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Meanwhile, onetime search leader Yahoo is spending a fortune on mounting a comeback. Yahoo bought Inktomi, a top-flight algorithmic search engine, in March for $235 million. In October it swallowed Overture, which specializes in so-called paid search (we'll get to that later), for $1.63 billion while Overture was itself in the middle of digesting two recent acquisitions, AltaVista and AlltheWeb. The plan, as near as anybody outside Yahoo can make out, is to stitch all those disparate organizations into one huge Frankenstein's monster of a search engine that will strike terror into the hearts of all who behold it. "I think search is clearly among our company's most important strategic initiatives," says Jeff Weiner, Yahoo's senior vice president of search and marketplace. Indeed.
Yahoo currently partners with Google, but that deal may not last. "I expect them to dump Google," says Sullivan. "I'm surprised they've stayed with them for so long. Inktomi is perfectly capable of doing what they're using Google to do." (Yahoo, which once sank $10 million into Google, doesn't like to talk about its rival to the press; that's a tangled web.) All Weiner will say is this: "We are certainly going to be leveraging all of our in-house search assets to a greater extent."
But Overture, not Inktomi, is Yahoo's prize asset, because Overture specializes in paid search, and that is precisely what makes search such a hot field right now. When you look for something on the Web say, "winter jackets"--you generally get two sets of results. One set consists of websites that are relevant to winter jackets, to the best of the search engine's ability to determine that. The other set consists of websites that bid on the top placement in a separate, specially marked group of paid search results. Yahoo calls these sponsor results. Google calls them sponsored links. For both companies, they are a fat and loudly mooing cash cow.
Paid search combines two things that advertisers desperately want: targeted ads (ads that are shown only to consumers who have demonstrated interest in the product) and performance-based ads (for which the advertiser has to pony up only when a user clicks on its links). For retailers weary of the futility of those universally reviled banner ads, paid search is revitalizing the whole idea of online advertising. "Nothing is more valuable than the user at the moment of desire," says Gartner analyst Whit Andrews. "When a user searches, that user has a demand. At that moment in time, they want." Overture now has more than 100,000 clients, and Yahoo's third-quarter earnings statement reports that it has more than doubled its year-over-year revenue in paid search as a result of better pricing and higher volume. Youssef Squali, an Internet and new-media analyst at First Albany, estimates that Yahoo's revenues in 2004 will reach $2.8 billion, and he expects paid search to account for half that figure.
None of this is to say that it's time to count Google out. For starters, Google is the leader in paid search, with about 150,000 paying customers of its own, and it has consistently led the league in innovation. But there are bigger questions afoot than who's going to win the search race namely, What will they win? And perhaps even more important, What will consumers lose? The Web is rapidly supplanting other media as the primary means by which people get information about the world not just sports scores but news, car prices, history, famous quotations and potential dates. This is information that matters. Google or any search engine isn't just another website; it's the lens through which we see that information, and it affects what we see and don't see. At the risk of waxing Orwellian, how we search affects what we find and by extension how we learn and what we know.
That's a pretty important job. It may be too important to let the market decide who gets it and how they perform it. For example, what if a search engine took money not only to list a certain website but to suppress the listings of its competitors? Some search engines are owned by large, diversified corporations. Should they be allowed to push the websites of their own businesses to the top of the stack? Could a search engine suppress the website of a political party with which its CEO disagreed? Or a particular version of the Bible or of the Battle of Midway? These are important questions, and regulators have barely started asking them.