June 20, 2005 7:55 AM PDT
Google vs. Yahoo: Clash of cultures
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portal like Yahoo that offers services like free Web e-mail, social networking, publishing tools, maps, shopping, news and video search, and now brand advertising sales.
"There's a constant focus on each other," said a former Yahoo employee who asked to remain anonymous. "We (would) know everything they're working on, they (would) know everything we're working on."
They're fighting over a bigger cut of the currently $8 billion global search advertising business, which is expected to be worth $22 billion in five years, according to Piper Jaffray. What's more, search ads are increasingly part of lucrative brand advertising campaigns. Worldwide online brand advertising is expected to grow 21 percent this year from $11.3 billion to $18.2 billion, according to Goldman Sachs.
So far, both companies are prospering. In the first three months of the year, Google reported revenue that doubled year over year to $1.26 billion with net income of $369.2 million, nearly six times more than in the comparable period in 2004. Yahoo's revenue during the same time rose 35 percent to $1.17 billion and net income doubled to $205 million. Yahoo's market capitalization is $51 billion; Google's is $76 billion.
But the approaches these two companies are using to go after the same advertising dollars are remarkably different, and are a reflection of the skills of their top executives.
Semel shakes up Yahoo
Semel arrived at Yahoo at perhaps the lowest point in its history, replacing popular chief executive Tim Koogle four years ago. He brought with him a reputation as a no-nonsense businessman with an eye for the big picture and a Rolodex filled with Hollywood contacts.
A year later, Semel brought in Dan Rosensweig as the company's chief operating officer. Rosensweig, a former executive at CNET Networks (the publisher of News.com), clamped down on spending and made individuals accountable for the profitability of their divisions.
That's not to say they didn't spend aggressively on acquisitions. From 2002 to 2003, Yahoo bought search engine Inktomi for $235 million, employment site HotJobs for $436 million, and commercial search pioneer Overture Services for $1.7 billion.
Yahoo has taken a less financially risky approach in the last year despite its growing profits. It's been systematically examining and buying upstarts in up-and-coming markets. An example is last week's acquisition of voice over Internet Protocol (VoIP) company DialPad. Others have included the photo-tagging site Flickr and e-mail company Oddpost. All the recent acquisitions were so small they didn't significantly impact earnings, so financial terms were not disclosed.
Yahoo, many analysts believe, is entering a new era as a media company rather than a tech innovator. It's been building a Hollywood headquarters and an entertainment team under newly hired Lloyd Braun, a former ABC executive. Sources say that Semel will spend more of his time there. In Hollywood, the company will be in a better position to strike partnerships, license content and create new original programming.
That's not to say Yahoo is ignoring its own technology, which proponents say gets the short shrift when compared with Google. When Yahoo acquired Overture, it also landed AltaVista, one of the oldest search engines on the Internet, along with Inktomi. Top-notch engineers came with the acquisitions. Yahoo also recently hired Ysama Fayyad, a rocket scientist from NASA's jet propulsion team, to head up its research labs.
"The technical skill that it takes to scale (products) for 400 million users is something Yahoo hasn't been given credit for in the past. It requires rocket science," said Yahoo spokeswoman Joanna Stevens.
Yang also spearheaded an effort to attract top engineering talent.
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