It has only taken three years for Google to unseat Yahoo in search, become the online ad king and get so big it prompts Microsoft to try to buy Yahoo.
Microsoft on Friday offered to acquire Yahoo for $44.6 billion. The news comes days after Yahoo said it would layoff 1,000 workers, saw its fourth-quarter profit fall and gave lukewarm guidance. By comparison, Google on Thursday posted fourth-quarter revenue of $4.8 billion.
Google has been able to capitalize on a basic trend; everyone with an Internet connection does Web search and people doing searches are likely to click on ads next to the results that are related to what they are looking for. Google's search market share in the U.S. is 56 percent, triple what Yahoo's share is and quadruple Microsoft's, according to ComScore.
Largely based on that, and on getting a percentage of revenue every time people click on the contextual ads that Google feeds onto other sites around the Web, the company made nearly $16.6 billion in revenue last year.
Sure, Yahoo had a head start on search. But the company didn't know how to monetize it. Google turned paid search into big business when other companies were banking on banner ads and got hit by the dotcom bust. Google also didn't get bogged down into becoming a portal, creating content and competing with publisher partners, like Yahoo did.
"Google was out there and executing well early," says Danny Sullivan, editor of Search Engine Land. "Yahoo was blindsided on search and on general online marketing."
Microsoft, having fought off challenges by the likes of IBM, Oracle and Apple for desktop dominance, didn't realize until fairly recently that the Internet would revolutionize information sharing and computing. The company eventually acquired crawling technology and got into paid search, but was too late to catch up to Yahoo and Google.
"Google's success is it turns the entire Web into billboard space for lease or rent," Sullivan says. "If I want to put contextual ads on my site from Microsoft, I can't do that."
Google has succeeded where others have failed in threatening Microsoft with the prospect of network computing, or as it calls it "cloud computing," where data is stored on the Internet and can be reached from any computer any time. Why use an expensive desktop application from Microsoft when you can do e-mail, word processing, whatever for free on the Web with Google?
Not only has Google toppled Yahoo's world and posed a serious threat to Microsoft, but it is unassumingly taking on other industries as well. Its digital book scanning project aims to open the world's libraries to the Web, but has prompted copyright challenges around the world. The acquisition of popular video site YouTube has helped scare major entertainment companies into action, legal and otherwise. Its automated ad system, coupled with the emergence of online news and local classifieds sites, have cut into newspaper revenues. And now it is developing an open source-based mobile platform that will mean consumers won't be locked into particular hardware or software when using the Web on mobile devices.
"Google is a disruptive company. Were looking at huge fractures in the telco area, with Yahoo and Microsoft, and in publishing, in indexing library material," says Stephen Arnold, author of several books on Google, including The Google Legacy> "It's absolutely amazing and Google does this by literally twitching their big toe."
A combination of good timing - late enough to escape damage in the dotcom bust but early enough to lead, foresight in realizing the potential of search ads, innovation and vision have made Google the most important Internet company. Its concentration on monetizing search is driving that.
"Search is at the core of what Google does and they have stayed focused on that when Yahoo wasn't focused on that and Microsoft hadn't invested in it yet," says Sullivan.
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