Reports that News Corp has made overtures to Yahoo! about swapping MySpace for a 25% equity stake has led the New York Times to speculate about whether Yahoo! should exit the search business and, instead, contract Google to provide search capabilities (ironically, this would have the company performing a full-loop, as it was Google’s contract with Yahoo to provide search functionality that gave Google its initial fillip).
The article quotes Jim Breyer, a Silicon Valley VC who invested in Facebook, as saying: “They should take a hard look at the search business, and it may well be the right time to stop trying to out-Google Google”.
He’s completely right, but probably not for the reasons advocated in the article.
The primary distinction between Google and Yahoo! – which now seems firmly entrenched in their respective corporate cultures – is that Google is an engineering-led company, whereas Yahoo! is a media-led company.
While Yahoo!’s founders David Filo and Jerry Yang were PhD candidates in electrical engineering, and thus every bit as ‘techy’ as Google’s founders, Larry Page and Sergey Brin, who were graduate computer science students, both sets of founders made very different choices about the CEOs appointed to grow their businesses.
Page and Brin recruited (Dr) Eric Schmidt from Novell, a technology company with deep engineering roots. Filo and Yang, on the other hand, recruited Terry Semel, a media industry executive who was co-CEO of Warner Bros (and who admitted he was no Internet or technology expert).
Their choices of CEO reflected the founders’ visions for their companies – Google saw itself as a “pure” search company, whereas Yahoo! (aggressively pursuing its portal strategy) saw itself as a media company.
Yahoo! won’t be able to “out-Google Google” because they are very different companies, designed to serve very different market needs.
Search is very individualistic, egocentric and task-oriented. Media, on the other hand, is implicitly social. Consumers approach each service with different expectations, and, accordingly, expect a different experience.
The business of search is all about optimising algorithms, and Google has hired some of the best brains in the business to focus on precisely that. The business of media, however, is not about algorithms (although they do play a role in making the media experience ‘smarter’). Media is about intangible, mushy concepts like emotions, relationships, connectedness, ‘tribalism’ and other socio-cultural drivers.
Where Yahoo! has come unstuck is that while it professes to be a media services company, it hasn’t adequately managed cultural change to facilitate that vision.
It still has an engineering core, onto which it has bolted some media divisions and executives. The end result is a business environment that is not aligned with, or capable of delivering, the services and experiences its consumers expect. Nor has it been capable of creating revenue models and advertising offerings that better integrate with its products, audience and (importantly) audience behavioural patterns.
Consequently it has not been able to make significant in-roads into the gap between Google’s ability to ‘monetise’ traffic (analysts report that Google is able to extract twice as much revenue per page of content served than Yahoo!).
Yahoo! should certainly stop trying to out-Google Google, because it isn’t in the same market.