Yahoo!'s (YHOO) New Search Tools And The Conflict With Google (GOOG): The Enemy Of My Friend

The enemy of my friend is my enemy. Or, the enemy of my friend is my friend. Or, the enemy of my enemy is my enemy.

Yahoo! (YHOO) is finding out that being friends with any other large internet operation is not terribly good for its future. The search company launched a new product which will make it easier for software firms to use Yahoo!’s platform to create search functions of their own. According to The Wall Street Journal, "Yahoo hopes the service will increase the number of searches done through its service and generate more advertising revenue, since sites that incorporate the tool will eventually run Yahoo search ads."

The entire program is an effort to take search market share and ad dollars from Google (GOOG). That is the same Google which is supposed to set up a partnership with Yahoo! to use its Adsense program to improve the embattled portal’s revenue. By some estimates this arrangement could add several hundred million dollars to Yahoo!’s earnings and help it make the case that it should not sell itself to Microsoft (MSFT).

All of that may make Google think twice about aiding Yahoo!, but it probably won’t.

Google understands that it Yahoo! uses Google’s search platform, over time Yahoo! will be tempted to abandon its own development to save money. Google also understands that Yahoo! may well be bought by Microsoft or that Yang & Co. will buy AOL which will be an integration nightmare. Both anecdotal and rigorous research show that big M&A deals rarely work.

Google can sit back and watch Yahoo! fall apart one way or another. Or, it can form a partnership with Yahoo! which will make most of the smaller company’s software redundant.Yahoo! can go after Google all it wants to.Its opportunity to make that work is in the past.

Douglas A. McIntyre