Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.


 
Thursday, December 08, 2005


Imitation is Not Strategy, or Why Yahoo is Living in the Uncanny Valley

One of Yahoo's vital points - perhaps it's definitive vital point - is that it doesn't innovate; it imitates. Even hyperimitates, if you like; soaking up like a sponge more and more corporate versions of cool ideas floating around the Net.

What it almost never does is improve on them in any meaningful way. Remember Yahoo Maps? Shoposphere? 360? MyWeb? These were all imitations (of Google Maps, Wists, MySpace, Delicious, etc).

I could go on, but you get the point: Yahoo's versions of these services were/are like wax dummies, lacking any life, missing the whole point of openness, anarchy, decentralization, etc being sources of very real value creation. It's like Yahoo's stuck in a strategic uncanny valley.

This should be intuitive, but let me be a beancounter for a sec:

"...The combined average revenue per page view and search increased by approximately 5 percent and 8 percent, respectively, in the three and nine months ended September 30, 2005 compared to the same periods in 2004."

That's from Yahoo's latest quarterly report.

Case in point, Yahoo Answers (or, secondarily, Messenger; despite the gushing, this too is simple imitation).

This is not innovation; it's an imitation, pretty obviously, of models like Ask Mefi, or perhaps Wondir - a play I've talked about a great deal.

It's not just that that's lame - it's that imitation (plus perhaps dressing something up in nicer garb) is not a sustainable strategy; The emperor still has no clothes, in markets dominated by first-mover advantage.

Why does Yahoo keep imitating? The implication is that it does because it can't innovate. Which begs the question: why so little innovative capacity? I'm not sure. Certainly, it's not for any lack of smart people, money, technology, or other resources.

Unfortunately for Yahoo, the market can feel what I'm saying - this lack of innovative capacity is clearly reflected in it's market cap vis a vis Goog.

To extend Mark P's killer analogy, if Google is like Wal-Mart, I suppose Yahoo is trying to be Target. Either one leaves me equally unexcited these days.

Of course, the standard rejoinder to my argument is that Yahoo is assembling resources and building competencies. I don't buy that. Yahoo seems to be chronically unable to derive any serious supply or demand side scale, scope, or specialization economies (as I've partially shown). This tells us all these resources are not translating into real economic value, let alone serving as sources of advantage.

I know this is a harsh post - so apologies in advance. My goal is not to offend anyone, most of all the folks at Yahoo that worked hard on these projects.

I just want to offer this critique of what I see as Yahoo's ongoing anti-strategy. YMMV.

-- umair // 10:26 AM // 12 comments


Comments:

Nope. You're making this too complicated.

Yahoo's market cap is half of Google's for a reasons which has nothing to do with innovation around peripheral products.

It has *everything* to do with inferior valuation with one of Yahoo's core products, in this case search advertising.

Google sees more searches than Yahoo, and Google's ad auction and relevancy-based ranking does a better job of monetizing each search than Yahoo's.

Simple as that.

I also think you overestimate the value of early innovation.

The earliest pioneers usually get killed. They blaze the trail, define a successful product or category -- essentially do all the early proof of concept work to both skeptical users and skeptical press. Later entrants -- as long as they're not too late -- can sometimes enter well before the product has crossed the chasm and been discovered by the mainstream. With their massive distribution and audience, they are able to grow their share quickly, even with a slightly inferior product.

And make no mistake, Yahoo's big asset (and the bulk of its market cap) is in its audience. It is a massive distribution outlet for content and services -- and that's an asset these little startups don't have.

Bottom line: For many categories of technology products and services, Yahoo doesn't have to be there first (ask AOL). Neither does Microsoft (ask Apple or Netscape or Borland or Lotus or Novell or...) or Google (ask AltaVista). Yahoo can't afford to be a slow follower -- else it's audience will eventually erode.
// Anonymous Anonymous // 5:44 AM
 

I think you're confusing innovation with releasing a half-baked product that crashes with JavaScript errors after user #5 decides to simultaneously visit the site, and introducing a revolutionary transit service that doesn't work anywhere except Portland, Oregon.

Yahoo's stuff works, scales well and is there 24-7, but sometimes people are too busy refreshing their Google Analytics pages with 8-day-old data and waiting to sign up for Google WebAccelerator that might have an uptime of 2-3%.
// Anonymous Anonymous // 6:34 AM
 

You also seem to be ignoring the fact that Google (which you seem to imply has a higher valuation because of innovation) is itself a follower, and other than introducing an ajax interface to webmail it hasn't offered one original idea since the founders were in grad school. Google has bought innovation and integrated it well (e.g. Keyhole & Blogger), but sometimes it has failed miserably even when trying to copy the flavor of the month (e.g. Orkut.)
// Anonymous Anonymous // 6:38 AM
 

I would have to agree that both Yahoo! and Google are not all that innovative. For the most part they are followers and scooping up small companies or imitating what has already been done. However, that is just part of the life. Most entrepreneurs that love to innovate like to pursue their dreams on their own terms vs. working for one of the big boys. Mike
// Blogger Mind Valley // 10:19 AM
 

At least in some cases - say, Flickr - Yahoo's been able to dodge having to innovate by picking up the innovators for what, to Yahoo, is peanuts. Should see another example of this very, very shortly, I think.
// Anonymous Greg // 1:31 PM
 

I think it has more to do with the nature of large companies. I recently went through the transition from small to large through an aquisition.

My conclusion is that the deck is stacked against innovation in a large company.

Come up with an innovation and the first question you will be asked is, "how much money will you make next quarter?" You either make it up, or say that you don't know. Either way it's hard to get budget approval against projects that are making money. You have to spend and enormous amount of energy selling your management.

Large companies are about maximizing the return on what they already know. An individuals success in that organization is measured against that (i.e. I increased sales from x to x or marketshare from y to y). The penelalty for failure is high with inovations.

Most large companies have the attitude that if any innovation works in the market, they can either move into it or buy it at lower risk than trying it.

Yahoo is simply acting like a large company.
// Anonymous Anonymous // 2:57 PM
 

Umair!!!

Dude, what are you doing? Why on Earth would you advise Yahoo or any other GAMEY constituent to innovate.

It's the startups that innovate, it's YAHOO who buys them. It's the great circle of life and I outright take issue with any attempts to short circuit it.

Unless you are trying to push the argument that Yahoo should lead, innovate earlier and buy more startups- I fail to see the benefits of your analysis.

;)
// Anonymous Daniel Nerezov // 3:32 PM
 

Yawn.

This is the same old, "why don't big companies innovate?" meme that is the mainstay of business schools and armchair pundits. Search Innovator's Dilemma on Amazon.

Does it really matter whether big companies innovate or not?

If you judge success by market cap and revenue, clearly not. Fast follower strategies that mass market innovation to broad consumer bases generally work pretty darn well.

If you judge success by having a bunch of cool widgets that only the tired Wired-1998 crowd use to be hipper than the other, well, then, you're right: The big companies suck. But thank goodness, they do.

Now how a company reacts to the impact of a lack of innovation and creativity upon its brand reputation and resulting customer relationship...that's a bit more interesting.
// Anonymous Anonymous // 5:56 PM
 

As a mutltiple-time small-company innovator and resulting road-kill, I think your definition of "innovation" is way too narrow - or you aren't correctly pointing out that a lot of "innovation" is pure unmitigated crap.

Are you suggesting that companies with large market caps and huge number of share-holders should ship lots and lots of crap to see what sticks? Can you imagine the class-action lawsuits?

There are things that ONLY the big guys can innovate on - and you don't even give them credit for those. Can you even see them?

Sometimes, innovation is getting an idea that failed at small scale to work at large scale.

ALL ideas are built on top of other ideas. It seems that by your definition all innovation is copying if it is done by a large enough company.
// Anonymous Anonymous // 6:16 PM
 

The 100% original/innovative movie would be unwatchable and get a large studio exec rightfully fired.
// Anonymous Anonymous // 6:22 PM
 


Bah! Innovating new products is very difficult for large companies. Yahoo has definitely had it's moments of innovation, but that's not really what it's known for. I use Yahoo religiously because they always release extremely high-quality products. The latest version of Messenger is miles ahead of AIM and MSN. Yahoo Music Engine rocks. Yahoo Mail has always been awesome and the new Beta will be a huge leap forward. Best of all, Yahoo's products all link together. Because of their huge user-base, Yahoo seems to understand the value of community. My songs play can be seen by my friends on Yahoo Messenger and I can see when they update their blogs. Google tends to release (copycat) products way too early, not complete them (like Froogle), and create no integration among their products (why doesn't News integrate Blog results?). Geeevil!
// Anonymous Mark Johnson // 1:19 AM
 
 

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