How Yahoo and MSN are scrambling to slow its search-ad juggernaut
When Google Inc. released its first public financial statements two years ago, investors weren't the only ones blown away. Sifting through paperwork, number crunchers at rival Yahoo! Inc. were stunned to realize just how much more profit Google generated, compared with Yahoo, from its system of selling ads on Web searches. Yahoo lurched into action, shoveling engineers and research dollars into a massive project for an overhaul of every aspect of its search-ad business, from the underlying hardware and software to the methods and algorithms used to select the most lucrative ads.
Code-named "Panama" for its goal of narrowing the gap between the competing ad networks, the project has pulled in hundreds of Yahoo specialists, many of whom constantly shuttle back and forth between advertising offices in Pasadena, Calif., and the Silicon Valley headquarters. "It has been the single most important project inside Yahoo over the past two years," says Ali Diab, a former Yahoo executive who left in January to join investment bank Roth Capital Partners LLC.
Now Yahoo and No. 3 search engine MSN are about to launch their long-awaited Google counterattack. In May, Yahoo will roll out a revamped technology foundation, including a more robust system of servers and software, followed later this year with improved ways to manage and rank ads. Microsoft Corp.'s MSN, meanwhile, will go public with its first search-advertising network, dubbed adCenter, in early May. Both efforts offer a peek into the hidden half of the search wars: While Yahoo and MSN may not be able to keep pace with Google's popularity among users, they hope at least to blunt its lead in revenues per search.
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