Google vs. Yahoo

October 14th, 2006 | Categories: strategy

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.


  1. Derek Says:

    Depends on your definition of diversification. Just because Google hasn’t implemented revenue models for their many services doesn’t mean their diversified. With the recent launches of Google Spreadsheets and Google Docs, not to mention the most recent acquisition of YouTube, are they not positioning themselves so that in case click fraud becomes an issue they can begin to charge customers for these other services?

  2. Aidan Says:

    Google’s strategy has always been ‘build (or buy) a product, accumulate traffic, and slap the ad model onto it’. Just look at Blogger, Froogle, or even their search strategy. My guess is that they will keep YouTube, Spreadsheets, and Docs as free products, and once again slap the ad model on.

    Why? Because there are other free video sites and other free web spreadsheets and document applications out there - so why would anyone want to pay? A subscription-based model doesn’t seem to make sense and goes against what Google has done up until now. I just don’t see a fit.

    Just my two cents :)

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