Google Laughs at Yahoo! and Microsoft

The monthly domestic search-engine rankings from Nielsen Online are out, and they're as predictable as ever. Google (Nasdaq: GOOG  ) keeps getting stronger, and Yahoo! (Nasdaq: YHOO  ) and Microsoft (Nasdaq: MSFT  ) keep shrinking in its rearview mirror.

October 2008

Market Share

YOY Gain

Google

61.2%

8.1%

Yahoo!

16.9%

(12.0%)

MSN/Windows Live

11.4%

(19.0%)

AOL

4.3%

14.5%

Ask.com

2.3%

(22.9%)

Source: Nielsen Online MegaView Search.

The surprises come after the win, place, and show finishers. Time Warner's (NYSE: TWX  ) AOL staged a huge bounce, and IAC's (Nasdaq: IACI  ) Ask.com tanked, after showing some healthy advances earlier in the year.

In search of search
There were nearly 7.8 billion searches performed in the United States last month, according to the study. That's 2% lower than the traffic a year ago.

That's right -- there was a decrease. Did you ever think the number of search queries would go down, especially with the proliferation of Web-surfing devices, the online migration, and a hotly contested presidential election? What's going on? Have we consumers finally learned to find what we're looking for without going to the search engines?

Well, the country's five biggest search engines account for more than 96% of the market, so you'll have to direct your questions to them.

Yes, Google remains in a sweet spot, and it doesn't hurt that AOL turns to minority investor Google to populate its searches with ads. But what if Google is carving out thicker slices of a shrinking pie?

And now for the bad news
If you think the diminishing search trend is problematic, how about the deteriorating ability to monetize that traffic? Consumer-facing companies are slashing their outlooks. Their advertising budgets are undoubtedly contracting. If Google and Yahoo! find fewer sponsors offering up lower keyword bids, which way do you think revenue will go this quarter?

I'll tell you where Wall Street thinks: The Street sees Google growing its top line by 26% and Yahoo! posting a revenue dip of nearly 2%.

Google is a global powerhouse, so it's not fair to extrapolate stateside data over the company's worldwide performance. Baidu.com (Nasdaq: BIDU  ) projected an 80% to 85% revenue boost for the current quarter last month, but that was before it was rocked by the scandal over unlicensed medical advertisers. However, when even China is rolling out an economic stimulus package, this may be the quarter when even passport stamps leave Google feeling mortal.

Yahoo! is probably staring at an even more unrealistic target. Analysts looking for a 2% slide on the top line may seem pessimistic, but that's a big, painted-on clown smile compared to the what's happening here. Yahoo!'s search traffic is off by 12% in a quarter that is only likely to get worse. If sponsors begin scaling back their marketing budgets, they're more likely to pull out of Yahoo! than bolt from a presence on Google.

Yahoo!'s bread and butter is also not paid search but display advertising, something that was already softening at Yahoo! and Microsoft during the third quarter. To put this in its proper context, consider that ValueClick's (Nasdaq: VCLK  ) fourth-quarter guidance calls for a year-over-year revenue decline of 21% to 24%.

It may seem as if Mr. Market is setting the bar low for Yahoo!, but the Yang Gang thinks the game is limbo.

Rainbows after the rain    
If there's any upside to the bleak search-market news in general and for Yahoo! in particular, it's that Microsoft is in even sorrier shape. If the software giant has any delusions of taking Google head-on without Yahoo!, it's now apparently nuts.

Microsoft can always wait until Yahoo! posts what I believe will be a disappointing fourth quarter in two months. That's just what Microsoft did in January of this year. However, with the stock-jacking potential catalyst of Yahoo! naming a promising outsider CEO between now and then, does Microsoft really want to take that chance?

Something has to give. For now, at least, the only taking is at Google, with the market share.

Searching for more? Check out these recent headlines:

Microsoft is a Motley Fool Inside Value selection. Google and Baidu.com are Motley Fool Rule Breakers recommendations. Try any of our Foolish newsletter services free for 30 days.

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.


Read/Post Comments (10) | Recommend This Article (90)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 26, 2008, at 1:14 PM, privatequickk wrote:

    7.8 Trillion searches? you sure about that buddy? there's only 300MM people in the US. That means 26,000 searches done by every single person in the United States last month. I don't think so.

    I think you meant 7.8 billion searches

  • Report this Comment On November 26, 2008, at 1:27 PM, oddvan wrote:

    I was about to explain why the metrics are grossly flawed and go into a talk about sprints leashes and why the lessons of Realplayer matter, but Rick , you act like such a Goog fanboy I doubt you would even read it.

    (long goog msft and a host of others)

  • Report this Comment On November 26, 2008, at 1:38 PM, confusedguy wrote:

    Any statistics available on mobile search numbers.... Mobile search is catching momentum everyday and in a couple of years ... it will be talk of the town...

    So I think those numbers should also be watched closely

  • Report this Comment On November 26, 2008, at 1:53 PM, madmilker wrote:

    if i ever find tat guy tat told me to get in at $600...tat dipstick ain't gonna be smiling!

  • Report this Comment On November 26, 2008, at 1:58 PM, privatequickk wrote:

    found what appears to be Rick's source.

    http://blog.nielsen.com/nielsenwire/nielsen-news/nearly-78-b...

    so it's 7.8 BILLION, not TRILLION. Add 3 more zeros Rick, not 6. Trillion. hahaha, sounds like the government rescue package numbers

  • Report this Comment On November 26, 2008, at 3:01 PM, ByrneShill wrote:

    Hey rick, why don't you stop pumping goog and buy a few shares? At least you'd maintain some credibility...

  • Report this Comment On November 27, 2008, at 10:36 PM, TMFBreakerRick wrote:

    Indeed. It IS 7.8 billion. Let me try and get that corrected in the article promptly. The actual press release is here:

    http://www.nielsen-online.com/pr/pr_081125.pdf

    And oddvan, I would always enjoy reading your perspective so do post it.

  • Report this Comment On November 28, 2008, at 1:26 AM, FinancialFellow wrote:

    Admittedly Google does a lot of things very well. (As evidenced by their increasing share of the market). One area, however, where I think Yahoo one ups them is in Finance. Yahoo Finance is superior to Google. The breadth of information and articles they provide on stocks is superior to Google's Finance offerings. Here's an interesting article on investments.. http://financialfellow.com/2008/11/09/10-annual-return-is-un...

  • Report this Comment On November 28, 2008, at 10:09 PM, baksheesh wrote:

    What is interesting about Google is what it has been unable to do effectively -- move beyond its core product. Even though I was excited about Google Docs and other functions, it certainly didn't supplant my use of Microsoft software or OpenOffice. Google Video went nowhere, and they had to buy YouTube. Google Books hasn't given Jeff Bezos any sleepless nights. Google News is flat and bland. And after Google Chrome's big trumpet blast of an arrival, I haven't heard a thing. Chrome is in fact a very important failure, because I suspect it hasn't taken off for the same reason that Google Desktop Search hasn't been popular. People don't trust Google to own their desktop. Of course, they have one big success -- Gmail -- and I suppose everyone uses it. The reason why? It controls spam beautifully, and Microsoft Outlook is a slow, running outdated monstrosity that has been the subject of focussed hackattacks that can zombify your machine. Biggest problem for Google is its dominating profile. Google is so far from the hip insurgent that it once was -- indeed it looks more like the Microsoft of the future. Therein lies its Achilles heel.

  • Report this Comment On December 02, 2008, at 4:22 PM, temp2290 wrote:

    I disagree that Google has been bad at anything other than it's core product. A lot of the Google software that you are discussing is in Beta or is first generation. Chrome is a good example of that. Give it a bit, and I think Chrome will be very competetive as a browser. Also, don't forget Android. Google is super innovative, and it's source of revenue (ads) is not going anywhere when it has far and away the best search engine on the planet, the best office environment (this is EXTREMELY important in a necessarily creative industry such as software), and the smartest businessmen/engineers in the Valley.

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