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Google Vs. Yahoo!
Davide Dukcevich, 04.26.04, 6:00 AM ET

NEW YORK - Back in the simpler, more innocent mid-1990s, Internet searches were seen as a loss leader. As Piper Jaffray's Safa Rashtchy explained in a March 2003 research report, portals all but dismissed search. Sure, it was a nice way to bring in users, but it was just one of the many services that surfers would use on a Web site. Better to outsource it.

Overture changed all that. By selling the rights to keywords of a Web search on a cost-per-click basis, the company opened a Pandora's box of profit. The idea made sense: If you're in the market for a tennis racket and type "tennis racket" on a Web search to compare products, a list of vendors accompanying your search results would probably be welcome. Those vendors would want your attention, and would compete with each other economically to get it. The more lucrative the terms, the more expensive to get top billing on a results page.

By building a better search engine, you attract a bigger audience, and thus increase the rates you can charge. Google soon joined Overture.

Rashtchy estimated that the search industry will reach nearly $7 billion in revenue by 2007, growing at a compounded rate of 35% each year. Those kinds of numbers attract a lot of attention. In 2003...

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