Web Search: Game Over, Google Won

Sam Gustin hates to break it to Jerry Yang and Steve Ballmer, but the internet search wars are over. You lost.

When Microsoft made its unsolicited takeover offer for Yahoo earlier this year, many observers, including this one, suggested that a protracted takeover battle would benefit Google by distracting the two combatants from their larger, common goal: denting Google's supremacy in Web search advertising.

Despite Microsoft's contention that a combination with Yahoo was the best way to take on Google, I suggested that in the time it would take to actually close the deal, pass regulatory muster, and integrate the two companies' wildly different cultures -- as long as two years -- Google could wind up in an even more dominant position than it was before Microsoft made its offer.

Now, after nearly six months of acrimonious squabbling, Microsoft has taken its merger marbles and run home, while Yahoo is locked in a nasty proxy battle with financier Carl Icahn.

Meanwhile, Google has continued to increase its commanding lead in web search, so much so that its hard to imagine Microsoft, Yahoo, or any combination of the two -- including a limited search pact -- posing much of a threat to its dominance.

In May, Google's increased its lead in domestic web searches to 68.29 percent, according to latest numbers from Hitwise, up from 67.90 percent in April, and 65.13 percent in May 2007. Yahoo, meanwhile, saw its share of the search market drop to 19.95 percent, down from 20.28 percent in April, and 20.89 in May 2007. Microsoft's search share also fell, to 5.89 percent, down from 6.26 percent in April, and 7.61 percent in May 2007.

What do these numbers tell us? First, the Google juggernaut rolls on. Second, it's easy to see why Microsoft thought buying Yahoo might be its best chance to take on Google. At the time Microsoft first approached Yahoo about a combination -- well over one year ago according to multiple reports -- a tie-up would have commanded one third of the Web search market. Today, a combined Microsoft-Yahoo would have barely one quarter of the market.

The numbers also add further fuel to the fiery rhetoric coming from Icahn, who this week blasted Yahoo for letting Google dominate the market.

"While Google's income from operations grew 59 percent per year for the last two years, Yahoo's income from operations shrank 21 percent," Icahn wrote in his latest angry missive to Yahoo chairman Roy Bostock. "What was the board doing over this period? Where was their great plan? Why did you permit Google to leave you in the dust?"

The numbers don't lie, Carl: Google has won thanks to better strategy, better technology, and better execution. You may be able to bully Yahoo into accepting Microsoft's hand in merger -- assuming it wishes to return the altar -- thereby salvaging your investment in Yahoo, but you'd better being feeling really lucky if you think a combined Microsoft-Yahoo stands a chance of making a credible Web-search play at Google.