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Yahoo paid price for coddling Google

McCLATCHY-TRIBUNE
SAN JOSE, Calif. - Almost eight years ago, Yahoo decided to lend a little start-up a helping hand, featuring its search technology on the Yahoo home page and giving it money at a critical juncture.

In cut-throat Silicon Valley, no good deed goes unpunished.

The start-up 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 punish¬ing consequences of its complex relationship with Google, including a futile attempt to copy Google's extraordinarily profitable advertising model at sig¬nificant cost to Yahoo's own business.

Long before the world learned that Google had turned the Internet into an amazing money-minting machine, Yahoo knew.

When Google was still a private company, it sent its financial statements to Yahoo's headquarters in Sunnyvale, California, like clockwork. Google had to because Yahoo was one of its earliest investors.

The statements showed the incredible growth of Google's 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 co-founder Larry Page described the pact as a "major milestone."

The following year, Yahoo was even more generous, paying 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 for the entire year.

Yet Yahoo was hardly flush with cash. After two years of profit, Yahoo reported an annual loss of million in 2001. The value its stock had collapsed fro $118.75 a share in January 2000 to $4.05 in September 2001.

Meanwhile, Yahoo's promotional push was having an effect on Google "When we were turning th business around in 2001, Google was already becoming the ascendant player in Europe, especially in the U.K., which is one of the most important advertising markets," recalled L. Jasmine Kim, a former vice president for global marketing and sales development for Yahoo.