MappingTheWeb //

The other day, a friend of mine asked me, “Who do you think will last longer or prosper the most, Google or Yahoo?” My response was rather surprising to my friend. Contrary to what many people may think, my answer was Yahoo. Now let me explain why. I can sum it up in one word really: diversification.

Google generates the majority of its revenue from one source - advertising. Although this is a great model, there are a few concerns - the first being click fraud. Experts estimate that 10-30% of all contextual ad dollars can be attributed to click fraud. Should this problem somehow be quantified, Google will be in serious trouble. In addition, if another company comes along with a smarter ad system or a more robust offering, Google’s number one source of revenue will be seriously jeopardized.

Where does Yahoo generate revenues? Across numerous offerings. Yahoo obviously has an in-house ad system, as well as a Google competitor via its Overture acquisition. But Yahoo also has HotJobs, Auctions, Domains, and Dating just to name a few of the revenue-generating services that Google does not offer. What does this do for Yahoo? Well, in contrast to Google, if click fraud does become a major problem or a smarter ad system comes along, Yahoo is a lot better positioned than Google. It has other revenue sources that allow the company to diversify its offering.

I do believe Google has a better search algorithm than Yahoo, but Yahoo has made a serious push in this area and I’ve definitely seen improvements. Long term though, I think Yahoo may be in a better position to prosper than Google. Therefore, if you’re looking to add a search engine/portal to your long-term stock portfolio, you may want to consider YHOO rather than GOOG.