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Yahoo! blasts back at Google

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Yahoo! used its annual financial analyst day to announce an expanded email service. With Google's beta GMail service grabbing so much attention, Yahoo! will expand the amount of free storage to 100MB per user over the summer, and a rather vague promise of "unlimited" storage for paid users. GMail will offer 1GB of storage and a vastly superior search capability. 100 MB of storage in Yahoo! Mail currently costs $49 a year.

In response to privacy concerns, Google has said it will consider offering a pay-for version of GMail without the spybots. But Google often says it will consider doing something that it has no intention of doing, and never does. Yahoo! indulged in some bluffing of its own for Wall Street's benefit. The company says it intends to increase the number of subscribers, currently just below 6m, to 15m, a revised long-term target.

The portal has nevertheless bounded along in the past year. Its advertising business netted $418m in most recent quarter, up 120 per cent on the corresponding quarter in 2003 and the lion's share of Yahoo!'s revenue. Gross profit for the first quarter of 2004 was $476m, almost doubling the $240m for the same quarter a year ago. In the same quarter Google earned $389.6m, most of which came from advertising. Google is growing faster, but has warned that 60 plus per cent margins will erode. Significantly, because of its more diversified revenue base, including such ventures as broadband ISP partnerships, Yahoo!'s income costs more.

When Google sells some of its stock to the public later this year it will have a war chest of $3bn with which to counter Yahoo! Most of the speculation has suggested that Google will use this cash pile to make acquisitions, and financial commentators are only too happy to play matchmaker. However it serves a more useful purpose. With three times as much money in the bank, Google will be able to drive down the cost of advertising - if it so wishes.

Google also announced it will begin to offer banner ads to advertisers for the first time.®

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