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Analysis
Sad for Yahoo,
Gain for Microsoft
by
Prasanto K. Roy
A sad
day for Yahoo! That's the consensus -- a rare one -- across both global
technology and investor communities. Yahoo stock dropped 10 percent,
Microsoft rose one percent. For once, the markets may have got it right.
The decision to work together on their search engines is a big mistake
for Yahoo, and a small gain for Microsoft.
But it was coming, even if we didn't see exactly this 10-year deal in
which Microsoft's Bing will power Yahoo Search.
When Yahoo India started shopping for public relations services
recently, I had a number of phone interviewers asking what I thought was
great about Yahoo. I had to say: Nothing. There is no outstanding
feature or technology I could think of. But there were so many where
they led the way, to give it up to others.
Yahoo is nowhere in search. They gave that up to Google, the company
that was powering Yahoo Search in the early years of this decade. Even
Microsoft overtook them -- something few would have imagined was
possible. Google, Microsoft Bing and Yahoo have 60 percent, 16 percent
and 10 percent of search traffic, according to a major web analytics
firm.
Yahoo was early into mail, communities and mobile tech. But it couldn't
hold its lead. It's strong in its finance portal and Yahoo groups, but
not enough to sway users away from the search-centered Google, which has
rapidly gone past Yahoo, investing in Gmail, maps, mobile, and a range
of other tech ahead of the curve. Yahoo missed the writing on the wall
about the power of search, something Google saw and used effectively --
creating its Gmail offering centered on its then-path breaking 1 GB free
space and Google search.
What happens in India? There is little effect. With or without the deal,
Yahoo could have made an impact on this virgin market, but it didn't.
India's Internet business itself is limited by low penetration of
personal computers and Net connections. There are just over six million
broadband connections. But the real excitement is in mobile, with well
over 400 million subscribers. And one tech industry group has set a
target of 100 million broadband connections by 2012.
This is, thus, the land of opportunity. These new broadband users will
not be tied to Google and could be swung by innovative bundles and deals
that Yahoo could, in theory, push aggressively. In practice, it has not
done any such thing.
At even 50 million, the likely mobile-Internet users, who aren't tied to
a Google legacy on the phone, could have been virgin territory for Yahoo
to tackle. It did not. It did go for some early tie-ups for mobile
search but again has been overtaken by Google on a host of mobile
applications such as mail, maps and location-based social networking.
Yahoo also has some 500 research and development (R&D) engineers in
India, and they are unlikely to be affected, except that they won't be
doing any search-related R&D. Yahoo has taken the tactical, but
strategically flawed, route all through: Outsource core search tech,
invest instead in marketing.
It outsourced search to AltaVista, then turned to Inktomi, and then
finally, to a start-up called Google, even promoting the latter's brand
on its search page. That's where the world learnt of Google. And it's
all back full circle. While worrying about what price to sell to
Microsoft at, Yahoo appears to have slowed down on innovation and R&D
even further. It is back to outsourcing its search. This time, Microsoft
Bing will power Yahoo Search.
The charitable view, however, is that search was a lost case for Yahoo
anyway. And that this deal will let them stop worrying about the lost
case and focus on what they could still recover -- communities, social
networking, all the things they they were strong in. Yahoo was once the
place to hang out. Today, that's Facebook, MySpace, Twitter.
Supporters and some analysts say that Yahoo can now put all its
attention on recovering lost ground in communities and social
networking.
I'm not so sure. With neither business savvy nor great tech backing it,
Yahoo lost its way. The first mover got left far behind. This will not
be an easy catch-up game for Yahoo.
(Prasanto K. Roy is chief editor at CyberMedia Publications. He can be
reached at pkr@cybermedia.co.in and twitter.com/prasanto)
August 3, 2009
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