Yahoo's Switch to Google Won't Sink Inktomi

SAN FRANCISCO (06/29/2000) - News that Yahoo Inc. is switching the search engine featured on its portal from Inktomi Corp. to Google Inc. might be a marketing coup for Google, but it won't sink Inktomi, which has plenty of other customers and business not related to search.

Search represents about 35 percent of Inktomi's overall revenue, while networking services such as caching represent 60 percent, and commerce represents about 5 percent, according to Richard Pierce, CEO of Inktomi.

Without Yahoo, the company has 125 remaining search customers, including five out of the top 10 portal sites: Microsoft Corp. Network, America Online Inc., Lycos Inc., iWon and GoTo. Yahoo revenues made up about 2 percent of Inktomi's total search income.

"It's hard to pursue Yahoo," says Pierce. "But we're a scrappy bunch. We're going to look for an opportunity to win them back."

In the meantime, Yahoo is retaining Inktomi's service as the search engine it offers to corporate customers seeking to create their own customized portals.

"Google is like a teenager, and they just got their first big job," says Danny Sullivan, editor of Search Engine Watch in the U.K., an industry Web site.

"Inktomi is like a seasoned executive, and they would have liked to have gotten a promotion, but they will get other promotions in the future, and they're earning a hefty salary already."

Indeed, Inktomi has taken other hits in the past. In 1998, Hot Bot dumped the company in favor of newcomer Direct Hit, and in early 1999 Microsoft dropped Inktomi for Alta Vista Co., though it switched back before the end of the year.

The reasoning behind Yahoo's decision to boot Inktomi is unclear, although some analysts speculate that privately held Google, based in Mountain View, California, may have been able to offer the portal company a better deal than Inktomi, a public company. Yahoo executives have said they chose Google for the company's main portal search engine because it shares Yahoo's "strong consumer focus." Those executives could not be reached for further comment today.

Wall Street has not reacted kindly to Inktomi's separation from Yahoo. The company, based in Foster City, California, saw its stock fall from US$143 before Monday's announcement to $114 later that day. It rose slightly Wednesday, to close at $120. Bear Stearns analyst Robert Fagin is maintaining his "buy" rating on Inktomi, though he noted that the "psychological impact of the loss of a high-profile customer … is obvious." Nevertheless, he added, the company has a good overall market position and significant opportunities ahead.

For Google, the Yahoo announcement is a key win that will give the company something to brag about when negotiating with prospective customers.

"Yahoo is a big deal because they have so much traffic, and they send so many searches to us," says Sergey Brin, cofounder and president of Google. "It's a significant revenue opportunity."

Analysts say Google's marketing efforts likely will benefit more from the deal than will the company's bank account.

"It's a feather in Google's cap," says Seamus McAteer, senior analyst at Jupiter Communications (JPTR) in San Francisco. "I don't think it will necessarily generate a whole lot of cash for Google." He estimates that portals typically pay between 1 cent and 5 cents per thousand searches provided by search engines.

Even if the Yahoo deal doesn't generate much money for Inktomi, the company is making the most of the buzz it has generated. The company recently announced that its searches include access to more Web pages than any other search engine - averaging more than 1 billion. That includes 560 million Web pages that have been full-text indexed and 500 million that have been partially indexed. By contrast, Inktomi's database includes 500 million pages.

Like Yahoo, Google was founded by two Stanford students who left school to start their company. Brin and Google CEO Larry Page cofounded the company in 1998 and have popularized the concepts of a simple interface and link analysis to determine relevancy. ExciteAtHome, for example, announced improved relevance rankings and simpler navigation as part of its search redesign this week, and Alta Vista last month launched its new Raging Search site. Both include search for video, audio and other content media.

Google has received undisclosed investments from Kleiner Perkins Caufiled & Byers, Sequoia Capital, Stanford and Andy Bechtolsheim, cofounder of Sun and VP of Cisco.

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