Google Took Different Approaches Than Yahoo
Consistent management team focused on technology and ad business fueled Google’s expertise and eventual success
By JACK NICAS
Updated July 25, 2016 7:32 p.m. ET
The Wall Street Journal
In early 2000, Yahoo Inc. stood at the internet’s pinnacle, commanding the world’s most trafficked website and a $125 billion market value. Around that time, an upstart called Google was emerging as a destination for search.
Today, Google parent Alphabet Inc. is the world’s second most valuable company with a market value of $516 billion and a profit last year of $16.35 billion. Yahoo, which posted a $4.36 billion loss last year, agreed to be acquired by Verizon Communications Inc. on Monday for $4.8 billion.
A number of factors led to their diverging fates, but at the core of Google’s triumph over Yahoo has been a consistent management team that focused relentlessly on technology serving its massive online-advertising business. Yahoo, by contrast, vacillated across six chief executives who often emphasized content over the technology itself, leading to a blur of business models.
Unlike Google, Yahoo’s origins aren’t so much rooted in technology as they are human curation. In 1994, Stanford University graduates Jerry Yang and David Filo amassed by hand an index of a few hundred websites that floated disconnected on a nascent technology called the internet. They hired dozens of workers to sift through requests from websites to be added to their directory, and added services like news, email and chat rooms to bolster their position as the web’s portal.
Fellow Stanford grads, Larry Page and Sergey Brin, took a different approach with Google. They built a complex software algorithm that “crawls” the internet to collect content. It was an entirely automated approach that quickly outperformed Yahoo’s index and scaled far more easily as the internet exploded.
Indeed, in 2000, it hired Google to power its search engine.
“Google built up great expertise in automated-search technology and Yahoo tried to continue along using human beings to catalog the web,” said Danny Sullivan, founder of the website Search Engine Land. “And by the time (Yahoo) tried to reverse course, Google had solidified itself as the top search engine.”
Google’s leadership team—the founders and then-CEO Eric Schmidt, all trained computer scientists—stayed focused on search. The quality of Google’s search engine attracted millions of users who revealed their needs and interests via their queries. Google sold ads in its search results, boosting its revenue by creating an auction for the space that encouraged relevant ads, leading to higher prices and more ad clicks.
That ad business has become one of the biggest success stories in modern commerce, fueling nearly 90% of Alphabet’s $75 billion in revenue last year.
Yahoo saw that success and tried to reverse course, purchasing search and ad-technology firms and exiting the Google partnership in 2004 to set up a competing business. But Yahoo couldn’t gain the same traction with advertisers, and continued pursuing revenue from media strategies. Yahoo’s current CEO, former Google executive Marissa Mayer, tried several efforts, including paying $20 million to broadcast an NFL game, but couldn’t halt revenue declines.
Messrs. Page and Brin, known for emphasizing engineering skills in the company’s workforce, drove the focus on technology. That led to seven products with at least a billion users, including maps, Gmail, and its Android smartphone software. Virtually all funnel users into Google’s ad business.
Larry Kim, founder of internet marketer WordStream Inc., recalled Google founders asking him to come up with complex algorithms during a job interview in 2001. “These were sophisticated computer-science questions for an entry-level programmer job,” he said. “The company takes on the DNA of its founders.”
Messrs. Page, Brin and Schmidt still run Alphabet and control the majority of its voting stock, helping keep its path consistent. The executives say they formed Alphabet to search for the next big technology business.
Yahoo, meanwhile, has hardly innovated since its peak, analysts said.