After Yahoo’s earnings on Tuesday (YHOO), we repeated our usual refrain: Yahoo’s search revenue is growing, but Yahoo is still losing share of search queries, and queries are the real long-term value driver. In the US, at least, we appear to be wrong.
Over the past nine months, Yahoo’s query share in the U.S. market has stabilised. Over the past three months, it has actually risen modestly (per Comscore). Nielsen’s figures tell a different story, but the Comscore numbers are encouraging:
ComScore: Yahoo! Web Search Reported Total Search Share (US)
Dec 07 22.9%
Jan 08 22.2%
Feb 08 21.6%
Mar 08 21.38%
Apr 08 20.4%
May 08 20.6%
Jun 08 20.9%
Jul 08 20.5%
Aug 08 19.7%
Sep 08 20.2%
Oct 08 20.5%
Nov 08 20.4%
Dec 08 20.5%
This is only the US market, and Comscore is just one measurement service. But the trend is still encouraging. Ever since Google arrived on the scene, Yahoo has steadily lost share, and these numbers suggest that that trend may finally be changing.
We have long since written off the possibility that Yahoo could actually mount a comeback in search share. Search appears to us to be a natural monopoly, and except for those who happen to be using Yahoo’s site anyway (an impressive 500 million people a month), the rest of world has been gradually gravitating to Google.
We have expected that Yahoo’s search share would gradually decline until it reached the 10%-15% range, at which point it would stabilise. This thesis has been the basis for our conviction that Yahoo should quickly combine forces with Microsoft, milk its search share for as much revenue as possible, and focus on display.
If, however, Yahoo is able to continue clawing back share (however modestly) or even hold its own, the picture changes. A combination with Microsoft would still make sense–30% of the market is more powerful than 20%–but the terms could end up being more favourable to Yahoo. At the very least, if Yahoo’s search query share remains stable, Yahoo can afford to play wait-and-see, as there would be little benefit to rushing into a deal with Microsoft.
Yahoo’s search share trends, therefore, merit close observation in the next few months. Most of Wall Street has, like us, given up Yahoo’s search business for dead, so even stabilisation could significantly help the stock.
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