Do you have a question? Post it now! No Registration Necessary. Now with pictures!
July 14, 2006, 5:58 pm
rate this thread
Yahoo faces many challenges as it tries to turn vast sums of data it
has on visitors into revenue. Another challenge: that little company
By Thomas Claburn, InformationWeek
Feb. 20, 2006
The world's in love with Google and search-based advertising. That
leaves Yahoo, the Google of the '90s and still the most popular
destination on the Web in terms of visitors, to prove there's a better
way to deliver advertising. But to do that, Yahoo needs to translate
the 10 terabytes of data a day its visitors create and turn that raw
information into marketable insights.
Listen to Yahoo's chief data officer, Usama Fayyad, sell the story.
Yahoo's chief data officer Fayyad knows if you're about to buy a new
car."Search advertising is great. I can match ads to intent," Fayyad
says. "Well, guess what? When you're on the Yahoo network--whether it's
travel, whether it's autos or researching universities--you're telling
a lot more about yourself and your intent. And I can use that. I can
turn that into a very powerful ad-matching machine, just like search
is. In fact, in many cases, much more powerful than search. It's just
that the market hasn't discovered it yet."
That's a pretty big "just." Yahoo's challenge is convincing advertisers
and marketing companies that it has a data-driven model that creates a
more effective means of reaching consumers than first-generation
search-based advertising. It's a challenge the 12-year-old Web portal
needs to overcome if it hopes to regain its position at the top of the
Internet mountain after being shoved aside by Google, the darling of
Wall Street and the favorite Web site of information searchers
throughout the world.
Not that Yahoo is hurting. Its $5.26 billion in revenue last year was
47% more than 2004. Not bad. But not Google, which had $6.1 billion in
2005 revenue, a 92% increase from 2004. Meanwhile, Google has been
gaining search market share at the expense of MSN and Yahoo. Between
November 2004 and November 2005, Yahoo went from handling 32% of
Internet searches to 29.5%, according to comScore Media Metrix. No
wonder Google's market capitalization stood at around $106 billion
earlier this month, more than double Yahoo's market cap of roughly $46
More Than Search
But Yahoo is much more than search. It has popular E-mail and instant
messaging applications; social-networking, personals, and photo sites;
extensive E-commerce operations; and news and other forms of content.
Yahoo Music was the No. 1 music site on the Web, with more than 23
million unique visitors a month, according to comScore Media Metrix.
Yahoo also is more diversified than Google, with 12% of its revenue
coming from user fees. As for advertising revenue, Marianne Wolk, a
financial analyst for the Susquehanna Financial Group, estimates that
58% of Yahoo's ad revenue in 2005 came from search advertising, while
42% came from contextual ads designed to promote a brand. For Google,
only 3% to 4% of its ad revenue came from advertising unrelated to
That's not all bad. Search advertising is growing faster than
contextual advertising online. "I find it illogical to make a case that
it's better to be diversified when search is growing so much faster
online," Wolk says.
That's why Yahoo is laboring to find new ways to take advantage of its
vast stores of content, computing horsepower, and employee brainpower.
It's worth remembering that the Web site founded in January 1994 as
Jerry and David's Guide to the World Wide Web by two Stanford
University graduate students grew into one of the most valuable
companies on the planet, with a market cap of more than $140 billion at
its peak in January 2000.
It may be that the Google-Yahoo rivalry tends to be overstated. The
online ad market is still young and both companies continue to grow.
"It's not a zero-sum game," says Chris Sherman, executive editor at
Search Engine Watch, an online search news site. Advertisers think they
need to market through both Google and Yahoo, he notes. But it's Google
that gets most of the attention now as it glides into new
markets--news, shopping, images, maps--seemingly on a daily basis.
Other numbers highlight Yahoo's challenges: It generated revenue of
$535,000 per employee last year, while MSN generated $648,000 and
Google generated $1,484,000, according to market research firm Outsell.
"Google's low head count and high productivity reflect its heavy
reliance on technology to do the heavy lifting," says an Outsell
Beyond the metrics, Yahoo also has a perception problem. Research shows
that advertisers rate Google higher than Yahoo on the effectiveness of
its online advertising, says Chuck Richard, an analyst with Outsell.
Google's advantage in search is often cited, Richard says, while it's
rarely mentioned that Yahoo has more unique users and that they spend
10 times as much time on Yahoo.
The challenge is to translate what Yahoo has--more visitors spending
more time on its sites--into something advertisers want. And that's
where IT will help determine whether Yahoo is a contender or an
also-ran. It involves leveraging its low-cost, high-performing IT
infrastructure and its top experts in search and data mining to provide
advertisers with more effective and relevant methods for reaching
The Difference Maker
One approach is to do more data mining to maximize the effectiveness of
ads and show the world that Google's way of delivering advertising
isn't the only one that works.
Yahoo is certainly within striking distance. In an Outsell survey of
1,200 advertisers released in January, some 70.9% of respondents rated
Google "extremely/somewhat effective" for keyword search ads, compared
with 61.9% for Yahoo and 46.1% for MSN. For contextual placement, those
numbers were 46.8% for Google and 40.1% for Yahoo. MSN doesn't offer
That's why Fayyad is gunning for Google. Tall, with a shaved head and
slight, hard-to-place accent (he's from Tunisia), he might be mistaken
for a distant relative of the late actor Yul Brynner. He's a formidable
presence, and with his increasingly impressive team of researchers, he
aims to use Yahoo's massive knowledge of its users to improve the
relevance of ads for users and the effectiveness of those ads for
Fayyad cites Yahoo's ability to define groups like "automobile purchase
intenders." "Based on how you use Yahoo, you give me a lot of hints to
the fact that you're in the market for a car," he says. "In fact, I can
guess with very high reliability that you're interested in buying a car
in the next 90 days." Armed with that knowledge, Yahoo can offer
companies the ability to buy ads that will appear in front of the
people they most want to reach.
It's an IT-intensive challenge. The 425 million users who visit Yahoo
each month generate a data trail that amounts to 10 terabytes a day.
And that's just usage data. It doesn't include E-mail or images. "We
need to be able to take 10 terabytes of data every day, collecting it
from hundreds of thousands of servers around the world, process it,
reduce it, decide what to keep, what to get rid of, make sure we update
all information we have about users, and age it correctly," he says.
"And then drive a whole bunch of applications. That alone is a
More Usage, More Ads
Yahoo now argues that using a search keyword's bid price as the sole
metric to determine the position of ads on a search result page isn't
the best way to advertise. "That's not the optimal way to do it and, in
fact, that's something we're changing," Fayyad says, signaling a shift
toward Google's more lucrative approach of positioning ads using
additional criteria like ad popularity.
Fayyad says his mission at Yahoo is to listen to what customers are
saying through their actions and use that information to improve
Yahoo's products, which will keep visitors on the site longer. "If I
get 10% more usage from the average consumer, I have suddenly created
10% more inventory for my ads," he says.
Yahoo accomplished something like that last year when it made an effort
to improve user retention with Yahoo Mail. As Fayyad tells it, while
combing through data, Yahoo engineers noticed that users of the
company's free E-mail service also read a lot of news. From
conversations with the Yahoo Mail business unit, the engineers realized
it wasn't as easy as it could be to switch between E-mail and news on
the site. So they added a news preview module that let users read news
from the Yahoo Mail screen. After two months, they found that it
dramatically improved retention. "That went from noticing a data
pattern to a real product in two months," Fayyad says. Company
officials declined to discuss the size of Yahoo's IT staff or its
CIO Rabbe, VP Timmons, and chief data officer Fayyad inspect one of
Yahoo's 27 data centersBattle For Talent
Speedy enhancements like that can only happen with a lot of superior
brain power. So Yahoo is competing just as fiercely for people as it is
for ad dollars. Google has been wooing top scientists in its quest to
organize the world's information and make it universally accessible. In
early February, for instance, it poached Udi Manber, CEO of
Amazon.com's search subsidiary, A9.com.
With its acquisition of Inktomi in March 2003, Yahoo not only got back
into the search-engine race, but it also stepped up the pace of R&D. In
2004, it opened Yahoo Research Labs to work on Web search and
information retrieval and last year partnered with UC Berkeley; this
year it turned to university researchers in Spain and Chile. Last
summer, it hired Prabhakar Raghavan, a former senior researcher at IBM
and chief scientist at Verity, to run Yahoo Research. He joined noted
researchers Andrei Broder and Jan Pedersen. In January, Yahoo hired
data-mining scientist Ricardo Baeza-Yates to run its labs in Chile and
They're mining data collected in Yahoo's data centers, which are costly
and, for the most part, hidden from view. There are 27 of them, more or
less, around the world, filled with between 100,000 and 200,000
servers. InformationWeek was invited to one in Santa Clara, Calif. When
you make your way past very tight security and step inside, you can
feel the cost of cooling the company's machines as conditioned air
beneath the raised floor blows up through perforated tiles. If data had
a sound, it would be the drone of fans.
"All of our E-commerce activity takes place in here," Operations VP
Kevin Timmons says. The majority--88%--of the company's $5.2 billion in
revenue comes from ads, but the company has an active E-commerce
business that it's trying to grow.
Keeping infrastructure costs as low as possible is a top priority.
While that's a common theme at any well-run business, Yahoo's
commitment to cost control is part of its DNA. And it's reflected in
the company's choice of hardware: commodity servers running BSD Unix,
along with a smattering of just about every other operating system that
Yahoo gained through acquisitions.
But parsimony doesn't mean that Yahoo is willing to accept slow
response times and a poor user experience. Yahoo must be available
24-by-7, and it must be fast, says Phu Hoang, senior VP of engineering,
who oversees the company's apps. Yet, Yahoo still looks closely at
every request for new equipment.
Cost consciousness is a necessary obsession. In a company so dependent
on the ability to efficiently scale its computing and network
infrastructure, even minor changes to the cost equation multiply into
major problems. "We squeeze just about every penny out of every piece
of hardware we can," Timmons explains.
Yahoo CIO Rabbe started his career with punch cards and now manages the
msot popular site on the Web.
Photo by Jeffrey NewburyOf course, as any business-technology manager
who runs a data center knows, sometimes the hardware pushes back. Power
consumption and the cost of electricity are a big challenge, says CIO
Lars Rabbe, an amiable, unassuming blue-eyed Dane. Instead of going for
the fastest processors, the cost of electricity and cooling in data
centers is forcing companies like Yahoo to look at lower-power systems,
like servers that use new dual-core chips from Intel and AMD, which
consume less power and generate less heat. "That changes the whole
dynamics of how you manage your data centers," he says.
A conservative estimate for the average annual utility cost for a
100,000-square-foot data center is around $5.9 million, says Edward
Koplin, a principal at engineering firm Jack Dale Associates. Based on
the square footage of its Santa Clara data center, Yahoo is probably
paying close to that for that data center alone. And it has 26 others
of various sizes.
Keeping costs in line as it battles the highly automated Google is a
priority. It will take new services, features, and marketing to make
Yahoo more competitive, enhance its image, change perceptions, and
bring in more revenue. But the road back up the mountain contains many
potholes and blind curves, things that can quickly change perceptions
in the wrong way.
CIO Rabbe, whose first job was at a university data center back in the
days of punch cards, knows that how Yahoo handles customer data can be
the biggest pitfall of all. "Being responsible for the security of the
world's largest Internet company can be pretty daunting," he says,
explaining later that "we care deeply about personal information. This
is something we really make a big deal out of."
Unfortunately, the governments of both the United States and China, and
probably many more, also care deeply about personal information and
have considerable interest in Yahoo's data. It's a situation also faced
by AOL, MSN, and Google. And when interests of governments and citizens
collide, governments usually win--to the detriment of personal privacy
and, sometimes, personal liberty.
Yahoo is accused of supplying information to Chinese authorities that
led to the 2003 imprisonment of an Internet writer who was charged with
subverting state power and sentenced to eight years in prison. While
surrendering data to government officials may be a legal requirement,
it doesn't dovetail with public assertions that customer privacy is
important. And in Yahoo's case, its compliance with Chinese authorities
has resulted in the detention of journalists. That pretty much
guarantees bad press. It's a no-win situation for Google, Microsoft,
and Yahoo, which is why all three have asked the U.S. government to
make free speech a free-trade issue. For Yahoo and other major Web
sites, free speech has hidden costs.
The situation illustrates the risks Yahoo faces as more users worldwide
rely on it for news, information, commerce, communities, and
connections to like souls. But it also shows the important role the Web
portal plays in the lives of many people--and the importance of the
information it gathers on each of those people.
The challenge is for Yahoo to figure out a way to parley that
information into more revenue, while maintaining the trust that keeps
425 million visitors returning to the site each month for more than
Re: Yahoo's Challenge
So, like, if I'm looking at a travel-related page I'd see travel
related ads? Wow! It's about time someone took on the monumental task
of crunching the mountains of numbers necessary to achieve that level
of ad targeting. Thank you, Yahoo, for accepting that challenge. :P
When all you have is a huge database, everything looks like a huge
- » is it worth to buy this software for monitoring spider activity?
- — Previous thread in » Search Engines