Google Eats More Brains

Another month, a little more market share for Google (Nasdaq: GOOG  ) .

New data from market research specialist comScore shows that Google continues to gain market share, growing its already wide lead over distant rivals Yahoo! (Nasdaq: YHOO  ) and Microsoft (Nasdaq: MSFT  ) .

 

August 2008

July 2008

Google

63%

61.9%

Yahoo!

19.6%

20.5%

Microsoft

8.3%

8.9%

Ask Network

4.8%

4.5%

AOL

4.3%

4.2%

Source: comScore

What's scarier: Knowing that Google keeps getting bigger or that Microhoo keeps losing relevance?

Microhoo revisited
Perhaps the most interesting trend is that Google's gains came only at the expense of the industry's silver and bronze medalists. IAC's (Nasdaq: IACID  ) Ask.com and Time Warner's (NYSE: TWX  ) AOL actually inched higher sequentially. It is Yahoo! and Microsoft that are the only market share losers on the list, going from commandeering a combined 29.4% of the queries in July to a more modest 27.9% slice last month.

My theory is that both companies have relinquished traffic as a direct result of the messy Microhoo courtship. Once the public saw the desperation in Microsoft offering a steep $31 a share for Yahoo! -- and at one point upping the ante to $33 a stub -- it was easy to conclude that Microsoft was having organic problems in growing its MSN and Live.com properties. Once Yahoo! incredulously turned down the offer, it sealed its fate as executives began to defect in droves.

It's not the reality, of course. Live.com and Yahoo.com are perfectly capable search engines that perpetually improve. The problem is convincing the casual Internet users that there's another search query box besides Google's worth filling in. A successful merger between the two hardheaded Google chasers would have helped. Cybersurfers would have interpreted it as the creation of a more powerful company with a best of breed search solution.

Of course, there's no point in crying over spilt buyouts.

Winning the war
I've been in favor of Yahoo! handing over at least some of its paid search space to Google. It just makes financial sense. Yahoo! claims that the move can result in as much as $450 million in incremental operating cash flow and I believe it. Between the overhead savings on Yahoo!'s end and Google's ability to serve up better ads with its deeper inventory, it's a winner.

Unfortunately, this may be yet another reason why John Q. Searcher is just setting iGoogle as his homepage. If Google is good enough to populate Yahoo!'s search engine results with ads, why not just cut out the middleman?

If Microsoft and Yahoo! are going to fight back, they're going to have to get aggressive. Ask.com has been doing it over the past two years. Between the first wave of primate-powered television ads that showed IAC as evolutionary to bragging about its superior algorithmic ways, Ask is still a niche player but it has proven itself.

Microsoft and Yahoo! need to do just that. There's no point in offbeat yodeling spots or SeinGates ads. They need to market their search engines in compelling ways because search is all that really matters these days. It's where advertisers pay the most to generate quality leads.

Microsoft and Yahoo! are too big to specialize in just a sliver of search like Ask with its query-based gimmick or Local.com (Nasdaq: LOCM  ) with its local bent. If they're not going to buy traffic -- like Marchex (Nasdaq: MCHX  ) with its high-traffic portfolio of roughly 200,000 domain names -- they're going to have make their own search-friendly traffic.

How much bigger does Google have to get before Microsoft and Yahoo! realize that they are invisible?

Searching for more? Check out these recent headlines:

Microsoft is an Inside Value recommendation. Google is a Rule Breakers newsletter pick. Try sampling any or all of the newsletters with a free 30-day trial subscription.

Longtime Fool contributor Rick Munarriz is a huge fan of Google and it would be his homepage if it weren't for Fool.com taking up that piece of real estate. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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