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.

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.

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