Google, Yahoo and the eyeball war

For the last ten years, Yahoo held the most-visited site title in the U.S. (Microsoft is the worldwide winner due to Windows-related downloads and support). This quarter, and for the foreseeable future with its acquisition of YouTube, the crown goes to Google. Unlike Yahoo, which attracted eyeballs with its suite of communications applications (especially email), Google relied on search to build its audience.

According to estimates close to 90 percent of Google's visits are search-related, compared to about 10 percent for Yahoo. Google has also proven that search offers better financial rewards, outpacing Yahoo in revenue by close to $3 billion for the first three quarters of 2006. 

Google's gains in the eyeball war doesn't mean that Yahoo's social media strategy, creating more of personal portal and emphasizing social networking for its audience, is seriously flawed. Number of unique visitors is only one dimension of the eyeball war. Yahoo likes to point out that a key metric is "time-spent" on the Yahoo family of sites. While Google is now competing on the communications applications front with email, calendar and IM (as well as in productivity apps), Yahoo still has the edge in time-spent and page views. However, time-spent in Yahoo Mail, Instant Messenger, Flickr and other parts of the Yahoo empire doesn't have the targeted efficiency of  auctioned ads tightly coupled with billions of searches per day. Yahoo is hoping that its new Panama ad engine will improve revenue generation from search pages  compared to Google, as well as from so-called social media and user-generated content pages.

Yahoo should be able to improve its revenue per user in 2007 from the nearly half a billion users and billions of pages it serves every day with Panama, but not to the extent it will eclipse Google, which has been highly efficient in monetizing search, is extending into radio and other media and has ad deals with MySpace and AOL.  Microsoft is also looking to expand its ad serving footprint with its new adCenter, and has a deal with Facebook.

Yahoo doesn't have to get into a pure eyeball war to be a successful company. It already is a successful company, but is going through a difficult organizational ana market transition. Who wouldn't have Google envy and worry about losing market share? Creating walled gardened communities with high revenue per user is one way to succeed on a smaller scale, but so is bringing into the fold a more loosely-coupled network of communities, such as Facebook or AOL. Next year will be a year in which Yahoo needs to acquire high quality visitors and to more effectively monetize what it has built over the last ten years.