Yahoo: We can have it both ways by Jon Fortt @FortuneMagazine February 11, 2010, 12:51 AM EST E-mail Tweet Facebook Google Plus Linkedin Share icons The online giant argues new features will win back lost search share Shashi Seth, Yahoo's SVP of search products, has been on the job just three weeks – and he wants everyone to know Yahoo's still serious about search. Photo: Jon Fortt. Yahoo brought out its big engineering guns on Wednesday to convince the world that it hasn’t given up on search. The search story has gotten complicated for Yahoo YHOO in recent months. Last July CEO Carol Bartz announced a deal to outsource core search technology to Microsoft MSFT , which looked like an admission of defeat. Assuming the deal passes regulatory muster, Microsoft will take the lead in search technology and spend the billions developing search technology to take on market leader Google GOOG ; Yahoo will sell the ads that appear alongside its search queries. During a two-hour Yahoo SearchSpeak event at Yahoo headquarters campus led by brand new SVP of Search Products Shashi Seth, some of the company’s top engineering minds made the case that Yahoo could still be the most innovative company in search, even after outsourcing it. All Yahoo is giving up, they argued, is the dirty work of indexing pages – and pages matter less and less these days, when users are looking for things like video, streaming music, and location information. That frees Yahoo up to package that information in a format that keeps users coming back. Which is an important goal, because Yahoo’s search audience is already leaving for Microsoft and Google, according to comScore – Yahoo’s down about 2.5 percentage points since the middle of last year, before the search deal was announced. That’s bad for Yahoo on a couple of levels. One, even after the Microsoft deal, Yahoo will need a big search audience to sell to its advertisers. Two, Yahoo’s biggest revenue stream, display advertising, depends on search data to work well; less search share equals less effective brand ad technology. Bartz is well aware of the stakes: David Pann, Yahoo’s VP of search advertising, said “it is a top priority of Carol’s to address the search share issue” – which means heads will roll if it doesn’t get done. So Yahoo is trying to amp up the search innovation to win a bigger audience. At the confab the company showed off a few new ideas – mostly ways to sift through information without typing a bunch of queries into a search box. Search for the Winter Olympics, for example, and you get a box at the top of results that takes you straight to schedules, medal counts, photos and news – a more comprehensive package than Google delivers. In a demo of an upcoming feature for mobile phones, playfully called sketch-a-search, Yahoo showed the ability to circle an area on a map – say, the waterfront in San Francisco – and find restaurants just within that area. But will nifty search features translate into more money for Yahoo? Not necessarily. Search isn’t a meritocracy where traffic automatically flows to the guy with the coolest technology. That’s why Google and Microsoft have lately inked multi-million-dollar deals with computer makers like Hewlett-Packard HPQ and Acer to be the default search engine on their computers. Google and Microsoft, of course, have more money to spend on those deals than Yahoo – so at the same time Yahoo is talking about regaining search share, it is also backing away from some of those pricey distribution agreements. To make up for it, Yahoo is looking at ways of peddling search to its audience of hundreds of millions of users – which might turn out to be the most important innovation of all. If the engineers at Yahoo figure out how to get those folks to plug more queries into the hometown search engine, that will be worth a bucket-load of new search tricks. After the event, I sat down with search guru Prabhakar Raghavan to talk about Yahoo’s strategy: For a mobile version of this video, click here.