Online Search Engine Shake-Up?

Internet giant Yahoo! Inc. said it will buy fast-fading software maker Inktomi Corp. for $235 million in a deal that sets the stage for a shake-up in online search engines.

The $1.65-per-share acquisition, expected to close before April, punctuates a brutal fall for Inktomi, a former dot-com darling that had a market value of $25 billion in early 2000 when its stock price peaked at $231.63.

Inktomi's shares climbed 43 cents to close at $1.60 Monday on the Nasdaq Stock Market. Yahoo's shares gained 65 cents to close at $17.73 on the Nasdaq.

While Monday's deal closes the books on Foster City-based Inktomi, it appears to open new opportunities for Sunnyvale-based Yahoo.

The company has been licensing Google's highly regarded search engine since mid-2000, but that relationship has become more shaky as Google's Web site became a more powerful online magnet, drawing traffic from Yahoo.

Buying Inktomi's expertise in online search puts Yahoo in a position to drop Google, said industry analyst Safa Rashtchy of U.S. Bancorp Piper Jaffray.

"It's the perfectly logical thing for Yahoo to do," he said. "Why should they pay Google to be a rival?"

In an interview Monday, a Yahoo executive declined to discuss how the Inktomi acquisition might affect the company's relationship with Google.

When Yahoo disclosed that it had signed a multiyear contract extension with Google in October, the company said the agreement will give it more leeway to use other search technology.

The Inktomi acquisition "creates greater flexibility and control for us," said Jeff Weiner, Yahoo's senior vice president of search. "We won't be dependent on any single provider."

In a statement, Google said, "We look forward to continuing to provide our award-winning search technology."

Inktomi will continue to honor its contract to provide search services to MSN and other Web sites, Weiner said. Yahoo hopes to continue those relationships after individual contracts expire, company spokeswoman Diana Lee said.

Weiner emphasized Yahoo still has "a good relationship" with Google.

Yahoo owns a substantial stake, believed to be at least 5 percent, in privately held Google. Those holdings could generate a big windfall for Yahoo if Google decides to sell its stock on the public market, an event that many analysts believe will happen in 2003.

Google's site is the Web's fourth most popular destination, attracting 13.8 million home users and 12.3 million at-work users in the week ending Dec. 15, according to Nielsen/NetRatings. Only AOL, MSN and Yahoo draw more traffic than Google, according to the online rating service.

Analysts say Google owes much of its success to Yahoo, which gave the then little-known startup a major boost by giving it a highly coveted contract. Ironically, Google replaced Inktomi as Yahoo's search service.

Inktomi lost the Yahoo contract while it was in the midst of an expansion into other Internet services that quickly turned into major headaches during the dot-com meltdown.

As it backtracked, Inktomi suffered nearly $800 million in losses in two years and laid off more than 600 employees. The company still has about 140 employees. Weiner declined to discuss how many of those workers will join Yahoo.