Yahoo buys search firm Inktomi for $235M

Yahoo Inc. has purchased Inktomi Corp. for about $235 million, the companies announced today. Yahoo will add Inktomi's Web search technology to its portal sites in hopes of becoming the premier destination for Web searches, it said.

Inktomi's technology is used by a number of businesses to allow searches of their sites and the Web. Yahoo will use the technology for both purposes, said Jeff Weiner, senior vice president of search and marketplace at Yahoo.

"Our objective is to provide the highest quality search experience and to be the leading provider of search [technology] on the Internet," he said.

Foster City, Calif.-based Inktomi has deals with Inc., eBay Inc. and Microsoft Corp.'s portal, according to its Web site. also uses Inktomi search software.

Yahoo currently uses technology from Google Inc. as the back end of its search engine. Google's technology isn't going away, but Yahoo feels that it can provide a better searching experience to its users if the company uses in-house engineers and assets instead of licensing technology from another company, Weiner said.

Robert Lancaster, an analyst at The Yankee Group in Boston, said it's unclear how the acquisition of Inktomi, one of Google's main search-engine rivals, will affect Yahoo's relationship with Google.

"It further pits Yahoo against Google," he said. "Both of their revenues are directly generated by traffic. They needed each other."

As Google has built in further functions, the company has been going after Yahoo by competing with more services, he said. "They're taking eyeballs away from Yahoo," he said.

For example, Google now sports a popular automated news page, making the site more of a destination and not simply a search engine. Yahoo also promotes news as one of the attractions on its site.

Inktomi's search technology was included in the recent launch of Yahoo competitor Terra Lycos SA's new HotBot search site. Yahoo is committed to Inktomi's affiliate agreements, Weiner said.

Yahoo's prospects are looking better after doubts about its sustainability emerged during the dot-com crash and advertising slump of the past year. The Sunnyvale, Calif.-based company's third-quarter results were better than expected, and a recent report suggested that the online advertising market is showing signs of rebirth (see story).

Inktomi's paid-inclusion technology will add to Yahoo's revenue. Inktomi's program places paid advertisers in a pool, then ranks the pool members by relevance to a user's search terms, as opposed to Yahoo's current pay-for-placement service run by Overture Services Inc., which ranks search results according to who paid the most, Weiner said.

Like Google's technology, Overture's services will remain part of the new Inktomi/Yahoo search page, Weiner said.

Yahoo's stock was up 41 cents, or 2.39%, to $17.49 in midafternoon trading today. Inktomi's stock was up 44 cents, or 37.6%, to $1.61 on news of the deal. The deal reflects a purchase price of $1.65 per share for Inktomi, Yahoo said.

Inktomi has approximately 140 employees remaining after the sale of its enterprise search business to Verity Inc. in November. It's too early to know exactly how current Inktomi employees will be affected by the deal, Weiner said.

Computerworld reporter Todd R. Weiss contributed to this report.


Copyright © 2002 IDG Communications, Inc.

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