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Published: August 23, 2010
Over the next few quarters, look for Google (Nasdaq: GOOG)
to keep up the pressure on Apple (Nasdaq: AAPL) as it
enters the music download business, strengthens the Android
software platform's capabilities, and likely rolls out a few new
technologies and services we have not yet heard about. [Read:
Apple's Biggest Fear]
But as Google focuses on new growth areas, it needs to keep an
eye on its core search business, which is the key driver behind
the company's massive sales and profits. There's no need to
sound an alarm just yet, but Yahoo! (Nasdaq: YHOO) may be
stepping up its game in hopes of stealing back some
market share.
According to just-released data by Comscore, Yahoo's market
share of the search category just moved back above 20% for the
first time in more than a year. Some of that is coming right at
the expense of Google. In February, 2010, Google controlled
65.5% of the U.S. search market. That figure has now dropped for
five straight quarters down to 61.6% in July. In that time,
Yahoo's market share has risen from 16.8% to 20.1%.
What's behind that shift? Yahoo is making great strides in an
area known as contextual search. These are searches that tie
content and relevant search together, and can include slideshows
and contextual short-cuts. Total contextual-driven searches for
Yahoo! sites grew from 520,000 in June 2010 to 690,000 in July
2010, which is a +33% sequential increase.
In terms of traditional search, Yahoo's impressive amount of
content across its network of web sites has increasingly enabled
it to keep users on its site rather than leaving to do a search
on Google. Techies call that "stickiness."
The improving outlook for Yahoo search -- especially as its
search
partnership with Microsoft (Nasdaq: MSFT) takes root
by the end of the year -- is one of the reasons I believe
investors may be prematurely writing Yahoo off, as I've noted
previously. [Read:
Today's Most Hated Internet Stock and Why You Should Consider
Owning It]
Yahoo will eventually be using Microsoft's search technology,
which both companies agree is the more robust search engine at
this point. The deal helps Yahoo save on further development
costs while still staying on the leading edge of search
technology. Both companies believe that by joining forces, they
can get the
critical mass (with more than 30% market share) to steal
back some of Google's momentum. As noted, earlier, that momentum
has already begun to reverse in recent months.
Mobile search
In light of these market share shifts, it will be interesting to
see how smart-phone and tablet-based search evolves. These
devices are expected to see continued explosive growth over the
next few years, and right now, Google is sitting in the catbird
seat, thanks to the growing deployment of its Android software.
The fact that users can utilize search while on the go through
these devices means that advertisers can deliver very relevant
localized results that more frequently lead the consumer to take
action, such as stopping in at a local store or restaurant.
And if recent trends are any indication, Apple has reason to
worry about how mobile search will play out. In July, smart
phones using Google's Android software outsold Apple's iPhone
for the first time ever, according to Nielson. That's the result
of strong support from a range of hardware makers such as HTC,
Motorola (NYSE: MOT) and others. In effect, Apple isn't
competing against Google, it is competing against Google and all
of its partners. The tide may be turning in favor of Google and
friends.
Action to Take --> Google
has myriad paths to growth, yet its shares are off more than
$100 from their 2010 highs thanks to management's decision to
maintain heavy levels of spending to capitalize on all of its
opportunities. Such a move should help fuel solid growth during
the next few years, and makes the shares a good buy for
long-term investors.
-- David Sterman
Staff Writer
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