By Leslie Walker
Thursday, January 22, 2004; Page E01
The hot Internet fight of 2004 likely will be the slugfest over advertising dollars between Google and Yahoo. Both plan to push the Internet search frontier into new territory, including the untapped market for local advertising.
The two have emerged as the heavyweights of Internet search, doing the best job of extracting profits from the tiny boxes where people enter search queries. Google and Yahoo, at least so far, are the only firms that own high-powered software for matching ads to relevant search queries and for matching Web pages to relevant queries. Their software shows ads not only on their own sites but also under license to other Web portals, including -- hard to believe, isn't it? -- rivals America Online and Microsoft's MSN.
Amazingly, Microsoft and AOL were slow to recognize the value of searching the Web. Not Yahoo. It woke up after chief executive Terry Semel came on board in 2001 and led a technology acquisition binge, snapping up the search businesses of Inktomi, AltaVista and Fast Search & Transfer. Yahoo paid more than $1.6 billion last year for Overture Services Inc., which pioneered the model of charging advertisers only when Web searchers clicked on their links. And just last week, Yahoo executives announced that in the first quarter of this year they will replace the Web search results Yahoo currently licenses from Google with those generated by Inktomi.
Yahoo's desire to wrestle the search championship away from Google was on display again this week when the Sunnyvale, Calif., firm announced the creation of Yahoo Research Labs (http://labs.yahoo.com), a knockoff of a similar group at Google called -- you guessed it -- Google Labs (http://labs.google.com). Both are tasked with inventing and testing new technologies. Named to head Yahoo's lab was the company's principal scientist, Gary Flake, who has considerable expertise in Web search formulas and a PhD in computer science from the University of Maryland at College Park.
Flake said the lab will do research in a wide range of areas, from personalizing data to improving Yahoo's design to make it easier to use. "We are trying to not just do better Web search, but to create a better Web experience," he said.
Flake ran a similar effort for Overture last year, developing new technologies analogous to features Google is testing publicly. Both companies, for instance, are researching how to deliver local data to folks hunting for restaurants, car repair shops and other local businesses. Overture has since taken down its local search box, but Google's "search by location" feature remains online, offering users two query boxes side by side, one for keywords such as "plastic surgeon" and the other for entering a location such as "Bethesda MD." So far, Google's location searches seem to generate many irrelevant matches.
Google also has been testing a regional ad-targeting program that guesses searchers' offline locations from their Internet addresses. Participating advertisers can choose which regions of the country their Google ads will be shown.
Executives at both Google and Yahoo say they are close to rolling out new local search ad services.
"Local is high on our priority list -- and an area of great opportunity," Semel said in an interview last week. He said Yahoo is trying to deliver more personal search results across its network, partly by drawing inferences based on where users are and what they are doing.
Internet search companies are gearing up to woo local advertisers because they know mom-and-pop shops generate tens of billions of dollars a year in revenue, money that currently goes to print Yellow Pages, newspapers, radio and TV stations.
