GYM: The Battle for Number One

After eMarketer announced yesterday that Google is on track to becoming the first company to ever pocket 25 percent of U.S. online ad spend, things were looking pretty grim for Yahoo! and Microsoft (especially after Yahoo!’s tough Tuesday). But, how long can Google keep this up? Will Yahoo! and Microsoft ever be able to catch them in the search game?

The report by eMarketer touted impressive figures for the folks at the GOOG. If their predictions are accurate, Google will show a 65 percent increase in revenue growth this year, with total ad revenue topping $4 billion.

By comparison, yesterday Yahoo! announced a 38 percent revenue decrease (leaving them at $159 million) and a need to go “back to basics” to fix the downward spiral scenario. Terry Semel attributed the poor third quarter results to cutbacks from auto and financial advertisers, and an increase in competition for lower priced advertising (better known as “Google”).

The reasons Terry gives are troubling because they are two areas where Google is only growing stronger.

The one thing Google knows how to do is leverage its advertising. Advertisers love Google. Unfortunately for Yahoo! and Microsoft, Google will only become more dominant with YouTube in its arsenal. Of course, Yahoo! will have a chance to recoup some lost advertising dollars now that Panama is live, but it’s been so long since Yahoo! relinquished its PPC King crown that it may just be too late.

In order for Yahoo! to compete with Google, it will have to successfully leverage Panama, continue to differentiate itself by improving its media portal, aggressively pursue opportunities (like yesterday’s Right Media Inc investment and AdInterax acquisition), and find a way to compete in video. The CBS deal is a good start, but it’s not enough to combat GooTube.

And what about Microsoft?

Microsoft won’t reveal their quarter results until later this month, and you can’t help but wonder what’s coming. Why did Steve Ballmer feel the need to clarify that the previous estimate for 2007 Research and Development was more than a billion dollars off? Was he really talking “off the top of his head” back in May or did plans change over the course of the year? It sounds like we’re in for a surprise when the results are made public.

I have no problem with Microsoft allocating more money to research; but it’s troubling when executives can’t account for where their money is going. If we accidentally spent a large sum of money in an area we weren’t expecting, it would probably signify some sort of trouble internally. I hope that’s not the case for Microsoft, but it might be.

It would be encouraging to see Microsoft allocate money to grand development plans. Show me you have something else to offer besides Vista. Show me the lights are on in Redmond.

Ballmer admitted that with Google they finally have some competition for talent – which, of course, includes finding new talent and holding on to established team members. Over the past few months there have been several high profile exits, including Martin Taylor, Vic Gundotra, Michael Wehrs and Doug Burgum. Why are they leaving?

Perhaps we’ll get an answer to that question (among others) once the quarter results are made public.

Yahoo! and Microsoft have found themselves in an uncomfortable situation at present, but as long as they keep playing smart and thinking innovatively, there’s room for the tide to change. The numbers released by eMarketer show Google as not just The One to Beat, but as an unstoppable force with the power to bowl over the competition. But that won’t last forever.

Internet darlings have a predetermined shelf life – look what happened to AOL or to the Microsoft of the ’90s. Both were the “it” companies of their time, they garnered a lot of buzz and had very public downfalls. It’s very possible that in 3-5 years Google’s reign will end. But who will be there to start anew? Yahoo! and Microsoft have been doing a pretty good job in the race for second, but it’s time to start gunning for first. The company to succeed Google is laying the groundwork today.

Lisa Barone is a writer, content marketer & VP of strategy at Overit Media. She's also a very active Twitterer, much to the dismay of the rest of the world.

See Lisa's author page for links to connect on social media.

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