Long misperceived by consumers as a search engine itself, Yahoo! has actually never owned significant algorithmic back-end search technology of its own. The company, which made its name as an editorially produced directory of Web sites and went on to aggregate enough services and content to pioneer the concept of a "portal" site, has always outsourced its search technology. Yahoo!'s first search provider was AltaVista. Inktomi took over the Yahoo! account in 1998, but got aced out by Google in June of 2000 -- a move that sent Inktomi shares plunging to a day low of $113 (the issue now trades at about $1.50). But over the course of Yahoo!'s contract with Google, the increasingly popular search provider started behaving more and more like a competitor to Yahoo! and its fellow portals. One by one, Google started adding features people normally went to Internet portals like Yahoo! to find. These included directory services of its own, white pages-style phone and address look-ups, maps, Web site translation services and newsgroup access. More recently, Google has added further services that are sure to siphon traffic away from Yahoo! and the other portals: a widely praised automated news aggregation service and a similarly automated shopping comparison service. This creeping transformation has left Yahoo! and the other portals between the rock of Google's immense popularity and the hard place of its growing competitive threat. "When I talk to clients, they are very uneasy about Google," said one industry analyst, who asked not to be named. "They haven't even figured out how a Google relationship works with their business, knowing that Google is working on beefing up their services and looking more and more like a competitor." The strategic conundrum Yahoo! and other portals face in dealing with Google is contributing to a volatile dynamic in the search market, already destabilised by the growing momentum toward consolidation. "I've had some really bizarre conversations with clients," said the analyst. "Google is the elephant in the middle of the room where everyone is very wary of working with or working around them. If you talk to people at MSN or Yahoo! or AOL -- my sense is they haven't figured out how you work this. Google is this strange force within the online universe that's making everyone move kind of funny." To be or Inktomi
It remains to be seen whether acquiring a money-losing search company that relinquished its most significant business to Google proves an effective strategy, analysts say. A primary question is whether Yahoo! will be essentially shooting itself in the foot if it abandons Google's search technology, which the market in short order rewarded with the status of virtual standard-bearer. Yahoo! declined to say what effect its acquisition of Inktomi would have on its contract with Google, which it describes as long-term and nonexclusive. Instead, the company sought to portray the acquisition as the happy marriage of Inktomi's search technology and Yahoo!'s substantial reach. "This acquisition is a really compelling combination of search technology and engineering expertise with Yahoo!'s vast audience," said a Yahoo! representative. "Inktomi's engineers are really psyched because they've never had direct access to our users and (our) understanding (of) what users want. And at Yahoo!, we've never had the back-end (search) technology to be able to innovate. If you license the technology, you're dependent on the provider for the next product, the next technology. Now we'll be able to innovate." Asked whether the acquisition indicated competitive jitters about Google, Yahoo! said that its chief executive, Terry Semel, had proclaimed months ago that search was a "high priority" for the company, and that the company was "committed to being a leader in this space". Some analysts took a brighter view of Yahoo!'s prospects in the search space, while acknowledging the portal's interest in suppressing its increasingly troublesome rival. "Google faces its inevitable ouster," wrote Forrester Research analyst Charlene Li in a research note published on Monday. "With 23 percent of households visiting Google at least once a week, Yahoo! must eventually switch its search over to Inktomi to ensure that Google doesn't gain too much power." Forrester said the deal would benefit Yahoo! by providing it with Inktomi's paid search services and current clients, which include Amazon.com, eBay, and Wal-Mart. Google declined to answer specific questions about the Inktomi acquisition, but released a brief statement in response to the news: "We learned about Yahoo!'s intent to acquire Inktomi this morning. We look forward to continuing to provide Yahoo! with our award-winning search technology." Regardless of how the acquisition affects Yahoo!'s relationship with Google, it is likely to stimulate the ongoing wave of interest and consolidation in the search industry and perhaps beyond. "With Inktomi, Yahoo! makes search a strategic asset," Li wrote. Microsoft portal MSN and AOL Time Warner's America Online service "will consider purchases of their own, potentially going after FAST or AskJeeves/Teoma to strengthen their search". Even apart from the Inktomi acquisition, search appears to be recapturing some of its original cachet as the Internet's killer app. "Recently, a lot of companies have started to focus on search again as a cornerstone of the services they provide," said Stephen Kim, an analyst with comScore Networks. "The interest level has really ratcheted up with almost anyone in the space."
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