Playing catch-up at Yahoo

SUNNYVALE, Calif. -- How do you compete with a rival whose name has become synonymous with Internet search?

That challenge is dogging the search team at Yahoo Inc., the number two player in the field. Its executives are keeping an eye on market leader Google Inc. while working to capitalize on Yahoo's two biggest assets: a database of more than 176 million registered users, and a diverse collection of original content. Yahoo's strategy is to be more than just a website directory: It wants to be an entertainment portal.

Yahoo was first to stake a claim, in the mid-1990s, to the new business of helping people find what they want on the Web. But latecomer Google, in nearby Mountain View, was quicker to recognize the primacy of the search box in the late '90s and to take advantage of the ability to link search results to online advertising. Its wildly successful 2004 IPO seemed to cement its dominance.

''Google has clearly become a cultural phenomenon," said Tim Cadogan, the Yahoo vice president of search, who joined the company 2 1/2 years ago. ''We'll fix that over time."

Search query market share has remained relatively steady over the past 15 months, with Google holding 36.4 percent and Yahoo 30.6 percent in March, the most recent figures available, according to the ComScore Networks research firm.

In that same 15-month period, Yahoo has been rolling out a product or service nearly every month in a bid to move the needle. They include desktop search, image search, mobile search, video search, local search, travel search, an anti-spyware toolbar, and, through the acquisition of Flickr, a photo-sharing blogging tool.

''Yahoo is doing more than they've done in the past, and they've been edgier than they've been in the past," said Danny Sullivan, editor of Search Engine Watch, a website that tracks the search industry. ''Some of it feels like they're playing catch-up. But they've been methodically mapping out a road map of where they want to go."

That road map emerged after Terry Semel, who spent 24 years at Warner Bros., took over as Yahoo's chairman and chief executive in May 2001. Semel brought a Hollywood sensibility to a site then positioned as a directory. One of his first decisions was to build on Yahoo's content in news, sports, entertainment, shopping, music, travel, autos, and other areas, to establish the site as a consumer destination.

Yahoo started in a Stanford University trailer in Palo Alto, Calif., in 1994 more as a student hobby than a consumer business. Its founders, David Filo and Jerry Yang, a pair of doctoral candidates in electrical engineering at Stanford, called it ''Jerry and David's Guide to the World Wide Web." The name was soon changed to Yahoo, an acronym for ''yet another hierarchical officious oracle." The company's share price soared in the Internet mania of the late 1990s but tumbled with the dot-com crash. By the time Semel arrived, Yahoo had been overshadowed by Google and was badly in need of a makeover.

Semel determined Yahoo needed to become a ''principal" player in search -- and to aggressively monetize its search technology. Although its directory had always been about navigating the Web, Yahoo long had licensed its search engine from other companies, first from AltaVista and later from Google itself. Yahoo sought its own technology, and it formed a search and marketplace group.

In late 2002, Yahoo agreed to purchase Inktomi, a company that would provide the backbone for Yahoo's search engine. The acquisition was completed in early 2003, and that summer Yahoo followed it up with a deal to buy Overture (formerly known as GoTo), a company that had pioneered the ''pay-for-placement" model for online advertising. Together, the moves gave Yahoo both of the elements it needed to drop its alliance with Google, which had been powering searches on Yahoo's site.

''We had an opportunity to launch a search engine on the world's largest stage," said Cadogan, a veteran of GoTo and Overture, who noted that Overture itself had swallowed two smaller search firms, AltaVista and Fast, just before the Yahoo acquisition. ''Essentially, we had a five-way integration. And we were able to come out with a new technology that, out of the box, was as good, if not better than, Google."

While the new offering, called Yahoo Search Technology, won some acclaim from search analysts, figures released by Google early last year in advance of its IPO made it clear that Yahoo's rival had figured out how to profit from paid-placement ads tied to its search results, partly by using a variant of the technology on which Overture held a patent. Yahoo redoubled its own Net advertising efforts, however, and was able to boost its revenue and profits with a mix of paid search, brand, and multimedia ads.

In early August last year, shortly before the Google stock offering, Google agreed to turn over 2.7 million shares of its stock to Yahoo to settle a legal dispute over the GoTo technology. Yahoo continues to grow its advertising business, now its largest revenue source, despite its large subscription base. Net advertising enabled Yahoo to double its earnings in the first quarter from a year ago. Its share price, which topped $100 in early 2000 and sank below $10 in early 2002, has rebounded to $36.33 on the Nasdaq exchange.

Many of Yahoo's innovations over the past year have paralleled those of Google, though the Yahoo strategy has been to use its new tools and services to draw attention to its core product: its content. Branding that content is key to its so-called FUSE vision to help people ''find, use, share, and expand all human knowledge." A critical mass of users, drawn to Yahoo for everything from its personal ads to its special-interest sites, could be the competitive edge needed to narrow the gap with Google.

''Yahoo presents themselves much more as a portal," said Susan Aldrich, senior vice president at Patricia Seybold Group, a technology research and consulting firm in Boston. ''They're trying to appeal to people who have a different idea of what a search page should look like. Some people view search as research and they don't want a busy page, while some people are more interested in entertainment."

The brain trust at Yahoo is convinced they've carved out a strategy, and a personality, distinct from Google's. What remains to be seen is whether enough consumers will embrace that personality to catapult Yahoo over Google. Despite the explosive growth and changes in Internet search over the past five years, Sullivan of Search Engine Watch thinks the coming five years could be a period of stability.

''At this point, a lot of it is branding," Sullivan said. ''It's like Pepsi and Coke. People already turn to Google or Yahoo because they trust them, and it's getting harder to steal people away."

Robert Weisman can be reached at weisman@globe.com.