Yahoo’s acquisition of Delicio.us: This one I admit may be a bit of a darkhouse pick, but hear me out. In December, 2005, Yahoo acquired Delicio.us, the application that allows users to “tag” their favorite sites and thus create their own personalized guide to the Web. My sense is that something like Delicio.us could be the killer app that destroys search as we currently know it. Granted, tagging still lacks the critical mass (or understanding by the public) to be too big a concern for Google, but if the next generation of Internet surfers catch on to Delicio.us, general algorithmic search engines could become obsolete! To read more about my far-out theory on this point, check out my posting on search engine death that I wrote earlier this year.

The Bad and the Ugly: File Under “What Were They Thinking?”

1. MSN’s failure to win AOL away from Google: When Google renewed its contract with AOL to provide paid search listings in December 2005, there surely was a collective sigh of relief heard in the Googleplex halls. After all, AOL provides a huge amount of traffic to Google (10-15% I think?) and it also happens to be high-quality, low-click fraud traffic, which is becoming more and more important. To me, it is simply shocking that Microsoft (who was allegedly bidding aggressively to become the search provider for AOL) didn’t do whatever it took to win this contract. Had Microsoft pushed Google out of AOL, Microsoft would have instantly become a major player in paid search, while at the same time knocking a lot of wind out of Google’s sails. Even if Microsoft had to pay two times what Google offered for this deal, they should have done it.

2. Yahoo lack of paid search technology innovation: Yahoo has been resting on its laurels ever since acquiring Overture in 2003. The Overture (now YSM) user interface is nearly identical today as it was in 1999. The YSM content network (called YPN, just to confuse you further) is still non-existent, while Google AdSense continues to dominate. Even the YSM bidding model (pure cost-per-click) is a proven loser versus Google’s yield-management cash cow. In short, had Yahoo invested in technology three years ago, they would have a lot more money and market share today. Instead, Yahoo has focused on building a traditional media empire out of Santa Monica, inviting celebrities to campus, and creating nifty TV commercials.

3. Google’s launch of many pointless features: Mars, Page Creator, Web Accelerator, Catalogs, Earth, Talk, Orkut, Base, Spreadsheet – the list goes on and on. At this point, I can’t keep up with all the new and amazing betas Google launches. Even more discouraging, most of these have little chance of every making any money, are released with oodles of bugs, and often have little actual value to consumers. I’m all for innovation, but my sense is that these releases are indicative of a lack of product leadership inside Google. Perhaps there are too many “yes men” who have convinced Google product managers that they can do no wrong. At some point, if Google keeps spreading its engineering resources across dozens of random products, the products that count – like AdWords and AdSense – are going to suffer.

Google Could Still Become Pan Am

It’s interesting to look back and say “what if.” Hey, Google has a bunch of really smart folks, they’ve developed some tremendously innovative products, and they’ve got brand value second to none. Innovation and smarts, however, do not make a company into a giant by themselves. Google made some very smart business decisions over the last five years – about which the same cannot always be said for their competitors.

Of course, I always remind my friends that the business world is a fickle world. You can be #1 today and bankrupt tomorrow. For example, if you asked someone in 1970 which airline would be the biggest in 2006, they’d probably tell you “Pan Am” (no longer in business). The same would be true for Big Box retailers (Kmart, coming out of bankruptcy), or automakers (Ford – have they been acquired by anyone yet?).

In fact, if you had tried to predict the biggest search engine in 1996, you might have said “WebCrawler” or “Magellan.” Later in the 1990s, AltaVista, Yahoo, and Excite all had their days in the sun. And today of course, Google is the search engine du jour.

So yes, Google has been smart, but they can’t rest on their laurels. Otherwise in 30 years they’ll end up in the same category as Pan Am, Kmart, Ford and Yahoo!