Friday, December 09, 2005
Yahoo + Delicious, pt 2: Why Did Yahoo Buy
Why did Yahoo acquire Delicious? Let's do a bit of deconstruction.
Come back to strategy with me for a sec - let's think about Semel's four pillars (which are basically just the segments of the 2.0 value chain outlined long ago in my Media 2.0 and Peer Production ppts):
"...Semel describes a strategy built on four pillars: First, there is search, of course, to fend off Google, which has become the fastest-growing Internet company around. Next comes community, as he calls the vast growth of content contributed by everyday users and semiprofessionals like bloggers. Third, there is the professionally created content that Braun oversees - made both by Yahoo and other media providers. And last is personalization technology to help users sort through vast choices to find what interests them."
Yahoo, I think, is rolling up social plays so it can basically do what I've outlined as the dominant Media 2.0 strategy: vertically integrate across the 2.0 value chain, with a focus on the edges. This strategy dominates the economics of attention scarcity; I'm advising many of my clients to think hard about where they fit into this value chain.
Delicious, like Flickr, can be positioned along almost any segment, or even integrated across multiple segments - it's a micrplatform, smart aggregator, and reconstructor, rolled into one, adding ad inventory, allocating attention, exerting market power over traditional media players, by adding huge switching costs for consumers - so it's a very good strategic investment.
That is, it has something far more valuable to Yahoo than an incremental revenue stream, or "eyeballs": a formula for market power.
Now, that said, I urge you to read the MeFi thread, which very nicely illustrates the vital point which is going to make it difficult for Yahoo to capitalize on these acqs and create value from rolling them up. I won't talk about it for now very much (enough already).
Does this deal makes me feel like the www is a bit less vibrant, and a bit more more drab, today than it was yesterday? Yeah.
Certainly, I would have liked to see Delicious grow into something much more deeply disruptive; I also think possibly Josh had hit a bit of a wall in terms of driving mass-market adoption without greater resources.
But I do think Delicious had the potential to be deeply disruptive, by extending into new domains, and hyperefficiently allocating attention.
As much as we can talk about how Yahoo hasn't screwed Flickr up - and I agree, they haven't - that's really the wrong question. A much better question is: what has the opportunity cost been?
For me, the answer is that it's been great: IMHO, Flickr is no longer the buzzing hub of innovation and cool new thinking that it used to be.
It's exactly this loss that I think a lot of us are mourning, maybe prematurely, for Delicious. Is Delicious gonna be, like Flickr, just a tiny cog grinding away in a big machine, which is increasingly focused on short-term revenue growth at the expense of innovation and disruption?
Like what this commenter at Om's blog said:
"...I believe that what we define as web2.0 at its core threatens yahoo�s very existance. If they don�t crush or own the space they will lose billions in a couple of years down the road."
Deal math, if you're into that kind of thing: if Yahoo used recent comps to do this deal, they valued Delicious at ~ $10 millionish. I have no insider info, but my intuition is that Josh was able to command a significant premium (50-100%), because, more than anything else, cred and market power are scarce, Delicious has them - and Yahoo wants (read: needs) em.
The rumour is much more; $30 million plus, which sounds high to me.
Charlene's just talking about social search, which is a possible segment of the new value chain I'm talking about.
...as always, YMMV.