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Show DAILY I H ID R A CS Yahoo pays high price for coddling' Google Ackerman and Pete Carey Elis SAN )OSI MtCUi N(M p search advertising business, with sales more than doubling from quarter to quarter. But Yahoo executives didn't focus on the money; they were interested in how much traffic was being driven by search, recalled Ellen Siminoff , an executive who joined Yahoo in 1996. In 2000, Yahoo agreed to use and promote Google, which it touted as "the best search engine on the Internet." Google Larry Page described the pact as a "major s . fourth-quarte- ., st Press world's biggest brands. "It became clear over the course of a year that there wasn't anything to that," said Mark Mahaney, an analyst Semel's first move: He with Citigroup. struck a deal with Pasadena, It turned out Yahoo's happy Calif Overture Systems to provide ads for Yahoo's ending was more Hollywood search results. Then he tried to than reality. While Yahoo's business had buy Google. After those talks fizzled in certainly improved, it was nowhere near catching Google. 2002, Semel acquired Inktomi, a search engine, for $235 milYahoo's revenue in 2004 had doubled largely as a result of lion in December 2002. Seven months later, he bought Overthe acquisition of Overture. ture for $1.6 billion. And its profit that year was The deals gave Yahoo a swollen by the sale of $400 million of Google stock. huge boost. In 2004, revenue Yahoo sold its remaining doubled and profit more than stake in Google, roughly 4.2 tripled. Yahoo's stock vaulted million shares, the following from $16.10 a share on the day the Overture deal was year for nearly $1 billion, again announced July 14, 2003, to boosting its profit. Executives continued to $37.68 at the end of 2004. In early 2005, when both tout Yahoo's financial perforcompanies reported their 2004 mance. "I am very proud of the earnings, it seemed like Yahoo remarkable growth and progand Google might even be ress Yahoo has demonstrated neck and neck. While Google throughout this past year," Semel said on Jan. 17, 2006. c had revved its profit engine But shares fell 13 percent the harder for an increase of 276 percent compared with next day as investors respondYahoo Yahoo's 252 percent ed to the news that core profit boasted a larger increase in was a penny less than analysts 119 percent to Google's had expected. sales 113 percent. And the rate of sales growth fell by more than 60 percent,, "What's even more imexposing the isolated bump ; portant than exceeding any one of our financial targets, Yahoo's sales had received from buying Overture. however, is the way in which PAUL SAKUM A, Associated Yahoo worker walks into Yahoo headquarters in Sunnyvale, Calif. ing Google $7.2 million for its services. (Google in turn paid Yahoo $1.1 million for promotional help.) Google desperately needed the money, which helped push it into the black of light. The game changed." Yahoo management did not respond to questions about the company's relationship with Google. The tech industry's giants for the entire year. Yet Yahoo was hardly flush with cash. After two years of profit, Yahoo reported an annual loss of $93 million in 2001. The value of its stock had collapsed from $118.75 a share in January 2000 to $4.05 in September 2001. ; V g . "In rates, the more it stokes inflationary pressures with cheap money and drives down the Continued from C6 value of the dollar. rebate checks under a $168 bilLower rates help on shorter lion economic aid plan. term debt, including adjustable On Wednesday, the adminhome mortgages, lines of credit, auto loans and istration relaxed restrictions on mortgage-financ- e some credit cards. But they giants Fannie Mae and Freddie Mac, have provided little relief on loans sought by longer-terallowing them to make up to $200 billion more in loans. The first time home buyers and White House also is negotiatpeople refinancing mortgages. Also, they cut into the earnings ing with Democrats, who run Congress, on plans to head off of retirees and others who dehundreds of thousands of home pend on fixed income. Economist Robert Reich, laforeclosures. But there are risks. bor secretary in the Clinton adToo much government inministration, likens the recent Fed steps to pumping helium tervention, some economists suggest, may prolong the day into a balloon about to burst. of reckoning when housing Across the spectrum, there and credit markets hit bottom, is little cause for joy. while adding hundreds of bilInvestors remain jittery. Aflions to the national debt, now ter the Fed's rate cut on Tuesday, stocks surged, with the edging closer to $ 10 trillion. The more the Fed reduces Dow industrials rising over 420 Economy home-equit- y their )sv'S Even those applauding moves by the Fed and the administration say the steps are helpful and ward off panic, but that the bad news is not over, "A very severe correction is under way. House prices are plunging, stock prices are down measurably from their peak, there's a lot of finan- rial pain everywhere," said Mark Zandi, chief economist at Moody's Economy.com. "I think all the policymakers are trying to do is ensure that everything doesn't come to a complete halt." As Bush said this week, "One thing is for certain, we're in challenging times." When does the government reach the limit on what it can do to arrest this slide? "We don't know what the limit is," points. On Wednesday, most of those gains were erased, reflecting continuing nervousness about the economy and the world's financial system. Stocks are down roughly percent to 15 percent from their 2007 peak, typical of a recession-driven correction. Polls show most people in the United States believe the country is already in a recession, a view backed by many 10 Become Consumers are cutting back spending; employers shed 63,000 jobs in February. On Monday, the Fed reported that U.S. factories were running at their slowest pace since October 2005. Both retail sales and industrial production fell last month. e 011 prices recently hit an high of $ 1 10 a barrel before easing back to about $104 a barrel Wednesday Freddie to purchase or guarantee roughly $2 trillion in mortgages this year. The two companies together hold or guarantee around $4.9 trillion in home-loa- n debt. As the mortgage crisis and ensuing credit crunch have worsened in recent months, policy makers have increasingly looked to them to step up their participation in the hobbled market for securities backed by mortgages. "This is what (Fannie and Freddie) were put in place for. ... And we will deliver," Freddie Mac Chairman and CEO Richard Syron said. Influential Democratic law- makers have been pushing for a reduction in the compag nies' require ments. Bush administration officials, on the other hand, have long opposed allowing Fannie and Freddie to take on more debt, contending that doing so could threaten the global financial system. capital-holdin- Wfijwsfrt f&s&Jr "V-3- Training in a Real Dental Lab! Very High Earning Potential! Arts Academy refine V-of Dental -- Technology -: 1355 N. Univ Ave 340 Provo 377-522-9 www.nneArtsDentalAcademy.tom HI Nostradomus' eamjquake pn xa Itions keep you up at night? Insure bur home for the big one , said economist Rivlin. "That isn't a question with an answer." nt Dental Lab Technician in 9 months! a Hands-o- n : economists. kv." mortgage-investme- holdings. OFHEO estimated that the combination of these efforts should allow Fannie and . like Microsoft, Intel and Oracle are famous for ruthlessly dealing with competitors. Not Yahoo. In 2002, Yahoo paid Google $13.2 million, equivalent to more than a quarter of Yahoo's annual profit of $43 million. The sum, however, meant less to Meanwhile, Yahoo's proGoogle, which had blown past motional push was having its benefactor with an annual an effect on Google. "When profit of about $100 millioa But the price of coddling we were turning the business around in 2001, Google was al- Google would be much higher, ready becoming the ascendant as Yahoo soon discovered. In May 2001, Yahoo replaced player in Europe, especially in Chief Executive Tim Koogle, the U.K., which is one of the enmost important advertising a folksy, markets," recalled L Jasmine gineer, with Terry Semel, a veteran Hollywood dealmaker Kim, a former vice president for global marketing and sales who had rarely used Semel may not have been development for Yahoo. a technology guru, but he Members of the international team tried to telegraph knew search would be key to their concern to Sunnyvale, Yahoo's success. Kim recalled. He also realized Yahoo had hindsight, it is easy to say a big problem: It had neither its we should have seen it as we own search technology nor the did discuss our concerns, but software for handling search technology moves at the speed advertising. guitar-playin- milestone." The following year, Yahoo was even more generous, pay- - Va.-hase- ll . A Fanallow Washington-based nie ami McLean. Freddie to shoulder larger burdens in the mortgage market despite their multibillion-dolla- r r tosses and expectations of further red ink this year. The $ll8 billion economic stimulus package enacted last month included a temporary increase in the cap on mortgages that the companies can purchase or guarantee, from $417,000 to $729,750 in high-comarkets. And, as a reward for filing timely financial statements following muhibillion-dolla- r accounting scandals, Fannie and Freddie were freed on March 1 of a combined $1.5 trillion cap on page, The executives explained that Yahoo could cross-sethe two kinds of advertising and be a one-sto-p shop for the ... row Oi Thr new agrwmenl was the third step the government has taken in recent weeks to we've achieved thorn, and they do flow from a robust fixinda-tion.- " Chirf Financial Officer Sue lXker told analysts in January 2(K5. Semel and Uvker told Wall "Street that Yahoo was in a better position than Google because it sold both search advertising, ads triggered by search queries, and display adads that vertising, image-base- d appear as banners or ot her graphical elements on a Web i SAN JOSE. Calif. -A- lmost eight years ago, Yahoo decided to lend a little start-ua help-in- g hand, featuring its search technology on the Yahoo home page and giv ing ft money at a critical juncture. In Silicon Valley, no good deed goes unpunished. The start-u- p was Google, and Yahoo's generosity helped launch the most formidable competitor it had ever encountered. Now facing a takeover attempt by Microsoft, Yahoo is coming to terms with the punishing consequences of its complex relationship with Google, including a futile attempt to copy Google's extraordinarily profitable advertising model at significant cost to Yahoo's own business. Long before the world learned that Google had turned the Internet into an amazing money-mintin- g machine, Yahoo knew.. When Google was still a private company, it sent its financial statements to Yahoo's headquarters in Sunnyvale, Calif., like clockwork. Google had to because Yahoo was one of its earliest investors. 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