Comments for Yahoo's Acquisition Pattern: Smart and Cheap

Yahoo's Acquisition Pattern: Smart and Cheap

2007-01-16T10:46:43Z

Written by Emre Sokullu and edited by Richard MacManus

Yahoo has had its problems lately. Bad financial results in the 3^rd quarter of 2006 and the peanut butter manifesto of senior vice president Brad Garlinghouse resulted in doubt about the company's ability to compete against Google and others. Some also think that Google's YouTube acquisition meant that Yahoo had failed in the crucial online video industry. But for us, things are not so dark. In this article we look into Yahoo's recent acquisitions and their new de-portalized strategy.

Acquisitions in the Web 2.0 Era

Today, Yahoo spends very little in acquisition when compared to the dot com era. Also 2006 was very slow for them. Although there was speculation about a billion dollar Facebook acquisition, this never eventuated - and in total, Yahoo bought only 3 companies last year [Update: We've been informed by Yahoo's PR that in 2006, as well as Jumpcut, Bix and AdInterax, Yahoo also bought Wretch in Taiwan and Kenetworks in Sweden in social networking, as well as Meedio for IPTV. They also made strategic investments in Right Media and Gmarket, among others.]. With the acquisition of MyBlogLog in early 2007 though, the new year has started fast for them in terms of acquisitions.

Now let's look into some of the acquisitions in this era of the Web (which for our purposes here, we'll say is 2005 and beyond).

]]> Blo.gs - Blog Search

We don't know how much Yahoo paid for Blo.gs, but the number is estimated to be very very low - more at acqu-hiring levels. And what did Yahoo get in return? The ownership of a relatively big, open source and beloved blog ping service. Blog pings are indispensable, particularly in date-ordered blog search. Yahoo does not own a big blog network like Google does with Blogger, but Yahoo is a big authority in blog updates and can keep track of them with full control. Blog Search is important because it helps users keep up with real-time events and learn peoples opinions on current issues.

Flickr - Photo Search

Many people think Yahoo paid $40M to Canadian Flickr just for its innovative photo hosting service, but that's just the visible part of the iceberg. Flickr's tagging culture actually makes photos searchable. So Yahoo bought searchable media and integrated this into other Yahoo products. Now Flickr is a widely visited property that adds more and more tagged, licensed photos to Yahoo's media repository.

Google tried to follow Yahoo's pattern with a game based strategy - Google Image Labeler. But this was far too geekish and it didn't take off.

Upcoming.org - meetup, event search

Last year, eBay invested $2M in meetup. Organizing the offline world, social activities, events, reviews and event search is becoming hot. Yahoo took place in this race by snapping up upcoming.org for a very low fee.

del.icio.us - Web Search

Many people consider del.icio.us as bookmarking, but as I stated in my previous search article, del.icio.us is also an excellent tool that can empower your algorithmic search results. In 2002, Yahoo paid $235M to Inktomi to empower Yahoo Search. Del.icio.us, with its low price, can still have a big effect on Yahoo's search results.

Konfabulator - say hi to Desktop

Google made a good entry into the desktop world with Google Desktop. Yahoo has jumped into the desktop world with Konfabulator. Konfabulator makes your desktop background something really useful; it allows you to embed widget-like clocks, games, utilities in your desktop. Plus it's fully open for 3^rd party add-ons. However, the new Windows Vista OS from Microsoft offers similar functionality - which may not be good news for Yahoo.

Jumpcut & Bix

Instead of making a billion dollar acquisition (which they could not) in the video industry, Yahoo wanted to enrich its services and offer entertainment around video to attract consumers. They wanted to add online video editing to their portfolio and so they bought Jumpcut.

Then they acquired Bix, a karaoke entertainment service. This could be a huge incentive for people to move to Yahoo Video, but Yahoo is slow in integrating this into their video site. They prefer to improve Yahoo Video's visibility by taking videos to the Yahoo homepage.

MyBlogLog - the Distributed Social Network

$1B to Facebook? This never happened. But Yahoo ended up acquiring another social networking platform, in a very different form. MyBlogLog is a blog-based distributed social network. It does not have a large user base like Facebook; but this distributed approach is really promising!

The biggest properties of social networking are self-expression and communication with friends - building new friendships. In MyBlogLog, the idea is that the blog is the best place for self expression - because it's the place where you publish your ideas and photos, and present them in your own fashion. MyBlogLog connects blogs and adds them into a social networking platform. MyBlogLog has the potential to become very big if they can keep the same acceleration.

Now what?

You might ask, well why are Yahoo financial results are so bad if they made such good acquisitions? The reason is their core business, advertising - the one that pumps blood to sustain all other Yahoo services. Yahoo's ad network does not yet adequately compete with Google's AdSense/AdWords. But Yahoo took a smart step in this field, with the following acquisitions:

AdInterax - RightMedia - TeRespondo

TeRespondo was a step to take the big Latin American internet ad market. This was obviously a smart move to dominate such a large and important market.

AdInterax was bought to empower Yahoo's web based ad tools.

But the biggest hit was the investment made in New York based RightMedia. RightMedia is a meta ad platform, that allows site owners to get maximum return by a real time bidding system that abstracts all existing ad providers, including Google Ads. Yahoo owns 20% of the company and this was an important investment made for the future of their ad revenues.

Conclusion

In 1999, Yahoo acquired GeoCities for a huge sum, $3.6B. But today GeoCities is a forgotten property.

Yahoo's latest acquisitions are cheap and smart. In effect the Peanut Butter manifesto is actually the new de-portalization strategy. However, although it's good not to kill brands (but keep them as separate entities and don't touch the soul that brought them success) Yahoo could be faster in getting the advantages of having so many related products. For instance, del.icio.us and Yahoo Search, or Jumpcut and Yahoo Video - these really should have been brought together already.

However slow (steady?) integration is normal for Yahoo. A prime example is OddPost, which was acquired in 2004 - but is still working its way to become Yahoo's default mail interface. So it probably takes 3-4 years for Yahoo to integrate its acquisitions into their main product line.

Bearing in mind Yahoo's de-portalization strategy and penchant for cheap and smart companies, which startups do you think will be bought next by Yahoo - and why?

Comment from baron on 2007-01-16

2007-01-16T11:50:12Z

Another good aquisition they made back in the day was OddPost. I think it powers the Yahoo! Mail Beta. This post reminds me how Yahoo! has improved their aquisitions rather than let them languish.

Comment from AL on 2007-01-16

2007-01-16T12:43:56Z

Never knew about the GeoCities one. Guess I was young back then. But damn that is huge sum not very well spent!

Comment from MySchizoBuddy on 2007-01-16

2007-01-16T12:56:06Z

"But for us, things are not so dark"

I didn't read anything to support this statement.pretty boring read. All you did was tell us what Yahoo acquired. not what Yahoo is planning to do with it.

@Baron
Everyone knows that Yahoo has failed to integrate its acq, creating a sense of dual personality, where one is unaware of what the other is doing.
Just because Oddpost was integrated means nothing. u still have a good 10 or so products that are NOT integrated or improved upon. We live in a fast paced online world and so far Yahoo is moving at a snails pace.

Smart acq require smart execution.

Comment from Robert Yeager on 2007-01-16

2007-01-16T13:27:01Z

MyBlogLog has serious technical flaws that open the doors to all kinds of attacks upon the community.

http://www.cooqy.com/blog/2007/01/12/mybloglogs-stupid-unsecured-widget-implementation-widget-and-browser-based-web-application-security

Comment from Pedro on 2007-01-16

2007-01-16T14:52:42Z

I just wished that Yahoo knew what to do with Blo.gs. The service has daily outages and hasn't worked properly for months on end now. I have completly given up on it, which is sad, because you're right, it used to be a big authority in blog updates.

Comment from Aidan Henry on 2007-01-16

2007-01-16T15:55:16Z

I think a good acquisition target for Yahoo could be SixApart (Typepad, Movable Type, LiveJournal, Vox).

This would give Yahoo access to a wide variety of blogging platforms and publishing tools, an area where they lag. This space is definitely growing and Google possesses an advantage with Blogger.

Cheers,
Aidan

Comment from Adrian keys on 2007-01-16

2007-01-16T16:06:35Z

I agree...some of the acquisitions of late I think will eventually pay big dividends and put them on a firmer footing to compete with their nemesis - Google.

Comment from Jess on 2007-01-16

2007-01-16T17:26:59Z

Compete traffic chart for MyBlogLog is simply astounding. Widgets work!

http://snapshot.compete.com/mybloglog.com+jumpcut.com+upcoming.org+?int=1032

Comment from Pete on 2007-01-16

2007-01-16T17:39:41Z

Gret analysis.

Here's an . This timeline helps to give some relative comparision between the big three engines.

Comment from Joyce on 2007-01-16

2007-01-16T18:05:55Z

In addition to big ticket acquisitions, I think in 2007 we'll see something done in the international market, aside from the typical China/India fields. Perhaps something focused on the European market or targetting Spanish/Latinos...

Comment from Deepak on 2007-01-16

2007-01-16T20:07:10Z

My problem with Yahoo is I almost wish they didn't integrate their acquisitions (which are excellent in themselves). I am not a big fan of their UI and I would hate to see Flickr (to pick an example) being Yahoo-ized. Google also tends to incorporate acquisitions, like Keyhole and Writely, quite well and much faster. del.icio.us is an example of an acquisition that hasn't been leveraged at all.

Comment from Damon Billian on 2007-01-16

2007-01-16T20:29:18Z

As a regular user of Flickr & a somewhat regular user of del.icio.us, I do think that these are the two best purchases made by Yahoo. Flickr was a steal IMHO.

I would think that there next goal would be something big in the social networking space...

Comment from Alex Iskold on 2007-01-16

2007-01-16T20:35:59Z

I think Facebook acquisition is the key for Yahoo. If Google snaps it first, yahoo! might be in trouble. They should have bought YouTube too.

Alex

Comment from Richard MacManus on 2007-01-16

2007-01-16T20:53:10Z

I think Yahoo might do well to acquire some lesser known companies, based on technology platform rather than user base. While Facebook and SixApart would be great buys, they're also very expensive. But look at what Emre wrote about Jumpcut and Bix for example: "This could be a huge incentive for people to move to Yahoo Video, but Yahoo is slow in integrating this into their video site."

That's it really, they already have a great user base, they just need to be faster and more effective at integrating new technology into their existing properties. I'd love to see Y! really ramp up their technology platform, as that is where Google is kicking their ass currently.

Comment from Steve Morsa on 2007-01-16

2007-01-16T21:23:10Z

As your insightful analysis makes clear, Emre, despite the misplaced beliefs of some, Yahoo's actually a great company operating in a very competitive marketplace/s.

In addition to the recent wise and prescient acquisitions you detail, another excellent addition; because it would provide them with a new, patent-protected (#11/250,908) billion+ dollar/year revenue source; would be the MEM/paid match PPC ad platform...where advertisers would be able to select and bid on the (click-fraud crippling) actual traits and characteristics (keytraits) of their most desired customers.

With some millions of businesses in the US alone longing for a quick, easy, and simple way to reach people via the Internet (no longer any need to bid on and continuously track 100's to 1,000's of words), it wouldn't be long before Google would feel the painful deleterious effects of such a system in the hands of a major competitor like Yahoo (or MSN, IAC/Ask, News Corp, for that matter).

Two words to attack Google's Achilles heel--their almost total revenue reliance on paid search: Paid Match

Comment from Ryan Mapes on 2007-01-16

2007-01-16T21:23:18Z

A company the size of Yahoo doesn't really have many other viable growth options than to acquire other businesses. Obviously, Google has performed well with this strategy. Yahoo has acquired some great companies, but many of these companies are redundencies of services that they already offer--Hence the infamous Garlinghouse memo. Here's a great article on it: http://ryanmapes.blogspot.com/2006/11/google-stock-price-reaches-500-mark.html

Comment from jeremy liew on 2007-01-16

2007-01-16T21:31:53Z

Its worth reading Toby Coppel's (SVP of Corp Dev) post on the Y! corporate blog on what he finds interesting in the startup world. Click through on my name to get a link from the Lightspeed blog to his posting, or go directly to http://yodel.yahoo.com/2007/01/03/new-year-new-ideas/

Comment from Billy on 2007-01-16

2007-01-16T22:02:30Z

I think this article is mostly right and Yahoo is certainly still a serious contender. Google has a ton of momentum, though, and that is tough to counter.

Ultimately, what drives revenue for both Google and Yahoo is advertising. In this area Google is clearly winning. Yahoo's investment in Right Media reveals a well thought out strategy as I believe that Right Media will become more and more of a market force to be reckoned with as time goes on.

Comment from John Koetsier on 2007-01-16

2007-01-16T22:53:27Z

Eventuated? Eventuated?!? Perhaps you mean "happened."

Eventuated!

Comment from Cessna on 2007-01-16

2007-01-16T23:20:05Z

I agree with #4. MyBlogLog has a ton of problems... But Yahoo has thousands of developers to fix those problems, so who knows...

Crazy. Wonder what yahoo's long term plan is..

Comment from Richard MacManus on 2007-01-16

2007-01-16T23:36:59Z

What have you got against "eventuated" John? It is a real word :-)

Comment from Emre Sokullu on 2007-01-16

2007-01-17T01:25:23Z

@Aidan
SixApart?? IMO, too big to get snapped up.

@Alex Iskold
I'm a supporter of cheap acquisitions :) I think, MyBlogLog can still be a big hit in social networking.

@MySchizoBuddy
Thanks :) Sounds like you didn't really read the article...

Comment from eas on 2007-01-16

2007-01-17T02:42:28Z

SixApart? Come ON! Six apart has 1) blogging software, 2) a blogging service (typepad). 3) A blogging community (Livejournal) 4) A shinier blogging community with pretty pictures (Vox).

I'll remind you that Yahoo already has Yahoo Groups, Yahoo 360, Flickr and who knows what else. Why is adding a software business, yet another services/hosting business and two more communities something that Yahoo should be doing?

Comment from Emre Sokullu on 2007-01-16

2007-01-17T05:42:49Z

I've just noticed a mistake - I say "it took 4 years to implement OddPost functionality to Yahoo" but I'm wrong. Actually OddPost was one of the pioneers in using Javascript's potential to create web apps, and their JS expertise have been extensively used among all Y! apps since then. YUI (Yahoo User Interface) should have big OddPost effect inside.

Another thing that could be inside this write-up. I think the next big acquisition of Yahoo can be Zoho - because eventually Yahoo will need an office suite to compete with Google and MS - and Zoho will be the answer. The only thing that can prevent this is Yahoo MS partnership.

@eas - I agree

Comment from Aidan Henry on 2007-01-17

2007-01-18T03:32:56Z

@eas

What does Yahoo have in terms of a blogging community or platform? And I mean in those terms specifically. I am not using the term 'blog' lightly.

Yahoo 360, Yahoo Groups, and Flickr may have some form of discussion or posting, but none are branded as blogs, blogging platforms, or blogging tools. Yahoo lags in this all important area at a time when blogs are really starting to flourish and become mainstream. Failing to adapt and harness this trend will be to the detriment of the company.

PS. Yahoo Blog Search is the first attempt at an entrance into the space and it's still in its infancy.

Cheers,
Aidan

Comment from Aidan Henry on 2007-01-17

2007-01-18T03:46:32Z

Also...

For those who say Yahoo missed out on YouTube, but SixApart is too expensive, I can't see the latter selling for much more than the former at a price tag of US $1.6 billion.

Moreover, I think it's a much more strategic decision that not only bodes well for future growth, but also revenue potential.

Cheers,
Aidan

Comment from Sam Sethi on 2007-01-18

2007-01-18T15:27:29Z

Two acquisitions I think would be good for Yahoo are Technorati for their expertise in microformats and their new search engine. Also sxips in Canada for their knowledge of identity management.

Although Six Apart is expnsive but it would be a good acquisition, certainly Vox. Bebo would also be a good acquisition but too expensive now, so maybe Hi5 (big in India) and/or Piczo.

Will anyone buy Secondlife or HabboHotel?

Comment from Rob on 2007-01-22

2007-01-22T23:47:17Z

I think Yahoo should acquire, http://www.wikistock.com

Comment from Dave Jordan on 2007-02-07

2007-02-08T06:36:01Z

Yahooo should move away from the Blog type sites. Sites with a strong community but Blogs are getting way over-done. Any site that might add value to their entire portfolio would be good, like a site that gathers information that would be useful on someone's MyYahoo page, Yahoo maps or in a Widget. Think community & content...not just "empty" community.