Wednesday, March 19, 2008

Aiding your enemies in total world domination

For the past three days I’ve wanted to blog on the most incredible article from the front page of Sunday’s Murky News. Reporters Elise Ackerman and Pete Carey documented how Yahoo worked from 2000-2005 to help Google get established and get revenues.

Here is an excerpt:

In 2000, Yahoo agreed to use and promote Google, which it touted as "the best search engine on the Internet." Google co-founder Larry Page described the pact as a "major milestone."

The following year, Yahoo was even more generous, paying Google $7.2 million for its services. (Google in turn paid Yahoo $1.1 million for promotional help.) Google desperately needed the money, which helped pushed it into the black for the entire year. ...

The paranoid survive

The tech industry's giants - like Microsoft, Intel and Oracle - are famous for ruthlessly dealing with competitors. Not Yahoo.

In 2002, Yahoo paid Google $13.2 million, equivalent to more than a quarter of Yahoo's annual profit of $43 million. The sum, however, meant less to Google, which had blown past its benefactor with an annual profit of about $100 million.

There is also an interesting sidebar about how Yahoo once owned 8.2 million shares of Google, and Yahoo founder David Filo owned an (unspecified) personal stake in Google. The article implies that the former stake was sold for about $1.4 billion from 2004-2005.

The two have obvious commonalties. Yahoo was founded in 1994 and Google was founded in 1998 — both by Stanford Ph.D. students. The two are 5.5 miles apart (“about 9 mins”) via the Bayshore, but only 3 miles as the crow flies.

The story is how the two firms were originally complementary but eventually became direct competitors. Yahoo CEO Terry Semel considered buying Google in 2002 but gave up, and so instead bought (loser) Inktomi. There are interesting tidbits, including early warnings by lower level managers to Yahoo execs that it wasn’t such a good idea to help Google in its march to total world domination.

As with all of, there’s no figures and no tables. The online article leaves out an interesting history of Yahoo, and some comparisons of Google and Yahoo revenues (plotted below in Excel) and search market share. We tend to forget that Yahoo was bigger than Google until 2005 — the current train wreck has been relatively recent.

My coworker Randy Stross is finishing a book called Planet Google, and in an e-mail this morning said he’s already covered it in the manuscript. He's doing final edits now and the book is due in September.

We both think that Yahoo’s helping Google is an exact parallel to IBM handing Microsoft the PC operating system franchise back in 1980. However, to my mind, IBM’s complacency as a 90-year-old Fortune 100 company vs. tiny Microsoft is much more excusable than Yahoo (at age 6) assuming it could forever stay ahead of Google (age 2).

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