Yahoo! just opened a research office in Israel—it's first—in Haifa, Israel. The office is right near Google's first office in Israel; they opened a second office in Tel Aviv two years ago. Microsoft has had a major presence in nearby Ra'anana since 1989, and announced this week that they are opening an Israel Innovation Lab in Herzliyah Pituah, which will focus on applied research. It will be the only such Microsoft lab outside the U.S.
Aside from taking advantage of the rich field of R&D and internet professionals that Israel is known for, Yahoo! now has the chance to take advantage of a growing marketplace they've largely ignored. Microsoft invested more than $100 million over the past 20 years translating all its products to Hebrew—and it shows; nearly all Israeli companies host on IIS servers, write web sites in ASP and use Microsoft software exclusively. They partnered with popular Israeli brands, like Galgalatz, Israel's most popular radio station. Their search engine and MSN portal are among the most visited pages in Israel.
Google may have arrived to the party a bit late, but they quickly made up for lost time. In less than two years, Google.co.il unseated local search engine Walla.co.il as the number one search engine used in Israel. Number three is Google.com.
Yahoo! has a lot to do to catch up. They still need to convert products to Hebrew, and still have ways to go in informing the Israeli public that they exist. While Google and MSN dynamically switch directions for Hebrew searches, Yahoo does not. And for a popular Hebrew search like ××©×š×× (Israel), no PPC ads appear in Yahoo while many appear in MSN and Google. Dr. Ronny Lempel, who will head the new Yahoo! office, said the engine had no plans to translate its home page.
While I applaud Microsoft and Yahoo! for taking advantage of the “fertile ground” in Israel for talented engineers and researchers, I think the strategy of giving back to the local environment is one that makes search leaders. Maybe that's why Microsoft boasted 12.4% Year over Year growth last month and Google garnered 50.3%, while Yahoo! gained nothing. If they don't start to change something—other than just new research centers—expect this trend to continue.