TOKYO (Dow Jones)--Yahoo Japan Corp. (4689.TO), the country's biggest Internet search site, said Tuesday it plans to team up with Google Inc. (GOOG) to use the U.S. giant's search engine technology, sidestepping part-owner Yahoo! Inc.'s (YHOO) far-reaching online partnership with Microsoft Corp. (MSFT).
Though potentially upsetting ties with Yahoo! Inc., the deal gives Yahoo Japan and Google a massive, near-monopoly share of the Internet search market in the word's second-biggest economy.
At a press conference for Yahoo Japan's first-quarter earnings, the company said it will switch to Google's search engine from one previously developed by Yahoo! Inc. and that it will use also use Google's online advertising platform. Yahoo Japan said it is aiming to switch over to the Google search engine by year-end and then switch advertising systems sometime after that.
Yahoo Japan said it had been considering a move for almost a year after the announcement of Microsoft Corp's deal to provide search engine technology to Yahoo Inc. in all the countries where it directly operates. This meant that Yahoo's search engine technology and advertising systems that Yahoo Japan had been using would no longer be supported after the switch to Microsoft's Bing service.
The Yahoo and Microsoft partnership did not include an agreement in Japan, allowing Yahoo Japan to select between Google, Microsoft and some domestic options.
"We looked at this from many angles, but in the end we determined that Google was the better choice," said Yahoo Japan Chief Executive Masahiro Inoue.
Despite its name, Yahoo Japan isn't controlled by Yahoo Inc. Instead, Japanese cell phone and Internet service provider Softbank Corp. (9984.TO) has a stake of around 40%, while Yahoo! Inc. has 35% stake.
Yahoo Japan officials said it has about 57% of the domestic search market while Google controls about 38%. Some research firms have placed Microsoft's share at about 3%.
Mr. Inoue said he has already discussed the Google alliance with Japan's Fair Trade Commission and he said they raised no objections to the near monopoly. He said the regulators understood that while Google would be providing the back-end search technology, the customer-facing experience would be totally different on the two sites.
Google's search engine powered Yahoo Japan's queries for a three-year period ending May 2004 when the Japanese site moved to use Yahoo's own technology.
Meanwhile, Yahoo Japan said its net profit grew 13% to Y21.7 billion in the first quarter ended June, compared with Y19.2 billion in the same period a year earlier, boosted by increased revenue in its business services operations.
So here’s the one question that Yahoo (YHOO) CEO Carol Bartz seems unable to effectively answer: Why can’t the company show any revenue growth?
• In the June quarter, Google (GOOG) posted 24% growth on a gross revenue basis over a year ago, or 25% growth excluding traffic acquisition costs.
• In the same period, Yahoo posted 2% revenue growth, or zero growth ex-TAC.
Another comparison:
• Google posted 23% growth in revenue from owned sites, with a 30% increase from network sites.
• Yahoo reported a 3% increase in marketing revenue from owned sites, including an 8% drop in search ad revenue, with a 7% rise from network sites.
And one more:
• Google’s cash position at June 30 stood at $30.1 billion, up from $26.5 billion at March 31, an increase of $3.6 billion.
• Yahoo’s cash position in the quarter fell to $3.8 billion, from $4.5 billion, a drop of $719 million, due in part the the repurchase of 32 million shares for $496 million; that’s an average price of $15.50 apiece, which suggests maybe it wasn’t such a good idea, with the stock likely to open Wednesday at close to $14. Or think of it this way: Google generated almost as much cash in three months as Yahoo has in total on its balance sheet.
None of this is to suggest that Yahoo can’t turn things around; it still get huge amounts of traffic, and has millions of loyal users for many of its properties. But the lack of growth is making the Street restless. Bartz inspires confidence, she’s big on taking decisive action, but for all her efforts, the company still isn’t growing. At some point, Yahoo is going to need a more clearly defined growth strategy - and it will have to execute on it.
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