Internet firm Yahoo Inc. has been operating a research and development (R&D) centre in India for the past 10 years. The centre’s contribution to intellectual property (IP) filed by Yahoo globally has increased to almost one-third the past two years, from 10-12% previously.

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In an interview, Shouvick Mukherjee, chief executive and vice-president of Yahoo India R&D, says innovation and product development out of India have started adding to the company’s overall revenues. Edited excerpts:

Over the past couple of years, we have seen several top-level exits at Yahoo R&D and some bad press due to layoffs. Have things started stabilizing now?

Definitely. Since Carol Bartz took over as CEO, we have seen increased focus on the centre. Around two years back, only 10-12% of the IP filed by Yahoo was coming from the India centre. We have grown it to 30% now. The major differentiator is the responsibility of handling end-to-end products that we have compared to any other R&D centre in India.

New platform: Mukherjee says the partnership with Microsoft is for the back-end of search, where the firm is expecting Microsoft to provide the crawled data and infrastructure for search. Priyanka Parashar/Mint

In the last one year, we have really moved from impacting the bottomline to making an impact on the topline. The company is seeing more and more value, which is leading to an increased investment and focus in the India R&D centre. When you are handling complete end-to-end products you get a lot more domain expertise compared to when you are doing just some bits and pieces of development. Hopefully, we will continue to show a higher value going forward that will bring in the stability.

How much is the India centre’s contribution to revenue?

We don’t go into the revenue numbers per se. But as I said, 30% of the IP is out of here and 20 of the Yahoo products are managed end-to-end from the India centre. All the India products and services are developed here along with emerging market regional products. If you look at R&D, Yahoo’s investment is almost 16%, which is around $1.2 billion (Rs 5,424 crore today), and (a) significant portion of it is being invested here.

What products developed in India are being deployed globally?

In the advertising space, performance advertising is increasing in demand. A few months back we launched a product which is really transforming this space. We and Yahoo run an ad exchange and this product called Predict was developed here, which has new ways of predicting which ad will get what level of click. This fundamentally improved the ROI (return on investment) for advertisers.

(An)other example is on the platform side. We developed a product called Helion, which made it possible to launch multiple sites in parallel and in (the) last few months, we have seen major roll-outs of lifestyle products (and) others based on this platform.

Recently, Yahoo announced an R&D centre in China. Did India lose out on the proposed investment?

Our main focus is around talent and definitely China has a good talent pool... Yahoo continue(s) to invest in India. In China, Yahoo is similar to what it was in India 10 years back. We are investing there and seeing if we can attract the best of talent. The Internet industry is about talent and if we can attract the best of talent, it will be a great thing.

The US is considering several incentives for investments in R&D. Will that affect Yahoo’s plans for India?

There are companies that are outsourcing work and Yahoo is not in those section of companies. More than 50% of our user base is outside the US. And hence, it is very important for Yahoo to be global in its R&D. That’s the main driver for having R&D centres outside the US. Yahoo is looking for talent to develop their products, that’s the reason Bangalore and Beijing are important for Yahoo.

How is the Microsoft-Yahoo partnership for search shaping up?

The partnership with Microsoft (Corp.) is for the back-end of search, where we are expecting Microsoft to give us the crawled data and infrastructure for search. The advertising marketplace for Yahoo and Microsoft will be on a common platform. So a lot of integration work happened from here in Bangalore. The US market both on search and search advertising migrated to the new platform this month. The focus is now to roll out the international markets over the next two years. As far as India is concerned, I do not have the exact date but it will be somewhere around 2012.

There is a lot of curiosity about what will come out of the partnership. How will the two companies partner while competing at the same time?

Yes, Yahoo and Microsoft are competing on search as a space. Microsoft is going to help us on the crawling platform and Yahoo will leverage that. But Yahoo has many other sources of information, like there is a lot of user-generated content that you get on Yahoo answers or groups. So you will see a lot of innovation happening. The main differentiating experience will be that Yahoo tries to leverage its content, its users and their information along with Microsoft’s platform to give a very different experience.

How will you avoid a possible friction in such an arrangement once the roll-out happens?

The best example will be of the laptop industry. Many laptop manufacturers use Intel as their chip, but they still compete with each other. Similarly, some part of the platform may be shared between Microsoft and Yahoo, but the experience that the user is going to get will be very different.

Do both sides part ways once the integration is complete?

We are going to share the same advertising marketplace...where actual bidding happens. We have to evolve that platform and make sure that we are providing an alternate solution to our competitors. Search has to be more focused in terms of making sure that the crawl we are going after is more exhaustive and real-time.

Does having rivals such as Google put more pressure on the India centre to constantly innovate?

That’s true, because we are competing global. We are competing with whoever Yahoo’s competition is. We are thinking of how to become leaders in the product lines we want to be in, rather than just running those products. And it’s a very different mindset. Innovation is one part but you have to have strategies around it. So if we can come up with those strategies and think about innovation that can differentiate at least the products that we are working on, we can create huge value for Yahoo.

Some of your competitors have branched into television, operating systems (OS) for mobile phones, etc. Will Yahoo follow suit?

From the beginning, (Yahoo) has been very open that it wants to play at the application layer, build applications which are differentiated, seamless and integrated. That’s our strategy as compared to being an OS or a device manufacturer.

We can partner with the manufacturers and we have very good relationships with the service providers today. With these partnerships, we can provide a very differentiated experience. Our thinking is that we will partner, we will be open and leverage all platforms that come into play, rather than we trying to develop our own platforms.