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Wednesday, September 24th, 2003

The Enemy of My Enemy is My Friend :: MSN and Yahoo vs. Google

 

Last Monday I received an Email from the Wall St. Journal. Since this is something that doesn’t happen every day, and, since the WSJ has already run the article with a quote from our correspondence, I thought it would be nice to share the email exchange with the world. :)

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Dear Jim,

I saw your article on Internet Search Engine Database, and thought you’d be a good source to talk about paid search. I noticed last week that MSN search has begun incorporating more Overture results. Seems like a surprising strategy. What do you think of it?

Carl Bialik

Technology reporter, WSJ.com

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From: Jim Hedger [mailto:jim@stepforth.com]

Sent: Monday, September 15, 2003 9:06 PM

To: Bialik, Carl

Subject: RE: Overture – MSN

Hi Carl,

Interesting moves from MSN eh? The entire SERP (search engine returns page) has changed at MSN. Note the Google-style box of paid-ads on the right hand side of the SERP. Looks a lot like AdWords placements at Google.

At this point, anything I can say is only speculation so please take it as such. It’s going to be a long answer to a short question but it is rather convoluted so…

2003 has been the year of consolidation, mergers and acquisitions, leaving only three really big players in the industry. They are, in order of size and importance: Google/Yahoo/MSN. Google rules the roost with over 75% of all search traffic going through their database in one way or another. The first thing on both Yahoo and MSN’s agendas is to capture a bit of Google’s action in one way or another.

Overture is going to be owned by Yahoo before the end of 2003 so we might as well refer to them as Yahoo/Overture. Overture, (soon to be a division of Yahoo) is trying to grow as quickly as possible, spending money like it’s 1999. They are betting their growth on the advancement of the Contextual advertising market, expecting to see at least $1billion from this market within the next two years. That is why they are setting up the European offices in several commercial hubs. They already have Korea, USA, Japan and Canada well covered. I have little faith in the long-term run of contextual advertising but that stems from the past failure of banner advertising and current search engine user habits. (I have had nothing to do with banner advertising in the past so I don’t have an axe to grind). Overture’s only real rival in this market is Google’s AdSense program. Please note: Yahoo bought Inktomi as well as Overture. Overture purchased AltaVista and AlltheWeb earlier this year, just before announcing the pending deal with Yahoo. Yahoo is out to displace Google and wants to fend off MSN when the time comes.

MSN is introducing its own search engine in the near future. Currently, MSN gets its listings from LookSmart and Inktomi. (LookSmart continues to be an independent but has its own problems – class action settlement announced today). Placing LookSmart aside for a second, let’s remember that Inktomi is owned by MSN rival Yahoo. There is a couple of business relationships between MSN and Yahoo that make using Overture results a convenient option at this point. Again, note how similar the paid content at MSN looks compared to Google’s AdWords program. MSN is going to do to Google what it did to Netscape by bulking search into their new general operating system currently codenamed “longhorn”. It is very possible that MSN will be developing their own PPC engine in the future but they will need to have their own traditional (Google-like) search engine complete first. Until then, it is a marriage of convenience, a tactic that has worked for Microsoft in the past. Aside from Overture, all other PPC programs have tended to evolve from a stable traditional search engine.

The first object is to knock Google down a couple of pegs by coping their look, style and purpose. If MSN can use Overture and Overture can use MSN to accomplish hurting Google, it seems like the old saying: “the enemy of my enemy is my friend” applies here. I expect MSN to drop Overture in the future but, as long as Google holds onto prizes that MSN and Yahoo/Overture want, “co-operative competition” is a smart business strategy for MSN and Yahoo/Overture to follow. Today Google, tomorrow the world…

I hope that covers it. Again, most of this is speculation but it is based on watching these three companies very closely over the past few years. This is by far the most interesting non-violent business story I’ve ever seen. (This is better than Apple vs.. Microsoft was) I’ve been wondering when the WSJ or any other mainstream business daily was going to take notice. The outcome of this three-way war will change the way we use search functions on the Internet and might have a major impact on the availability and commercialization of what is now public information. The implications for society at large are enormous. The implications for Google’s pending IPO are also huge. Google will need a massive war-chest to fight off MSN in 2004. That is another story altogether but MSN and Overture extending their fellowship will effect Google’s financial future no doubt. Oddly, Yahoo continues to use results from the Google database. Funny ol’ world wide web it is eh?

Yours,

Jim Hedger

SEO Manager,

StepForth Placement Inc.


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