Is Yahoo Gaining on Google?

Google (Nasdaq: GOOG) has been knocking the cover off the ball for the last three years – showing increasing revenues, profit margins and market share gains, quarter over quarter.

The company can't be stopped ... or can it?

The company that really started it all, Yahoo! (Nasdaq: YHOO), is on a mission to topple the search giant and reclaim its crown as the king of the Web.

Some people are skeptical. They think that Yahoo! (YHOO) just doesn't have what it takes to reach the scale and success of Google (GOOG) in the search advertising business.

But this writer thinks that "some people" are wrong. Let me tell you why:

First, in a recent study by Compete.com, Yahoo! has shown to consistently get higher click through rates on its search results. Meaning, if you go to Yahoo! and type in a search term, you're more likely to find a result that strikes your interest than on Google. This essentially means that Yahoo!'s search results are getting to be more relevant than Google's.

Now if this study is accurate and Yahoo! can start delivering better search results, the company will also start to get a larger share of the search market, which means a larger share of the search advertising business.

And while Yahoo! continues to gain a larger share of the search advertising market, the company is also monetizing its searches better with its new Panama program. This was Yahoo's response to Google's successful AdWords program that has made it the runaway success story of this decade.

Is Yahoo! a Buy Right Now?

As far as buying the stock right now, I still see some risk.

For one thing, Google isn't a competitor to be taken lightly, as we all know how well they've executed in this space.

But more importantly than that, Yahoo!'s stock price is approaching a long term resistance level of $30 - $31 per share.

However, if the stock breaks that level on significant volume, then I'd be a big buyer with a price target of roughly $40 per share.

Definitely keep an eye on this situation, because I certainly haven't written Yahoo! off yet, and neither should you.

Disclosure: none

Comments

[grs44:]

I agree. I used to hate Yahoo and their searches. If you have used them lately you will see a lot of changes, not only in look and feel (which they cleaned up), but their search results are very good and different from Googles, and some might say more accurate. They still have too many paid sites showing up for every search, which takes up page space, but they have to pay the bills somehow.

They could catch up to Google, but not only is Google a tough competitor, long term trends are difficult to change. Yahoo has to get the attention of the ad buyers out there, and Google is now the "safe" bet out there. Nobody gets fired for buying from Google. For now, Yahoo is a bit more risky. But this market can change quickly. It would be foolish to not keep an eye on Yahoo. With the changes they have recently made, they are demonstrating that they can adapt and be more flexible. If you have quit on Yahoo, I might suggest you give them a try again, they deserve a look.

Remember, one knock on Yahoo was there was too much clutter on their search page, and they fixed that problem. Now Google is doing what? Cluttering up their search screens, and starting to look like the old Yahoo (Yeah, I know, you can get the classic screen on Google, but it now takes a little effort to do so).

Let the competition begin....

2007 Oct 23 10:55 AM

[STUKA:]

Sir, I am a Yahoo employee and close to the search side of the business. I agree with the general gist of your comment but would take issue here -

" Nobody gets fired for buying from Google. For now, Yahoo is a bit more risky"

I don't think anyone got fired for buying from Yahoo either. Its just that Google came along as a better alternative and yes, the staus quo favors Google.

2007 Oct 23 06:21 PM

[grs44:]

I agree. I used to hate Yahoo and their searches. If you have used them lately you will see a lot of changes, not only in look and feel (which they cleaned up), but their search results are very good and different from Googles, and some might say more accurate. They still have too many paid sites showing up for every search, which takes up page space, but they have to pay the bills somehow.

They could catch up to Google, but not only is Google a tough competitor, long term trends are difficult to change. Yahoo has to get the attention of the ad buyers out there, and Google is now the "safe" bet out there. Nobody gets fired for buying from Google. For now, Yahoo is a bit more risky. But this market can change quickly. It would be foolish to not keep an eye on Yahoo. With the changes they have recently made, they are demonstrating that they can adapt and be more flexible. If you have quit on Yahoo, I might suggest you give them a try again, they deserve a look.

Remember, one knock on Yahoo was there was too much clutter on their search page, and they fixed that problem. Now Google is doing what? Cluttering up their search screens, and starting to look like the old Yahoo (Yeah, I know, you can get the classic screen on Google, but it now takes a little effort to do so).

Let the competition begin....

2007 Oct 23 11:48 AM

[GRiddick:]

Hi Wayne,

Good article. I have watched these two closely over the past three months as well. I like what I am seeing at Yahoo.

Even though Google has gained more market value (over $50 billion) in this time period than Yahoo is worth, things change on a dime in this tech industry. I know. I have been in it for over 30 years. Did someone say "dinosaur"?

Things won't change based on who's search screen is the most cluttered. They could, however, based on any of the following:

- Advertisers lose faith in the integrity of the technology middleman. I see this happening already with Google, as most of the major media, entertainment, communications, and other technology companies seem to be turning against the folks from Mountain View.

- The lack of respect for the laws of this country, and a total lack of respect for the copyrighted works of others, starts to turn practically everyone except the "copyleft" crowd against them. The vast majority of people in this country still try to follow our laws and seek to pay a fair price for their use of copyrighted works. When Google gives everything away for free (even when they don't have the rights to do so) without financial penalties or other recourse, it disrupts the balanced economic system in this country enormously. I have not witnessed Yahoo following Google on this trend towards rampant Internet piracy and an obvious attempt to establish new "laws" applicable only to the Googlites and their partners.

- "We're Number 1 Syndrome". This is when arrogance, corporate greed, hypcocisy, and other unethical business practices become the norm rather than the exception. It happens all of the time in this society. The Dallas Cowboys caught it. The LA Lakers got it. So did IBM, AT&T, and Microsoft. Apple may also have it now. And we won't go into Enron or Worldcom ... we don't have time.

Wayne, I have noticed recently that copyrighted material remains in the Google image search system long after it is taken down by the pirating web site publisher. Do you suppose this is because advertising revenues continue to be derived from such unlawful activities?

How many legitimate advertisers do you think will stand by and tolerate this kind of unlawful behavior once it it exposed. Google has some tough times coming. Believe me. If there was ever a time to keep a close eye on "number 2", it may well be this fall, winter, and spring.

Viacom is just the tip of the infringement iceberg that the USS Google seems to have willingly steamed into in the dark of night.

If I were Yahoo, I'd be ready to send in some life rafts.

George P. Riddick, III
Chairman/CEO
Imageline, Inc.

[e-mail]...

2007 Oct 23 12:13 PM

[Tom B:]

Yahoo has some merit. Flickr is FANTASTIC. Yahoo Finance is still way uglier than Google finance, but it works better.

But I WISH yahoo would upgrade their news videos. They only work sometimes; YouTube and Google video work EVERY time. And YouTube is upgrading from Flash to H.264, which has much higher quality.

2007 Oct 24 09:04 AM

[Tom B:]

Yahoo has some merit. Flickr is FANTASTIC. Yahoo Finance is still way uglier than Google finance, but it works better.

But I WISH yahoo would upgrade their news videos. They only work sometimes; YouTube and Google video work EVERY time. And YouTube is upgrading from Flash to H.264, which has much higher quality.

2007 Oct 24 09:06 AM

[cameronm:]

I suspect Yahoo results are "improving" only because everyone is gaming Google results so heavily that it degrades them. it is not clear how Yahoo results would hold up to the same degree of SEO manipulation.

In terms of Yahoo catching Google you are completely dreaming. There is no way that will happen because of the huge monetization advantage Google has. Maybe Yahoo today converts more searches into click throughs but Google makes DOUBLE per page view what Yahoo does. Double. That is a near impossible hill to climb. Imagine competing in a business where your competitor which is much bigger than you are can charge double what you can for the same product/service. Note they don't charge advertisers double what Yahoo does, they just make double what Yahoo does per user page view....

Google may implode, but no one is going to take them down in core search anytime soon.

2007 Oct 24 12:55 PM

[cameronm:]

I suspect Yahoo results are "improving" only because everyone is gaming Google results so heavily that it degrades them. it is not clear how Yahoo results would hold up to the same degree of SEO manipulation.

In terms of Yahoo catching Google you are completely dreaming. There is no way that will happen because of the huge monetization advantage Google has. Maybe Yahoo today converts more searches into click throughs but Google makes DOUBLE per page view what Yahoo does. Double. That is a near impossible hill to climb. Imagine competing in a business where your competitor which is much bigger than you are can charge double what you can for the same product/service. Note they don't charge advertisers double what Yahoo does, they just make double what Yahoo does per user page view....

Google may implode, but no one is going to take them down in core search anytime soon.

2007 Oct 24 12:55 PM

[User 116468:]

"Google may implode, but no one is going to take them down in core search anytime soon."

That's what they said about Netscape in the browser wars.

2007 Oct 24 04:44 PM

[PC&G:]

CEO Jerry Yang issued a 100-day process to start turning Yahoo! around, and look what happend......it worked. People pay attention when a sick man sits up. The management at Yahoo! are extremely creative and innovative ( www.newsvisual.com/new... ).....of course, the same thing could be said for Google ( www.newsvisual.com/new... ) As some mentioned here already, what will most likely bring Google down (and, as much as I love Google, it can't stay on top forever people, sorry) will be either complacency or failure to respond appropriately and timely enough to a new product.

2007 Oct 24 05:47 PM

[colonialpizza:]

What an exercise in wishful thinking... Even if Panama is the greatest thing since sliced bread (which it definitely isn't), YHOO has a small (and shrinking) share of worldwide searches -- i.e. not enough searchers to run through its CPC marketing engine. YHOO's banner business is decent, but its best days are behind it as social networking sites dramatically dilute the value (and thus the pricing) of a pageview. In addition, its profitable deals with carriers like ATT are just about expired. These deals are actually a significant slice of YHOO's revenue pie. If you want to talk about YHOO's Asian assets, now you're talking about something interesting and actually valuable. Kind of ironic that these assets, which investors seem to be most focused on at YHOO these days, are the very same assets that YHOO hasn't enough managerial control over to screw up. Believe it or not, I am rooting for the company, but it's hard to imagine how a company with so many things going for it can continuously mess up so bad.

2007 Oct 26 08:32 PM

[wtanaka.com:]

click through rate is not a good metric. it could be that yahoo users don't understand the difference between ads and results, or that yahoo's ads more confusingly look like results

2007 Nov 02 05:59 PM