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When U.S. Web surfers are searching for information, 80 percent of them turn to one of three sites: Google, Yahoo, or Microsoft’s MSN. And because the keyword-specific ads displayed alongside search results command such a premium, these three leading search companies have spent the last two years sparring relentlessly with each other, adding free services – desktop toolbars, blogs, gigabytes of e-mail storage – designed to turn casual users into loyal ones.

But when it comes to developing new Web technology, one of these companies has lagged behind the others. Surprisingly, it’s not Microsoft, but Yahoo.

At Google, research is woven into the fabric of the company: software engineers are required to spend 20 percent of their time on far-out ideas, a policy that’s given rise to a host of spin-off Google sites.

Microsoft, for its part, has funded extensive research in areas such as data mining and information retrieval, including a system that assembles information from the Web and a user’s hard drive before he or she has even realized they need it.

But for Yahoo, having a research operation that helps to invent emerging information tools has never been a major priority. Indeed, until two years ago, the company didn’t even have its own search engine – it rented Google’s.

But now that’s changing – and fast. In July, Yahoo hired Prabhakar Raghavan, the former chief technology officer at enterprise-search provider Verity, to lead its 40-person research division in the company’s Sunnyvale, CA headquarters.

Raghavan, who is also editor-in-chief of the Journal of the Association for Computing Machinery, has proceeded to put Yahoo Research on the map by wooing top researchers, such as Andrew Tomkins, a text-analytics expert so well-regarded for his work on Web buzz-tracking at IBM’s Almaden Research Center that Fortune magazine called him one of IBM’s “golden geeks.” More hiring announcements are imminent, too, according to Usama Fayyad, Yahoo’s senior vice president and chief data officer.

“What Prabhakar has achieved in two and a half months of recruiting is to attract the top minds in the world in the spaces of search and social media,” says Fayyad.

Raghavan was more modest in a three-way conversation with Technology Review last week. But Fayyad said he was quite serious about rapidly making Yahoo a major player in new Web-based tools.

Some outside the company caution that building a strong research division takes time, though. “Research is a long-term investment in the future, not a way to fix the present,” says Rick Rashid, Microsoft’s senior vice president of research and the former director of Microsoft Research. “Based on what I have seen in the past, I think it is fair to assume that it will take a number of years for the impact of a new research organization to be felt in earnest by a company.

“At the same time, there is great value in hiring good researchers and bringing them into a corporate environment,” Rashid says, “and that value can translate quickly into an influx of ideas and perspectives that can change the nature and quality of a company’s products even in the short term.”

The turnabout at Yahoo came, according to Fayyad, when Yahoo’s leaders began to ask whether the company’s existing research effort would help Yahoo take advantage of the changing nature of the Internet, particularly the growth of interactive Web-based applications such as blogs, auctions, and travel planning.

“We had an early version of Yahoo Research where we were very pleased with the performance, but we weren’t very happy with the vision of where we were going,” Fayyad says. “A huge proportion of the advertising dollars in the world are going to flow [toward interactive applications]. We need to know, ‘What are the real underlying problems?’”

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