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Monday, May 03, 2004 - Page updated at 11:09 A.M.
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Northwest stock contest 2004 | Consumer affairs

Google looks to deliver the knockout punch

By Kim Peterson
Seattle Times technology reporter

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This could be the year of the Google.

The company has become such a cultural phenomenon with its sophisticated search engine that its name is now also a verb. That kind of star power is something most tech companies, including Yahoo! and Microsoft, can only dream about.

On Thursday, Google filed plans for an initial public offering of its stock, in which it hopes to raise $2.7 billion. The offering, expected to be one of the biggest in history, isn't likely to take place for several months.

Search is just the beginning for Google, it seems. This year, the Mountain View, Calif., company is taking steps that show its founders view Internet search as a stepping stone to bigger ideas. Those ideas are turning the company into a threatening competitor in arenas long dominated by Yahoo!, MSN and America Online.

In fact, as recently as a year ago, those three seemed like the big three Internet portals to watch.

But AOL has been losing customers and advertising revenue, and seems unable to keep pace with the technological advancements coming from its competitors, including Google.

And while Google didn't evolve in the same way as these portals, it may be on its way. Here's how it stacks up against its competitors in some of the key applications of the Internet: search, e-mail, advertising and shopping.

Search

Hands-down winner: Google

Up-and-comer: Yahoo!
 
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Look out for:
MSN

Google reportedly has 100,000 servers, which together form one of the world's largest supercomputers. The combined power of these servers lets Google return results in a fraction of a second.

The company has searching nailed, and has been providing its technology to other Web sites, such as Amazon.com. Even Yahoo! used Google's search engine until a few months ago, when it rolled out its own search technology.

Google was the top search engine in March, with an estimated 65.1 million users, according to Nielsen/NetRatings, the Internet research company. Yahoo! Search ranked second, with 48.1 million, and MSN came in third, with 44.9 million.

But, with an index of 4.3 billion Web sites, sometimes Google's results can be too overwhelming. Do we really need 376,000 search results for the phrase Easter Island?

Smarter search engine due

Enter Microsoft, which says it soon will have a smarter search engine that gives people the results they want. Even though Microsoft is the biggest software company in the world, MSN still doesn't use much of its own search technology. Its main search results come from two companies that were bought by Yahoo! last year.

That's got to burn Microsoft executives, and Chief Executive Steve Ballmer admitted as much in March when, speaking to marketers at an MSN meeting, he said he regretted not directing more resources earlier to developing search.

"That's probably the thing I feel worst about over the last few years — not making our own (research and development) investment," he said.

But Microsoft has plenty of money to invest, even as a late bloomer, and said it expects to debut a search engine by year's end that produces results more in line with what people are looking for.

Yahoo! is making some big moves in search lately and has snapped up four search technologies in the past few years — Inktomi, AltaVista, Overture and AlltheWeb. In February, it rolled out a new search engine that combined them with its own search tools.

The company added features to its search that aren't obvious at MSN or Google. For example, if you type Seattle weather in Yahoo!'s search box, you get an immediate temperature and forecast for the city.

E-mail

Hands-down winner: Yahoo!

Up and comer: Google's Gmail

Look out for: MSN Hotmail and AOL

Yahoo! is king of e-mail, ranking first in March among the e-mail services Web sites visited by U.S. Internet users, according to Nielsen/NetRatings and Hitwise. Yahoo! captured nearly 27 percent of active e-mail users. MSN's Hotmail came in second, with a 23 percent market share, AOL had 20 percent, according to Nielsen/NetRatings.

In the past year, the number of e-mail users has climbed for Yahoo! and MSN Hotmail, while AOL's numbers fell. Yahoo! and MSN have taken advantage of their popularity by charging customers for e-mail storage and other e-mail extras, such as anti-virus protection.

The e-mail storage fees seemed reasonable until Gmail came along, offering one gigabyte of e-mail free, enough for about 500,000 pages of e-mail. That's 10 times the space Hotmail charges $59.95 a year for — and that is what could turn the e-mail business upside down.

Google isn't getting exactly the kind of publicity it wants on Gmail, however. The company plans to scan e-mail messages in order to attach relevant advertising to them, and that has privacy advocates alarmed. A California state senator is drafting legislation to block Gmail altogether, saying the service amounts to an invasion of privacy.

Gmail tests under way

Gmail is in trial testing now, and reports coming back from users say the service is everything Google claims it to be.

"It's good," said Scott Pepper, 27, a Boston health-care consultant who has been using Gmail for three weeks. "It definitely has some advantages over free e-mail services like Hotmail and Yahoo!."

Pepper also said he isn't too concerned about the privacy issues.

Gmail also lets you search through previous e-mail messages, and with one gigabyte of space, many users may never have to delete them. After three weeks of usage, Pepper said he had not come close to filling up even 1 percent of his space allocation.

Yahoo! and MSN would not say whether they plan to increase the free storage they give to e-mail users. Both say they will have no problems competing with the search-engine giant.

Microsoft has been developing new ways to make Hotmail more attractive to users. It recently debuted a program that would allow people using certain versions of Outlook to manage e-mail and other information stored in a Hotmail or MSN account. The program is available to MSN Premium subscribers, who can use it to view their work and home e-mail messages in one place.

In an effort to retain its subscriber base, AOL has begun making e-mail and other services more available on the Web. The company is moving away from its traditional "walled garden" approach and allowing users to access e-mail through third-party software such as Outlook and Eudora.

Advertising

Hands-down winner: Yahoo! and MSN (tie)

Up-and-comer: Google

Look out for: AOL

Google disclosed some significant numbers Thursday when it filed its IPO plans with the Securities and Exchange Commission.

The company said it had $961.9 million in revenue in 2003, and about 95 percent of that came from advertisers.

The results confirm what Google watchers suspected: Google is above all an advertising company, and it does just about as well in that area as Yahoo! and MSN. Google also made a profit in 2003 of $105.6 million.

For the first quarter of this year, Google reported $389.6 million in sales and a $64 million profit.

It's hard to compare that directly with Yahoo! and MSN, because they don't directly disclose the money they make from online advertising. Instead, they lump the results with other marketing revenue.

MSN reported sales of $591 million for the first three months of this year, up 16 percent from the year-ago period. Of that amount, about $330 million came from the network services category, which includes traditional banner advertisements and search placement sales.

MSN saw a revenue boost of $100 million, or 43 percent, in online advertising in the quarter compared with the year-ago period. The division also made a quarterly operating profit — its second ever — of about $107 million.

Yahoo!'s quarter was so successful that it surprised even the analysts closely tracking the company. The marketing-services division, which includes advertising and sponsored-search results, brought in $635 million in revenue, a 235 percent increase from the same period in 2003.

At a time when it seems like anyone can rake in the Internet advertising dollars, AOL's advertising revenue dropped to $787 million in 2003, a surprising 40 percent decline from the year before. Look to AOL to boost its ad sales this year.

Shopping services

Hands-down winner: Yahoo!

Up-and-comer: Shopping.com

Look out for: Google's Froogle

Yahoo! has spent time and money beefing up its shopping services, and is reaping the rewards: Its site was the most-visited shopping engine in March, according to Hitwise, a company that provides Internet usage information. The rankings analyze shopping-comparison engines and don't include specific company sites such as Amazon.com.

Yahoo! has set its sights on international shoppers as well. In March, the company announced it was expanding that effort globally by acquiring Kelkoo, the largest e-commerce service in Europe, for 475 million euros, or about $568 million.

Shopping isn't a huge moneymaker for Yahoo!, said analyst Imran Khan with Fulcrum Global Partners. Instead, the company uses the shopping experience to draw users to other portal elements.

"It's the portal strategy," he said. "They have 274 million users come to their Web site. They're leveraging this with their search and shopping."

Potential of Google

Google has the potential to break out in this area and is using the popularity of its search engine to do it.

On March 29, Google placed a link to Froogle — its own shopping site, which it had been testing — on its spartan home page. Froogle weighed in at No. 8 among shopping engines for that week, according to Hitwise.

Strangely, Froogle appears to be giving Yahoo! a boost. About 14 percent of people that visited Froogle recently clicked on a product that took them to a Yahoo! Shopping site, said Bill Tancer, vice president of research at Hitwise.

MSN's shopping portal ranked eighth for the month of March, according to Hitwise. And Shopping.com's four sites — which include dealtime.com, epinions.com and pricetool.com — would rank second behind Yahoo! if their results were combined.

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2004 The Seattle Times Company

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