Wednesday, April 23, 2008

Blue Ocean Strategy: Microsoft & Yahoo -- Build a better search

Writing again about MS and Yahoo. Yahoo came in with essentially flat earnings. Depending upon how one parses the numbers Google's profitability grew 30-40 percent during the same quarter. Google is clearly a Blue Ocean Strategy company (click here for a BOS analysis of Google: "Bloogle: Making Portals Irrelevant"). Based on earnings MS CEO Steve Ballmer says he's ready to walk away from the deal. He's probably just bluffing but walking away would be the best move.

It isn't that MS doesn't need the reach of a world-class search engine: it's just that Yahoo doesn't fit that model. There are some great Yahoo properties -- Flickr, Groups, Messenger -- but the centerpiece of Yahoo is search and Yahoo's search stinks. The problem with Yahoo search is that it's adulterated. Yahoo liberally co-mingles paid search results with organic results: doing so violates the integrity and credibility of the results. Many consumers outright understand this; others just sense that something is "wrong" or "weird" with the results (I've heard both words used).

Yahoo searchers feel like they've walked onto a used-car lot: they put their guard up and many don't return. Yahoo used to have a strategic advantage by human-indexed search results but that fell apart when they switched to paid inclusion; pay Yahoo a few hundred dollars and you'll become relevant, even if you're a third-rate hack in your field.

For those not in the know paid inclusion is like paying for a job interview: the job you stand to receive is junk. Similarly, Yahoo's search results are worthless. Since virtually everybody knows this at some level only the most clueless are left searching on Yahoo, which dilutes the value of the search results to advertisers. These diluted results -- stemming from a lack of credibility -- push Yahoo to do more to monetize results, which typically means more dumb tricks like co-mingled results, which even further dilutes credibility. The resulting death spiral they're in is well documented and will be studied in business and journalism text books for many years.

Microsoft: if you want to build a better search then build a better search. Look at the tiers of non-customers and apply each through the six path framework to find the key factors of a great search engine. Google's clobbered you and Yahoo but you two set them up perfectly: you, Microsoft, focused too much on technology innovation and Yahoo self-destructed. The only way to fight a BOS offering is with another BOS offering. Google redefined the rules once; you can and should do the same back to them.

Without going into a full-scale analysis I'd think the key factors of a Google beating search engine would include Price, Ease of use, Scope of items returned (not just websites), Credibility of results, Comprehensiveness, Relevance of search results, Honesty and integrity of search provider, Objective and subjective descriptions of results, and Reward to business owners for playing fairly. There's probably a few more, and some of these probably need refinement. But buried in there, I'll bet, is the recipe for a genuine Google killer. It won't be cheap to build, but it'll cost a lot less than buying Yahoo and trying to reform its culture, brand, and technology.

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