Party Like It's 1995
The commercial Web in 2003 is getting back to what worked years ago.
Way back in the mid-1990s, search was one of the Internet's primary battlefields. AltaVista, spun out of high-end computer vendor Digital Equipment Corporation, competed with Infoseek, Lycos, and Excite to offer the biggest search-engine database and the most accurate results. Yahoo!, which had the most Internet users thanks to its deep subject-oriented directory of Web sites, chose not to develop its own search engine. Instead, it licensed technology from a startup, Inktomi. Yahoo! believed that its transcendent brand and a growing array of services and content—rather than a lowly search engine—would allow it to remain the starting point for most Internet users.
So, although Yahoo!'s original claim to fame was helping Internet users find Web sites and other online resources, it allowed Google to become the king of that function today. Big mistake. Search engines have re-emerged as critical assets for Web-based businesses. In a belated effort to regain search supremacy, Yahoo! just plunked down $235 million in cash to buy its old friend Inktomi.
Yahoo!'s saga is a microcosm of the entire Internet industry. Today, as companies retreat to their core businesses, they are finding, to their horror, that nimbler competitors have occupied the ground they neglected. Through the heady days of the dot.com boom, Yahoo! and other leading Web-based businesses larded on feature after feature, including stock quotes, Web-based e-mail, shopping, calendars, streaming audio and video, chat, instant messaging, and games—anything to increase traffic and therefore revenues. Companies that were once simply "search engines" fattened themselves into "portals." Yahoo!'s Web directory, its original raison d'être, became an afterthought.
But as it turns out, the one thing people really want to do online is find things. A Pew Foundation study last month found that more than 60 percent of Americans expect they can locate information online about government resources, news, health care, and business products and services. That's among all Americans. For those online, the numbers surpass 80 percent. The Web has become so enormous that it's a virtual certainty the answer you're looking for is out there; the hard part is locating it.
Google, launched in 1998, came on the scene too late to join the portal wars. It put all its energy toward one goal: being the best at search. While Yahoo! slept, Google quietly became the dominant Internet search engine, handling one-half of all searches. With its Day-Glo logo, grad-student founders, and offices featuring a masseuse and a professional chef, Google is a caricature of the bubble-era dot.com startup. With one difference: It's profitable. It's now the fourth most popular destination on the Internet, trailing only Microsoft/MSN (which publishes Slate), Yahoo!, and AOL Time Warner. For many users, Google is the Web, in the way that AOL and Netscape once were. It's the primary interface they use to maneuver online.
Buying Inktomi is Yahoo!'s last, best hope to reassert itself as a starting point for users. But it's too late. Yahoo! is still trying to be all things to all people. Google succeeds because it concentrates exclusively on search. It's no accident that the other profitable search company, Overture, maintains a similar focus. Overture's secret is that it sells its listings to the highest bidder, much the way companies can pay for bigger listings in the Yellow Pages.
The Net has come full circle. The enduring startups fall into the categories that led the market in the early commercial days of 1995-1996: search engines (Google and Overture), business-to-consumer e-commerce (Amazon and eBay), and infrastructure software for business (BEA Systems and VeriSign). Meanwhile, the landscape is littered with the carcasses of companies, from incubator CMGI to Excite@Home, that convinced themselves that more was always better. Like Yahoo!, Inktomi's story follows the script: Instead of extending its early lead in search, it jumped into unrelated businesses such as content distribution. As a result, Yahoo! abandoned Inktomi for another search technology vendor—none other than Google. When the bubble burst, Inktomi was forced to scale back through layoffs and asset sales.
The Googles of the world, who found valuable niches and stuck to their knitting, are thriving. Yahoo! and Inktomi find themselves the equivalent of a 1970s conglomerate: The whole is worth less than the parts. It doesn't take a search engine to figure that out.