Yahoo Cost Estimate
July 11, 2008
I wanted to run through some of the cost data I have gathered over the years. The reason is this sentence in Miguel Helft’s “Yahoo Is Inviting Partners to Build on Its Search Power,” an essay that appeared in the Kentucky edition of the New York Times, July 10, 2008, page C5:
Yahoo estimates that it would cost $300 million to build a search service from scratch.
No link for this. Sorry. I have the dead tree version, and I refuse to deal with the New York Times’s Web site, and its weird reader thing.
The Yahoo BOSS initiative has been choking my news reader. I don’t want to be a link pig, but I will flag three posts that you may want to scan. First, the LA Times’s “Who’s the BOSS? Yahoo Searches for a Way to Unseat Google,” by Jessica Guynn. You can as of 7 45 pm on July 10, 2008, read it here. I liked this write up because of this remark:
Yahoo has made myriad efforts over the years.
By golly, that nails it. Lots of effort, little progress. The rest of Ms Guynn’s essay unrolls a well worn red carpet decorated with platitudes.
Next, I suggest you scan Larry Dignan’s essay “Yahoo’s Desperate Search Times Call for Open Source.” I like most of the ZDNet essays. I would characterize the approach as gentle pragmatism. I liked this sentence:
Yahoo’s open strategy makes a lot of sense. But let’s not kid ourselves, Yahoo’s open strategy could be characterized as a Hail Mary pass too. It may work. BOSS may turn out to be brilliant. But let’s reserve judgment until we see some results–on the business and technology fronts.
Nailed. Enough said.
The last essay on this short list is John Letzing’s “In an Effort to Disrupt, Yahoo Further Opens Search” on MarketWatch. You can read this article here. (Warning: MarketWatch essays can be tough to track down. Very wacky url and a not-so-hot search engine make a killer combination.) The essay is good, and it takes a business angle on the story. For me, this was the key sentence:
Yahoo distributed a slide presentation to accompany news of the BOSS initiative that includes a pie chart showing a dramatic projected gain for “BOSS partners & developers,” at the expense of Google, Microsoft and Yahoo-branded services. Michels stressed that the pie chart isn’t based on actual calculated estimates, but rather reflects Yahoo’s directional goals.
Presentations based on assumptions–those will go a long way to restoring investor confidence in Yahoo.
Now back to the single sentence in the New York Times today:
Yahoo estimates that it would cost $300 million to build a search service from scratch.
This is Yahoo math.
My data suggest that Yahoo’s estimate is baloney. Over the years, Yahoo has accumulated search technologies; for example, Inktomi, AllTheWeb.com, Stata Labs, and AltaVista.com. Yahoo’s acquisitions arrived with search systems, often pretty weak; for example, Delicious.com’s and Flickr.com’s. Yahoo has licensed third-party search tools such as InQuira’s question answering system. To top it off, Yahoo’s engineers have cooked up Mindset, which has some nice features, and the more recent semantic search system here.
This $300 million number is low enough for a company of Yahoo’s size to have built a search system if it could be done. The wacky estimates and the track record of collecting search system like the hopeful’s on Antique Road Show are evidence that Yahoo could not build a search system.
Yahoo could spend time, money, and talent creating a collection of stuff that has zero chance of thwarting Google. The search vendors lining up to use Yahoo’s index and infrastructure, the open source voodoo, and the unsubstantiated cost estimate underscore how far from reality Yahoo has allowed itself to drift.
I am going to watch how the BOSS play unfolds. Yahoo is in a pretty unpleasant spot, and its executives’ willingness to do first year MBA student projections annoys me.
Let me end with a question. If search is a $300 million dollar investment, for what is Google spending billions? Why is Microsoft spending moe billions than Google AND buying search technology with a devil-may-care insouciance that I admire. It is as if Carly Fiorina was the buy out guru.
Yahoo’s ad revenue projections and its cost estimates are examples of spreadsheet fever. I hope the disease runs its course before the patient becomes incurable.
There’s a math cartoon floating around. The letter “i” (Descartes’ imaginary number) is talking to pi (the Greek symbol you recall from 7th grade math). The caption is, “Get real.” Good advice. Those writing about Yahoo may want to pepper their questions with “Get real.”
Stephen Arnold, July 11, 2008
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[…] Not long ago, a Yahoo guru opined that building a Web search system cost about $300 million. I made a feeble attempt to point out that if that were indeed true, Yahoo would have accomplished the task and not collected search engines the way my mother adds to her collection of knickknacks. Similarly, Microsoft would not have bought Powerset, Fast Search & Transfer, and football-field sized data centers. I think the Yahoo math in that essay which you can read here was 1 + 1 = 3 bazillion. A bazillion is a technical term favored by the mathematical challenged. You can read about Yahoo math here. […]
[…] July 2008, I wrote “Yahoo Cost Estimate”. Here’s the key passage: I wanted to run through some of the cost data I have gathered over […]