Battelle said. "Google has undisputed network effects--huge distribution, leverage and tons of data they can feed back into the system...That is a formidable position to (have) in the market."
How we came to this
Yahoo, founded in 1995, had a three-year head start on Google when it was launched as a human-created directory. Google has always relied on software spiders to crawl the Web and create its index. Hard as it is to believe now, Yahoo invested in Google early on and used its engine to power Yahoo search results until early 2004 when it began using its own search technology.
Google founders Larry Page and Sergey Brin were unsure what business model they would use when they started their business. After snubbing merger talks in 2001 with Overture, the first search provider to use ads, Google launched its own pay-per-click model in early 2002. Overture sued for patent infringement and the case was later settled. Yahoo acquired Overture in 2003.
Except for one quarter in 2003, Google's revenue lagged Yahoo's. That changed after the first quarter of 2005, when Google posted US$1.26 billion in revenue to Yahoo's US$1.17 billion. The gap has been growing ever since.
"Yahoo is still trying to play catch-up, and Google hasn't taken their foot off the gas pedal," said Derek Brown, an Internet analyst at Cantor Fitzgerald. "Yahoo has been very slow to recognize changes in the marketplace, in a nutshell...They were late to recognize that search itself was becoming a big deal."
Yahoo executives often describe their outfit as a media company, creating and packaging content. But efforts at original content have largely been a disappointment. Yahoo announced in December that Lloyd Braun, the Santa Monica-based head of Yahoo's media and entertainment group, was leaving the company. Yahoo has also jumped on the social media bandwagon, integrating user-generated content from its large number of users into its network of sites and services, but it has failed to establish any significant partnerships with other social-networking companies to expand its advertising system.
"Yahoo seems to struggle with the idea that they should have content they own and control," said Danny Sullivan, who founded the Search Engine Land blog. "Only lately has Yahoo come to the idea that they could put ads on other people's properties. Google has done that far longer. With AdSense, Google has made the Web their playground...Their job is to take a percentage of everybody else's ad revenue."
Despite all that gloom, there are still some bright spots at Yahoo. It's still the most visited site on the Internet, and executives there say ad sales from the company's new search advertising platform, Panama, are expected to boost revenue in coming quarters. "We are very pleased with the initial progress of Panama," Chief Financial Officer Susan Decker said in an interview last week. Revenue per click, which reflects how much advertisers are willing to pay for the keywords associated with the ads, did not decline as much as was expected, Decker added.
But ultimately, as the revenue gap grows, the idea of Yahoo catching Google gets harder and harder to imagine.
"Google has an advertising platform that allows it to monetize it at a rate nobody else can," said Scott Devitt, an analyst at Stifel Nicolaus.
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