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Yahoo To Buy Inktomi

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If all goes as planned, Yahoo will become the proud owner of Inktomi by the end of March or earlier. The company announced its intention to buy Inktomi for $235 million on December 23.

"Given how important search is to our businesses, we really needed to control our own destiny in this space and not be dependent on any one third-party provider," said Jeff Weiner, Yahoo's senior vice president of search and marketplace.

Of course, the current third-party provider that Yahoo uses is Google, and while Yahoo denies it, the impending acquisition is a sign to me that Yahoo's long-time partnership with Google is about to break out into open warfare.

Now fully aware that search can be a major money maker, "Yahoo The Portal" wants to regain that stature it once held as "Yahoo The Search Engine" and bring in more searchers. Inktomi's crawler-based technology is likely to be a key in both helping Yahoo to attract those searchers and, importantly, help the company earn more off its search results pages.

Regaining Its Crown

Despite Google's growth, Yahoo has remained a popular search engine. In terms of search audience reach, according to Nielsen//NetRatings, it comes just short of tying Google for first place. In terms of "search hours," Yahoo is the third most used search engine. In fact, Yahoo arguably has survived the growth of Google well, so far.

Instead, to date Yahoo's real loss may have been one of perception. There was a time when Yahoo was seen as a top place to go for searching the web. "Start your searches with Yahoo," some search professionals and others would advise in the past. These days, it's Google that gets this nod, with Yahoo cited as an important second choice alternative.

To compete with Google, Yahoo needs to reassert that it is a first choice search engine. The first step toward this goal was made in October, when Yahoo dropped the "directory-listings first" model that had sustained it since Yahoo's creation. It was a move long overdue, given that crawler-based results are now able to deliver far greater relevancy than in the past.

Ironically, the change meant that Google began powering nearly all of Yahoo's web search results, rather than only some of them, as was previously the case. However, Yahoo made it clear when announcing its renewal with Google that the deal was "non-exclusive" and gave every indication that other partners would be sought.

At the time, Yahoo also promised to bring in new and innovative changes to its search results, and the company renewed those promises when announcing the Inktomi deal. While the specifics remain undefined, owning rather than leasing crawler-based technology is deemed essential to making the improvements.

"When licensing technology, there are limitations in what you can do and in the ability to differentiate and be flexible," Weiner said. "By owning your own technology, you are able to eliminate some of those issues and concerns."

Why Buy Inktomi?

If owning crawler technology is important, why own Inktomi's? Yahoo wouldn't provide specifics about other companies it might have been considering, including Google, but rather reaffirmed that it felt Inktomi was the right fit for its needs.

"We think Inktomi has world class technology, a scalable infrastructure, a fantastic team of engineers. We think they have improved the quality of their results," Weiner said. "In blind tests, we see Inktomi doing extremely well against any algorithmic [crawler-based” provider."

It's certainly true that Inktomi's relevancy has greatly improved in recent months. However, another key factor was probably that Inktomi has the longest track record with paid inclusion of any of the crawlers Yahoo could have considered, having run such a program successfully since Fall 2000.

Inktomi has 10 million paid URLs in its database, half of which produce recurring cost-per-click income. Integrating those paid inclusion listings into its search results would allow Yahoo to earn more from each search results page it serves, and it's certainly something the company is considering.

"We're committed to providing users the best experience, and to the extent that paid inclusion is improving the relevancy of query results, I think that's a distinct possibility we'd be open to it," Weiner said.

What About Google?

As mentioned, I see Yahoo's desire to acquire Inktomi tantamount to declaring war on Google. So is Google the enemy, I asked Yahoo? If it is, no one's going to say that so bluntly.

"Google's one part of our current solution, and we've been pleased with them as a partner," said Weiner.

Weiner also stressed the "flexible" and "non-exclusive" relationship Yahoo has with Google, which leaves it open that Google may remain providing Yahoo results in some way, if the Inktomi deal goes through.

As for Google, spokesperson David Krane responded with the statement that Google is telling everyone:

"We look forward to continuing to provide Yahoo with our award-winning search technology."

Yahoo's Search Future

So what can we expect to come from Yahoo in terms of search improvements? Weiner talks of enhancing the directory "blending" process and the mixture of actual answers along with search results (for example, do a search for "san francisco weather," and the actual weather forecast is embedded in the search results page).

Indeed, Yahoo has lots of specialty search resources that if blended together correctly can provide relevant results beyond web page listings, Weiner says.

"People are quick to compare Yahoo Search to other search engines. I think people come to all of Yahoo.com for various reasons. We have 25 or more different options, such as Yellow Pages, news, finance and travel. In a way, those are vertical properties that enable people to find what they are looking for. When you combine them, it's an extremely valuable compilation of assets.

Yahoo Snaps Up Inktomi for $235M
InternetNews.com, Dec. 23, 2002
http://www.internetnews.com/bus-news/article.php/1560681

Brief details of the deal.

Search Party Rocks as Yahoo Buys Inktomi
The Street, Dec. 23, 2002
http://www.thestreet.com/tech/georgemannes/10059907.html

Summary of the deal.

Yahoo to acquire Inktomi
News.com, Dec. 23, 2002
http://news.com.com/2100-1023-978692.html

Another summary of the deal.

Yahoo Plans to Buy Inktomi
New York Times, Dec. 24, 2002
http://www.nytimes.com/2002/12/24/business/24PLAC.html

A look at the deal, which touches on the issue of what's going to happen between MSN and Inktomi. Yahoo hopes MSN will stay a customer. Microsoft itself provided no comment.

With Google at gates, Yahoo arms itself
News.com, Dec. 23, 2002
http://news.com.com/2100-1023-978783.html

Should Yahoo have paid the big bucks to acquire Google rather than get Inktomi at a fire-sale price? This article looks at that issue and others shaping up, now that Yahoo is armed with Inktomi to take on Google. FYI, the analyst quote about a Google search being more effective than a directory search overlooks the fact that Yahoo stopped serving up directory-powered searches in October. For the very vast majority of searches at Yahoo, these ARE Google searches.

Yahoo Gets A 'Beautiful System'
InternetNews.com, Dec. 27, 2003
http://www.internetnews.com/IAR/article.php/1561791

Analysts ponder what the acquisition of Inktomi will mean for Yahoo's other search partnerships with Overture and Google. Overture is seen as safe (and I would agree), while Google may fall out of favor. Interestingly, it should be noted that Yahoo has never "farmed out" search, at least until last October. It has always had its "own" search technology, that of searching against its hand-built directory listings. That search technology remains but no longer is used to serve primary search results.

Yahoo's Overture economy
News.com, Oct. 16, 2002
http://news.com.com/2100-1023-962209.html

More on how Overture has helped Yahoo realize the money to be made in search.

Net companies revamp approaches to online advertising
USA Today, Oct. 17, 2002
http://www.usatoday.com/tech/news/2002-10-17-net-advertising_x.htm

Yahoo's third-quarter revenues rose despite the slump in advertising. The thanks goes to paid listing advertising revenue through Yahoo's Overture partnership, and this gives you a good idea why Yahoo and other companies are realizing that search is a money maker they can't ignore.

Inktomi fights uphill battle
TheDeal.com, Oct. 14, 2002

Ah, hindsight. Written just after Yahoo renewed its deal with Google, this is a eulogy for Inktomi from various financial analysts. One notes that Inktomi isn't going to find a buyer "in this market," while not-quoted other analysts are summarized as agreeing with this view and another says that if Inktomi is sold, "their technology is worth millions of dollars, not tens of millions of dollars." Well, that's true. The Yahoo-Inktomi deal isn't for tens of millions of dollars. It was for hundreds of millions of dollars. No one suggested Yahoo as a buyer, despite the fact that Yahoo made it exceedingly clear that Google was a non-exclusive deal.

The Bumpy Road To Maximum Monetization
The Search Engine Report, May 6, 2002
http://searchenginewatch.com/sereport/02/05-money.html

Most search engines come nowhere near monetizing all the links displayed on their search results pages. However, the quest for greater profits is likely to change this, especially if the search engines think it can be done without hurting the relevancy of their product.

A longer, more detailed version of this article is
available to Search Engine Watch members.
Click here to learn more about becoming a member


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