Google, Yahoo Face Off Over Ads

Washington Post

The hot Internet fight of 2004 is likely to be the slugfest over advertising dollars between Google Inc. and Yahoo Inc., which plan to push the Internet search frontier into new territory, including the untapped market for local ads.

The two have emerged as the heavyweights of Web searches, doing the best job of extracting profits from the tiny boxes where people type keyword queries. Their software shows ads not only on their own sites but also under license to other Web portals, including rivals America Online and Microsoft Corp.'s MSN.

Microsoft and AOL, owned by Time Warner Inc., were slow to recognize the value of searching the Web. Not Yahoo. It woke up after Chief Executive Terry Semel came on board in 2001 and led a technology acquisition binge, snapping up the search businesses of Inktomi, AltaVista and Fast Search & Transfer.


Yahoo, based in Sunnyvale, Calif., paid more than $1.6 billion last year for Overture Services Inc., which pioneered the model of charging advertisers only when Web searchers clicked on their links. And last week, Yahoo executives announced that in the first quarter of this year they would replace the Web search results Yahoo currently licenses from Google with those generated by Inktomi.

Yahoo’s desire to wrestle the search championship away from rival Google was on display again this week with the creation of Yahoo Research Labs (, a knockoff of a similar group at Google called Google Labs ( Both are charged with inventing and testing new technologies. Named to head Yahoo’s lab was the company’s principal scientist, Gary Flake, who has considerable expertise in Web search formulas and a doctorate in computer science from the University of Maryland.

Flake said the lab would do research in a wide range of areas, including personalizing data and improving Yahoo’s design to make it easier to use. “We are trying to not just do better Web search, but to create a better Web experience,” he said.

Flake ran a similar effort for Overture last year, developing technologies analogous to features that Google is testing publicly. Both companies, for instance, are researching how to deliver local data to folks hunting for restaurants, car repair shops and other local businesses. Overture has since taken down its local search box, but Google’s “search by location” feature remains online, offering users two query boxes side by side, one for keywords such as “plastic surgeon” and the other for entering a location such as “Bethesda MD.” So far, Google’s location searches seem to generate many irrelevant matches.

Google also has been testing a regional ad-targeting program that guesses searchers’ offline locations from their Internet addresses. Participating advertisers can choose in which regions of the country their Google ads will be shown.

Executives at both Google and Yahoo said they were close to rolling out new local search ad services.

“Local is high on our priority list -- and an area of great opportunity,” Semel said in an interview last week. He said Yahoo was trying to deliver more personalized search results across its network, partly by drawing inferences based on where users were and what they were doing.

Internet search companies are gearing up to woo local advertisers because they know mom-and-pop shops generate tens of billions of dollars a year in revenue for print Yellow Pages, newspapers, radio and TV stations.

The Kelsey Group, a market research company focused on advertising, estimates at least 1.5 million local businesses stand to gain customers by advertising on Web search sites. But a major problem has been that Web search services lack ready access to the names and addresses of local businesses in a searchable format. They also lack local sales forces to sell ads to mom-and-pop firms. Yellow Pages publishers, however, have both and are starting to license their local databases to Web search firms in return for a share of ad dollars.

Local advertisers aren’t likely to march online, however, until someone figures out how to display local data on the Web in ways that make finding companies as easy as browsing the print Yellow Pages. Web portals are experimenting with new ways to display local data, but it’s far from clear that local ad-targeting will solve the problem anytime soon.

Flake said he believed the next few years would produce changes in Web design and breakthroughs in online data mining that could help solve the local search challenge. Matching websites -- and ads, for that matter -- to relevant queries is a statistical challenge requiring computer firepower as well as human ingenuity. Future systems might consider more than just the search query and content of Web pages; they might also consult profiles of Web searchers. does this now, in effect compiling and consulting shopping profiles of registered users to determine what to show them.

Data mining -- the scanning of massive amounts of information in search of patterns -- will be a key part of work done at Yahoo Research Labs, Flake said, because the company is interested in figuring out smart ways to mine the huge amounts of data generated by Yahoo’s 263 million users.

“We are at the beginning of another wave in the evolution of search engines,” he said.

Advances in data storage capabilities helped fuel the first wave, and plummeting prices of computer processors helped the second. Now, falling memory prices are making it economical to run more elaborate formulas against larger sets of data.

“An entirely different set of algorithms becomes feasible,” Flake said. “Over the next five years we will see dramatic changes in the algorithms that are put under the hood.”