January 15, 2004

Yahoo on Wednesday said it will drop search partner Google during the first quarter of 2004 in favor of its own technology, opening a new phase in the battle for Web search dominance.

The announcement from Yahoo CEO Terry Semel caps more than a year of speculation over the move, which has been widely expected since Yahoo announced plans to acquire search provider Inktomi for $235 million in December 2002. Inktomi has developed so-called algorithmic search technology similar to Google's that indexes Web pages and ranks them based on search terms.

"We've been hard at work with the assets that we've acquired to develop our (own) algorithmic search engine," Yahoo Chief Financial Officer Susan Decker said in a phone interview. "We'll be swapping that out in Q1."

Although expected, the announcement highlights the changing market for Web-based search, which has been transformed in the past two years thanks to fast-growing and profitable advertising programs.

Google currently processes approximately 80 percent of all search requests on the Web through distribution deals with Yahoo, Time Warner's America Online and Ask Jeeves, according to market share data compiled by research firm Comscore Media Metrix. When Yahoo ends its deal with Google, that share is expected to drop to about 54 percent. Yahoo's reach, meanwhile, could jump to 42 percent, based on its own search traffic and a deal that provides Inktomi results to Microsoft's MSN Web portal.

Analysts said the shift means that, overnight, Web search will change from a near monopoly situation to a two-horse race.

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