Strategies for a discontinuous future.

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Thursday, January 19, 2006

Yahoo 06

Before reading too much into Yahoo's earnings, you should:

1) Read the conference call.

2) Understand why we've been predicting that Yahoo's dominated for a very long time now; because it doesn't have any edge competencies.

3) Note that one quarter of barely missing earnings is not hugely strategically meaningful, not least because of myopic expectations.

4) Note the following quotes, which givs us very rich clues that Yahoo will continue to stumble:

"...There are many exciting opportunities in our brand advertising to advance our strong leadership position. We are developing a brand advertising system to more efficiently deliver new forms of advertisers such as video formats, increasing our targeting capabilities and enable advertisers to buy larger campaigns more efficiently."

Bubblegen: This is dominated - the whole point of the current ad revolution is that branding 1.0 is kind of obsolete.

"...You would also see an increasing emphasis from us on delivering more comprehensive content experiences by beta integrating head and tail content and aiding discovery through community tools."

Bubblegen: Wrong. To see communities as "tools" which only create value by enabling "discovery" is the biggest single mistake media players will make in 06. Communities create value in far more powerful ways than simply slashing search costs.

"...In 2006, we will...fill strong relationships with carriers and device manufacturers and explore new initiatives to enhance the consumer experience even further"

Bubblegen: "Fill strong relationships" is a nice way of saying Yahoo's not interested in disrupting the media value chain - it wants to recreate it, with Yahoo at the edge. The problem is that the media value chain is now economically dominated and obsolete. This is evidence of deep strategy decay on Y's part.

"...we look at content in on those 3 different buckets through 3 different ways. So firstly we talk about what we�ve been doing as a company forever, licensing and do aggregating contents to others...We also talk about user generated content to a large degree, we�ve entered those markets twice as already is time to grow more and more, whether its somewhere between a flicker and blogging worlds and other worlds...Also Yahoo has always done some producing or some making of its own stuff if you will, and its been that way since the beginning,.. So we have the audience, we have the capabilities we have the platforms, and we have the desire to in effect help distribute and help introduce their products..."

Bubblegen: This is possibly the least strategic way to think about the role of content in the new media value chain; IMHO, this is a huge error. Content has many kinds of strategic value in the emerging value chain, none of which are discussed or even recognized here.

-- umair // 8:34 AM //


re: point 3. Yahoo essentially is saying they will continue to provide content, through licensing, aggregation, in-house production, and user-production. They're also saying that they have 3 distinct parts: platform, audience, and capability.

You say that they are missing the boat because they aren't thinking the right way strategically about the role of content.

Can you give a good example of a kind of strategic value that they might have mentioned? I know what you mean in general, but specifically it would be nice to get a bit more detail on that last point. Gracias.
// Anonymous Anonymous // 12:29 AM

Hi Umair,

Big fan of your work - keep it up! But like the previous commentator, I'd like to know more specifics about why you think Yahoo! is going down the wrong strategic path. I've noticed that you prefer Google's strategy to Yahoo's, whereas common wisdom this past year or so is to say Yahoo has the media strategy correct while Goog is perhaps more experimental.

I'd love to read more from you about *why* you have this bee in your bonnet about Yahoo's media strategy. :-)

Incidentally, please don't call it Media 2.0 :-0


Richard MacManus
// Anonymous Anonymous // 2:13 AM

Hey Guys,

Thanks for the comments.

I'm not trying to bust on Yahoo, nor do I have a bee in my bonnet - I'm just pointing out the obvious.

Let me try and simplify.

1) There's a new value chain emerging. Think reconstructors.

2) Industry boundaries are blurring. Think Google + radio.

3) The value equation is being rewritten. Think Pay-per-x.

In all these cases, Yahoo is an imitator. Why? They don't have a real competence - they don't know how to create value at the edge.

This is an economic trap. They acquire companies to learn how to do better, but can't touch them for fear of messing them up. No learning is built. More acquisitions are made...

Back to the 3 points above, this translates into a strategic trap. They're forced to try and dominate the old value chain (this is what aggregation, licensing, etc really mean), and can't build the new one.

Of course, YMMV.
// Blogger umair // 3:31 AM

I agree with you, but based on the degree of difference between yahoo's efforts, and say the best-in-show in their numerous categories, and then looking at the difference between them and the next level down, and I can't help but think that Yahoo's relative ignorance is not going to hurt them that much in the long run.

What I'm trying to say is that being an imitator, combined with massive audience and sone edge competencies (I disagree that they have zero) in various content classifications, is not necessarily all that bad of a thing.

Regarding Branding 1.0, I would suggest that given the already plastic nature of branding in today's media universe, doing simultaneous 1.0 and next gen branding, which Yahoo does, is also not a terribly strategy.

Perhaps what I'm really suggesting is that the relative dominance that Yahoo has created online will be enough to allow them to, as MS did in the software days, not innovate but still dominate. Given the very nature of edge competencies, isn't this even more likely?
// Anonymous Anonymous // 6:09 AM

Hi Anon,

That's a very interesting comment.

I think there are three big questions you have to answer:

1) You haven't provided any examples of a potential comeptence Y might have.

2) Y isn't dominating at the moment; Google is - so MS comparisons don't work.

3) I would (really) like to hear examples of next-gen branding via Y.

The bigger question you raise is whether imitation is a sustainable strategy in the Media 2.0 industry.

I don't think it is - the industry is characterized by two sided network FX, which means markets will tip hard and fast.

To make this concrete, consider what happens to Y's ad revenues if even one of Goog's new ad initiatives - radio, print, etc - catch fire.

Thanks for the comment.
// Blogger umair // 12:04 PM

1) You haven't provided any examples of a potential comeptence Y might have.

Potentials in my mind are news, (yahoo news is huge across every news category. Do they own the edge? No, but no one does and perhaps no one will, but Yahoo is creating a value chain in news that is stronger then any other. Google? Pshaw, their news efforts are pretty weak, and get weaker as you drill down)

Another potential is customized personal web space. No other company has reached what my.yahoo has achieved. This leads into the value chain of user ID. Yahoo ID is spread far and wide, do you have one?

2) Y isn't dominating at the moment; Google is - so MS comparisons don't work.

Well they are dominating in terms of time spent on a web property-- isn't Yahoo still #1 and has been for a few years (I think so but I may be wrong)? Also, MS dominated with one product, essentially. On the web that seems impossible, but what if you are #1, 2, or 3 in 1,000 segments? Seems like a form of domination, although your network FX point definitely stands.

3) I would (really) like to hear examples of next-gen branding via Y.

Think: Metafilter uses Yahoo! search. Think: upcoming.org, flickr, and soon del.ico.us use Yahoo ID. That would seem to play right into one of your main points about Yahoo competitors-- that building a competence (in the first example, of having a better insite site search, in the second having a widespread login system that can be used on dispirate sites) that creates more and more subsidiary value.

In any case, I'm not sold on Yahoo as a company and don't have any money invested in them. I'm really just playing devil's advocate, because while I agree in theory with most of the thrust of this website (and value the insights incredibly), I also wonder if we really will see disruption in the media space, or if old models applied by smart people will eventually morph into new models-- meaning managed disruption with the same players still at the top.
// Anonymous Anonymous // 8:38 PM

Interesting Blog, Let me answer your reply one of your "reply to a comment"

No:2) Y isn't dominating at the moment; Google is - so MS comparisons don't work.
Where is google is dominating. Search ?.Why do you and me use Internet for,do you think search? , No it's nto it just represents 5% total internet market share. so tell me now where is Google is dominating. Yahoo 400 Million Unique users a day using E-mail,Chat,News,shopping and etc etc.. So Yahoo is Dominating...

3) I would (really) like to hear examples of next-gen branding via Y.
1.Yahoo Music Engine.
2.Yahoo News Video Delivery of News via video they had even before Google thought video.
3.Delivery of Ads through Yahoo Music some similar to Google Radio Advts.
These guys are slow,efficient and smart, beware they already know what you did on the internet last year or before that ;):), Yahoo is yet to use the stastical data on internet browsing pattern.
// Blogger prakash // 8:43 PM

Hi Umair;

Joining the list, I have to take you to task on missing the importance of "brand advertising" to Web2.0, but first ...
Prakesh: GOOG dominates ONLINE ADVERTISING (dude, what planet are you on?), which brings me back to my point ...

GOOG popularized "click-through advertising" and then created the false economy we have today where impulse-driven advertising constitutes 40% of the total online ad-spend. I have no data on this, but as a consumer, I'm accutely aware that 90%+ of "real-world" ad dollars are spent on brand-advertising, and not "call-now-and-get-a-2nd-one-half-off" campaigns.

Click-through ads only work when you're already looking for something i.e. they're a great complement to web-search - but I'd bet that adsense conversion on gmail pages is about 10% of that on google.com - because we're not searching for anything when we are checking our email.

As the read/write web (tx Richard for an improvement on "web2.0") matures, user activity is diversifying beyond search. In all those other activities, Brand Ads will prove to be more effective than click-through ads.

Even GOOG has realized that "brand advertising" has a future online - and as part of the AOL deal has agreed to introduce them - yes, by year's end, GOOG will be a much more colorful website.

For more on GOOG's false economy, read this ... http://poductivity.blogspot.com/2005/10/adsense-its-brilliant-but-it-doesnt.html
// Blogger David Gibbons // 10:45 PM

Prak'a'sh - "dude" my apologies - we were actually in violent agreement when I 'dissed' you - I honestly just didn't read your comment properly ... - I owe you a beer (or 2)
// Blogger David Gibbons // 11:46 PM

No Probs Buddy.

Good Luck
// Blogger prakash // 4:18 PM
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