YAHOO! Inc, after agreeing to test Internet search advertising technology from chief rival Google Inc, insists the trial run is just that.
"Let me be clear about our commitment to search," President Sue Decker wrote to employees in an April 9 e-mail obtained by Bloomberg News. "We have every intention of being a significant player in search, and paid search is an important part of our business."
Amid criticism that Yahoo!'s efforts have fallen short in wringing more money from Internet search ads, Decker and Chief Executive Officer Jerry Yang agreed last week to try Google's software as they negotiate alternatives to Microsoft Corp's US$44.6-billion takeover offer.
Yahoo!'s directors met on Friday to consider the bid, a person familiar with the talks said.
Yahoo! spent more than US$2 billion on acquisitions to build its own search engine, and released a program last year called Project Panama to make search ads more relevant and more likely to be clicked by users. Now, Yahoo! is acknowledging that Google still does it better, said Canaccord Adams analyst Colin Gillis.
"What does this actually prove except to show how much Panama is lagging?" said New York-based Gillis, who recommends buying Google and Yahoo! shares and doesn't own them. "They're going to have some nice hard data into how much they're behind."
Revenue gap
More than half of the US$41-billion online advertising market comes from Internet search ads, according to Piper Jaffray & Co. Google captured 77 percent of spending in the fourth quarter, compared with Yahoo!'s 18 percent and Microsoft's five percent, said Efficient Frontier Inc, a California-based company that manages online ad campaigns.
Yahoo!, owner of the second most-used search engine, said in a presentation to investors last month that it narrowed the gap in the amount of revenue generated from each search query by 30 percent in the first nine months of last year. Google still made as much as 70 percent more in sales from each query at the end of 2007, Sunnyvale, California-based Yahoo! said.
"We are seeing measurable progress as a result of our Panama rollout, and we continue to enhance our paid search platform," Decker, 45, wrote.
Yahoo! spokeswoman Tracy Schmaler wouldn't comment beyond reiterating Decker's commitment to getting the most from search.
Yahoo! fell 25 cents to US$28.34 on Friday on the Nasdaq Stock Market. The shares are little changed since surging 48 percent on February 1, the day of Microsoft's bid. Google, based in Mountain View, slid US$11.63 to US$457.45, and Redmond, Washington-based Microsoft dropped 83 cents to US$28.28, and is 21 percent down since the start of the year.
Yahoo! also considered a plan last week to swap a 20-percent stake in the company for control of AOL, plus a cash investment from AOL parent Time Warner Inc, a person with knowledge of the talks said. The investment would let Yahoo! buy back billions of dollars in stock, the person said.
The board agreed to additional meetings, probably this week, with Microsoft and Time Warner, the New York Times reported, citing people briefed on the board's discussion.
Still, a takeover by Microsoft, the world's largest software maker, is the most likely outcome, said analysts including Stanford Group Co's Clay Moran in Boca Raton, Florida.