SmoothSpan Blog

I am convinced that advertising is not well understood, else why would so much of it be wasted?  As John Wanamaker mused as early as the 1800’s:

Half the money I spend on advertising is wasted; the trouble is I don’t know which half.

So it is with Yahoo vs Google.  Microsoft is working hard to spend an incredible fortune to acquire Yahoo.  Yahoo is working hard to stay independent.  Meanwhile, Google has built was is perhaps the greatest advertising engine ever seen.  Why?  What makes Google so much better?  Isn’t Microsoft’s idea that it can capture 30% of the search world and thence take Google on more even terms a good one?

There are two critical advantages that Google has.  First, it’s all about searach.  Search is so far the most valuable advertising property there is.  It’s all about location, or in this case, timing.  Search let’s users tell us what they’re looking for, and based on that advertising can be served up.  It is a uniquely 2 way process that doesn’t exist with simple banner ads.  Give someone targeted advertising at the point in time where they are actually looking for what you advertise and you dramatically increase the likelihood the advertising will matter.  This is rare, hard fought, and extremely strategic ground.  If someone ever figures out a similar way to tell when users are mentally prepared to recieve advertising, we will see another Google scale company built around the idea (provided they execute and can protect the idea, of course).  Meanwhile, Google has an almost overwhelming lead.  Yahoo brings a fair bit of search business to the Microsoft empire, but an awful lot of their traffic is not search related.  It comes, for example, from their portal and other properties. 

What would it take to beat Google at its own game?  It’s very hard to impossible.  First you have to invent a search algorithm that is enough better than Google’s so that people will switch.  Next, you must protect the algorithm in some way so that Google can’t just copy it.  Patents are the obvious answer, but they can be a two edged sword.  To acquire a patent, you must be willing to tell the world what you’ve done.  In so doing, you may give them an insight that leads to an alternative solution that does not infringe but that works every bit as well.  My best guess is that to beat Google will require specialization.  It will be possible to build specialized kinds of search for niche domains that function a lot better because the semantics of the domain are built into the search algorithms.  If you’re lucky, you get left alone long enough to get big enough to be interesting.  But it won’t be easy.

There’s a second strike against Yahoo aside from the fact they don’t have a better search mouse trap.  Recent information on their demographics is not encouraging.  Heather Hopkins at Hitwise has an article that indicates Google has locked up the more well-heeled crowd.  Here is a chart depicting who favors which services:

Google’s power alley is the lower right quadrant, and Yahoo’s is the top left.  Google gets Affluent Suburbia, Small-town Contentment, and Upsacle America almost to itself.  BTW, the circles are larger so these are bigger audiences with Google too.  Yahoo is stong with Struggling Societies, Urban Essence, Blue-collar Backbone, Remote America, and Aging Contemporaries.  Which seems more likely to have a lot of purchasing power worth targeting with advertising?