Yahoo's earnings plunge in wake of Google ads

Stan Beer
Wednesday, 18 October 2006 11:36

Opinion and Analysis

Although revenue for the quarter was up by nearly 20% over the previous corresponding quarter, it was way behind the general advertising growth rate, prompting an immediate perception that Yahoo was slipping further behind search leader Google in the advertising stakes.

Yahoo and Google are two different kettles of fish despite their competition for the online advertising dollar.

Yahoo, one of the original web sites, is the king of content, providing news, information and entertainment, as well as a variety of communications services, such as search, email and instant messaging. The rich variety of content and services on Yahoo's pages make it the most highly trafficked site on the web, enabling it to build an advertising business around the content. It's a traditional advertising model, abeit online.

Google, as well as being a search engine provider, is a content aggregator and is building a web services business, providing not only email and messaging, but a range of online applications, such as Google Maps, Google Earth, online office productivity tools and others. However, its main sources of revenue come from search engine marketing and ads served to publisher's websites. Google dominates in these areas.

A quick comparison of the results of the same query entered into the search boxes of Google and Yahoo will illustrate the difference between the two rivals. Typing in sports cars will reveal a variety of sponsored links in both cases. However, try typing in something a little more specialised like camping gear and the difference becomes clear. Google simply outstrips its rivals. The same thing holds true for context sensitive advertising on publisher's websites.

Yahoo is trying to improve the search engine marketing side of its business but, like Microsoft, can't seem to keep pace with Google.

Thus, Yahoo's advertising revenue continues to grow mainly as the traffic generated by its content grows. Google's revenue grows in proportion to the number of Google search queries plus the number of Web publishers that carry Google Ads on their sites. There's no prizes for guessing which is growing faster.