Yahoo Inc. officials said yesterday that the market for Internet searches will grow from $3 billion to $11 billion over the next five years, as computer users increasingly look for more local and product information online.
Even as Internet searches continue to grow in popularity around the world, Yahoo executives said the big money to be made in the near term is by linking computer users with more retailers, restaurants, dry cleaners and other businesses located nearby. Already, 20 to 25 percent of online queries have some local component, and Yahoo is planning to introduce greater capabilities for companies to advertise locally in the coming months.
"We think now is the right time to go after the local market," said Ted Meisel, president of Overture, Yahoo's search engine subsidiary. "We are seeing users start to look for local information and we see commerce opportunities in local search. . . . We are going to make it easier for advertisers to participate."
Meisel and other Yahoo officials made the comments during a day-long meeting the company held with Wall Street analysts, who peppered them with questions about the company's business strategy and its competitive position vis-a-vis search market leader Google Inc. Google's recent filing to sell stock to the public identified Yahoo as its primary competitor.
Yahoo executives argued yesterday that the company has some competitive advantages over Google, since it has 141 million registered users who visit Yahoo's Web site each month to access their e-mail, check the online yellow pages, monitor their stock portfolios and shop in its marketplace of merchants.
"Yahoo is pretty multidimensional. It is a great search engine, but it is much more than a search engine," said Cammie Dunaway, Yahoo's senior vice president of marketing.
Yahoo, based in Sunnyvale, Calif., reported first-quarter revenue of $758 million and net income of $101 million. Google, based on Mountain View, Calif., reported sales of $389.6 million and net income of $63.97 million in the same period.
Google, described by one analyst yesterday as the "gold standard" of Internet search, is in the process of introducing some new products that may, over time, lead it to look more like Yahoo. For example, Google is testing a free e-mail product called Gmail that would display ads related to topics that users are writing in their messages.
Google also rolled out a new advertising product yesterday on a test basis that would enable advertisers to run banner ads with graphics on the Web sites of some Google partners. Previously, Google sold only text-based ads, while Yahoo has been a purveyor of banner ads for itself and other Web sites.
Yesterday, Yahoo chief executive Terry S. Semel increased the company's long-range target of paying subscribers to 15 million from 10 million. The company is on track to have 7.5 million to 8 million paying subscribers by the end of the year. While advertising remains Yahoo's biggest source of revenue, the company also has been growing fee income from subscribers who buy premium services, ranging from enhanced e-mail storage to personal ads.
Still, it is the growth potential of search that is receiving the greatest focus at Yahoo these days. The company has a two-pronged strategy for going after the local market that it plans to introduce soon: a primary emphasis on major retailers and other large businesses in a region, and the creation of a locator page for small businesses that do not have any online presence.
"It is a nice acorn to plant for the future," Meisel said.
A significant part of the growth in search is coming from existing Internet users, who are doing more and more searches each day and driving commercial opportunity and demand for innovation. Jeff Weiner, Yahoo's senior vice president of search, described this as an unprecedented time, given the growing interest of computer users and the influx of talented engineers with advanced degrees focusing their energies and talents on helping people find relevant information as quickly and easily as possible.
"As fast as search is growing, there is an enormous opportunity ahead of us," Weiner said. "As good as all of us believe search results are, we are only delivering high-quality results about half the time as an industry. We have only scratched the surface. We are going to get much better at that."
Weiner said the presentation of search results will also improve over time, with increased personalization being one of the factors.
"We have a lot of wind at our back leading us to believe the best is yet to come," Meisel said.