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Evolution at Yahoo!

Yahoo!'s partnership with Google not only gives it the best search engine technology on the Web, but it highlights the strength of Yahoo!'s business model. It outsources work to the best companies and profits by bringing it all together under one umbrella. Yahoo! grows as the Internet grows.

By Rob Landley (TMF Oak)
July 6, 2000

A year ago in this column, I mentioned that I preferred Google's search engine technology to the one Yahoo! (Nasdaq: YHOO) was using. Last week, Yahoo! selected Google to be the new search engine powering its search site. I love being ahead of the curve.

This is an obvious move for Yahoo! on several levels. Google is not only the fastest-growing search engine on the Web, it has recently become the largest as well, with over a billion separate Web addresses indexed. Yahoo!'s own print magazine Yahoo! Internet Life voted Google "Best search engine on the Internet" a while back. And, as I'll discuss in a moment, Google's technology is likely to scale extremely well as the Internet grows.

But this also drives home a point I've written about before. Yahoo! is not just a search engine anymore. Yahoo! started as a search engine, and that was its core business for a long time. But Yahoo! outsourced it long before the Google deal. Google replaces Inktomi (Nasdaq: INKT), just as two years ago Inktomi replaced Yahoo!'s first search engine partner, Altavista. Yahoo!'s original search technology was a team of librarians sorting through links submitted by users. This didn't scale well beyond a few million websites. To grow, the company needed the flexibility to change, and it has done this remarkably well.

Yahoo! has grown beyond its original role as the first widely known website directory to become a diversified indexer and integrator of other people's content. Does Yahoo! own a stock research firm to power quote.yahoo.com? Does Yahoo! have cartographers on staff to power maps.yahoo.com? No, it outsources the majority of its content, bringing together other people's offerings under the Yahoo! umbrella. The map site is powered by MapQuest. The investing site integrates content from many partners, including The Motley Fool.

What Google brings to the table is the best search engine technology out there, probably the biggest jump in Yahoo!'s search capabilities since Altavista supplemented Yahoo!'s user-submitted sites with automatic "follow the links from each page to find new pages" Web-crawling. Google's underlying infrastructure is possibly the world's largest cluster of Linux boxes, which serves up pages to users and does similar Web-crawling to find new sites. To scale to a higher load, Google's engineers can easily add more boxes to the cluster or replace existing boxes with faster ones.

Google's indexing method also scales with the size of the Internet: The results are sorted based on how many other sites link to them. The Internet itself determines how important each search result is; all Google has to do is process the information. Neat idea. (Gratuitous patent-on-the-obvious pending, of course.) And Google was also the first search engine I know of to let users view the cached copy of the page (the one Google keeps so it can search for keywords), so that even if the page is no longer there or has changed, the user can see what Google's search turned up for them anyway.

What Yahoo! brings to the table by partnering with Google is a huge and fairly loyal customer base that has come to depend on Yahoo!'s well-earned reputation for having the best content out there. To get the best content, Yahoo! forges deals with partners rather than trying to do everything in-house. This provides it the flexibility to switch partners when a new "best of breed" offering comes along, as it just did to turn Google from a competitor into an asset.

This ability to play well with others is a competitive asset in more ways than one. Yahoo! doesn't automatically make enemies the way a company like Microsoft (Nasdaq: MSFT) does simply by entering a new niche. Unlike Microsoft's slash-and-burn method of capturing territory, Yahoo! can partner profitably with someone else in a mutually beneficial way. For example, Yahoo!'s investing site isn't trying to muscle out other investing sites like The Motley Fool. On the contrary, Yahoo! is a source of revenue to us (as we are to them) through our partnership agreement and their licensing of our content. Several other investing websites also coexist peacefully on quote.yahoo.com. May the best content win.

This outsourcing is most valuable when it comes to growth. Yahoo! has been able to scale to an enormous amount of content and an enormous number of users because it concentrates on integration and quality control, and outsources most of the actual work of content creation. Rather than having to hire new people, Yahoo! finds companies that already have good people to do the work it needs to get done. Its own growing pains are limited to the people it has to hire to do its integration and quality control, an order of magnitude less than if it tried to do everything itself.

Considering that poorly managed growth is one of the easiest ways for a good company to crash and burn, the beauty of Yahoo!'s business model becomes clear. The growth of the Internet provides fresh customers and fresh content; Yahoo! is just the glue that connects it together.

-- Oak

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