A quick primer re @blakei @yahoo #delicious

I have had a number of people ask me questions about Delicious and what the hell has been going on at Yahoo! following my post Why I am sunsetting Yahoo! which was linked to by The Guardian website on their Technology Blog.  I could spend forever doing this over coffee with people so here is my reading of things.

The players

Blake Irving – the head of product for Yahoo!, you can read about him here. He spent some time out of the tech sector after having spent a decade and a half at Microsoft. For a large chunk of that time from 1992 – he held a number of roles in different divisions and areas of responsibility. Having been used to reading a Microsoft resumé; this is a good thing; it means that he survived the frequent reorganisations and was able to build a network of allies within the business.

He then spent the next eight years in the Windows Live Platform group (or prior incarnations of it). Irving got experience of a number of areas that would be directly applicable to Yahoo! including online identity, VoIP and messaging, advertising platforms and building an international connected infrastructure. All interesting stuff, some if it very controversial, for instance Microsoft launched Passport as a single sign-on for all web commerce, raised a number of concerns (technical, likely abuse of market power and privacy concerns); so many other key players in the industry banded together to form the Liberty Alliance. Continued developer concerns about ownership of ones online ID led to more recent projects like OpenID.

In term of the financial impact of the parts of the business that Irving ran, this report from Business Insider seems to indicate that they were modestly positive in the latter half of 2005 and then hemorrhaged with continuous quarterly losses through the remaining time of his tenure. Make of it what you will. As an aside, he also has an annoying propensity to call people dude, like some stoner who thinks its still the 1980s or is it just me being a Euro-snob?

Carol Bartz – is the CEO of Yahoo!. Bartz is a technology industry veteran having turned AutoDesk around through cost-cutting, getting rid of non-core parts of the business and providing it with a renewed focus. Prior the role she hadn’t had any experience with a consumer-facing business, a media business or an internet business. Since joining Yahoo!, Bartz has managed to improve margins by cutting costs and personnel, sold, spun-off or outsourced aspects of the business such as the US dating service and search. The business has also expanded further into Europe beyond the main EU countries opening up a portal in Russia and acquiring one in the middle east.

However the internet industry moves on and Yahoo! has struggled to articulate a clear company vision and direction to markets, so there is a considerable pressure on Bartz to deliver. Added to this pressure has been a stream of employees leaving, layoffs and news in October that she topped a list of overpaid executives managing under-performing companies. Even the novelty of an old woman swearing is starting to wear-off.

The Yahoo! audience – according to Google Adplanner Yahoo! has an older low-income audience predominantly based in the US, though it enjoys a more aspirational audience in places like Japan, Taiwan and Hong Kong. In Canada and the UK, the company has customers from Rogers and BT broadband services. However for many major markets the audience does not include younger and more affluent audience segments.

The creative classes – as manufacturing has declined in the west we’ve seen the rise of new artisans and creatives as the drivers of innovation from product designers, computer programmers, web designers, advertising creatives and strategists. It is why Apple has ‘Designed in California’ on the back of every product rather than ‘Made in China’. These people run agencies and help clients make online advertising decision and act as advocates of new services. They helped grow Twitter, Tumblr and Flickr through their adoption of these services. They are also astonishingly visible and vocal in their opinions. Getting on the wrong side of them is like being spurned by the chattering classes in the pre-internet age.

Microsoft – a decade ago was the world’s most powerful company having built itself up by taking advantage of breaks as they arrived (and let’s be honest about this, that is a real skill in its self), good marketing chops and proven abuse of market power to the detriment of just about everyone else. The company took a knock when the US government successfully prosecuted it for violation of anti-trust laws; whilst the company got off lightly in court it was demolished in the court of public opinion and its no accident that its share price has been stubbornly stagnant since.

Microsoft has continually sort to make itself relevant in the online world with varying degrees of success over the past few years; reinventing MSN as Windows Live, doubling down on search with Bing and expanding services on to new platforms (like the Xbox) and spending large amounts of money on lobbying to try and use legal and regulatory authorities to get a leg up on the online ladder, or at least kick a few steps out from under Google.

Yahoo! Inc – is an American company with a range of wholly-owned and joint-venture businesses across the Americas, Europe, the Middle East and Asia. It provides a range of services in over 20 languages ranging from news to communications and sharing consumer moments. The company has a minority shareholding of the most promising businesses: in China and Japan. The company was the proto-valley start-up success with two co-founders founding the business at Stanford University in 1994. Over the first few years Yahoo! grew at a rate of knots and lent its brand to a number of offshoot products including a magazine called Yahoo! Internet Life.

The company grew by acquisition, notably paying $ 5.7 billion in stock for web radio pioneer Broadcast.com. This was before broadband was commonplace and the deal is now considered an episode of foolishness. It was also notable for being close to the high point of Yahoo! as a company. Moving forward to today, the US is still the country that delivers the vast majority of Yahoo!’s revenue, but Asia is the only region which showed growth in their Q3 2010 numbers. The company has an audience of over 500 million every month according to a recent press release boilerplate.

The plot

When the first dot.com bubble finally burst around about 2001 online advertising spend dropped by about a third.  Yahoo! looked for a seasoned media executive to take over the business and found it in Terry Semel. Semel did well out of the company and return Yahoo! saw its shares grow at 40 per cent per year. However the company performance compared unfavourably with Google whose search business model up-ended online marketing. Yahoo! bolstered its own search offerings and bought some key web 2.0 companies including Flickr and Delicious as part of a plan to take search in a new direction. Under performance relative to Google, a failure on two occasions to purchase Google and what was considered to be an excessively large compensation package where the main sources of continued shareholder pressure that encouraged Semel to resign in 2007.

Co-founder Jerry Yang took over and his efforts were largely focused on efforts by Microsoft to takeover Yahoo!. Criticism of Yang focuses on his rejecting an offer of $33-a-share from Microsoft. I personally think this criticism is largely unfair. Something that is not mentioned but should be would the likely regulatory environment for the combined Microsoft-Yahoo! business.

I think that there are a number of factors which would suggest that Microsoft have had problems making the deal a reality. I am not convinced that they were serious about it.

Microsoft would be eviscerated by the European Union and probably regulatory bodies elsewhere. The reason for this is that Yahoo! relies on and was a main contributor to, a number of important open source projects  that happen to compete with Microsoft’s highly profitable server and tools group, notably Apache, Hadoop, Debian distribution of Linux and PHP.

In addition, the Japanese government would have likely stepped in because Yahoo! Japan is probably the best homegrown internet success, driven largely by Masayoshi Son, one of the richest men in Japan and his company SoftBank. It is likely that the Chinese authorities would have looked at the deal very closely as well due to any likely effects on Jack Ma’s Alibaba group.

Why Yahoo! didn’t drop this regulatory grenade in Microsoft’s lap is something that we’ll likely never know. In my opinion, this was a valuable communications opportunity that Yahoo! failed to capitalise on.

The proposed deal wasn’t exactly popular with many of Microsoft’s shareholders who couldn’t see the logic in blowing lots of money adding more assets to Microsoft’s online services business when it was losing money hand over fist anyway. In addition, you would have the challenge of integrating the two businesses which would only likely benefit competitors. None of these other factors were any of Yang’s problem.

Instead Yahoo!’s board was taken over by a couple of financiers with experience in shareholder activism. Yang went back to his previous co-founder position and Bartz was appointed CEO. During this time there has been a couple of reorganisations and a number of senior management changeovers. For instance Blake Irving was the third person in four years to have the chief product officer role.

Yahoo! is now competing in a much more complex competitive environment and both Irving and Bartz need to plot a path forwards. They will have sat down and asked themselves questions like:

  • What does Yahoo! bring to consumers?
  • How can it attract younger and more affluent consumers to attract an increase in advertising | marketing services spend?
  • Is Yahoo! viable as a public independent company?
  • If not, how do you unravel some of the complex relationships that it has internationally in order to give you freedom of action?
  • Who is likely to buy the business?

From a product point of view the management decided to focus on the company’s portal roots, together with preparation for ‘sunseting’ a number of products outside that area of focus. One of the companies on the list was Delicious. There are some things about Delicious that are notable.

Delicious is a bookmarking service. Instead of you having a set of bookmarks on your work computer and home computer, you can have the one set of bookmarks online that you can use wherever you are. It also searchable, and you can ‘follow’ Delicious accounts of experts. So for instance, my friend Dave Rout is a keen photographer; any articles that he has bookmarked around photographic techniques are likely to be good. The Swedish Tourist board has a Delicious account full of useful websites related to visiting Sweden from education to culture and reference resources.

Once you start using the product, it becomes a habit; if you don’t use Delicious already, think about how often you use Google search or check your Blackberry to get the idea.

So it means that whatever users you have are highly engaged with your product. As a user the service holds a lot of valuable information both in your own links, but also in that of your Delicious network. I use it in my personal life and business life, it has proved invaluable for helping me to write blog posts and presentations. In fact, many of the links in this post have been pulled from my Delicious archive (which I now have at pinboard.in under the user name renaissancechambara). In fact it becomes so much of a habit that bookmarking items becomes almost subliminal and I get feelings of anxiety when I can’t access them. Even now a week or so after moving away from Delicious and adopting Pinboard I keep going to the wrong part of the browser chrome to bookmark a page which is a jarring online experience.

This means that whilst Delicious may not be the most popular service; users have a deep psychological bond with their account. The information embedded in that account is as invaluable as their Facebook friends or their email account – this requires a secure service and a high level of trust placed in the provider. When news of Yahoo!’s plans to sunset Delicious leaked, the creative classes became an insurgent force against Yahoo!.

The creative classes influence what other people think and the kind of services that they buy, so what they felt was a breach of trust by Yahoo! has far reaching consequences. For instance, I wouldn’t recommend that clients look at Flickr as a social media tool as I don’t trust Yahoo! to continue to provide the service. I am not likely to look at PPC or display advertising from either Yahoo! or Bing because I no longer trust Yahoo!. I will be moving the friends and colleagues that I recommended Delicious and Flickr to, on to rival services and will be thinking about how I manage image hosting for my blog in the medium to long term.  My parents need an email account, whilst I dislike some aspects of the GMail service, it is likely to be recommended over Yahoo! because I have more trust in Google keeping their data around rather than it being sunset at some later date.

The bottom line on this is what digital media planners already know: not all unique users are created equal and trust is fragile.

Yahoo! has said that they are not looking to close Delicious, but instead would like to provide a new home for it. This is likely to be a more difficult proposition than IAC’s recent transfer of Bloglines to a new owner. Bloglines sat on infrastructure that wasn’t tied into Ask.com; whereas Yahoo! recoded much of Delicious to sit on the Yahoo! infrastructure. Delicious relies on the Yahoo! federated identity system for authentication of many of its users.  Providing a clean break is going to be difficult. It would be hard to hold a product team around Delicious in this time of uncertainty and there would be a temptation for Yahoo! to strip the winners out of it if they found a willing purchaser for Delicious.

Many of my current circle have looked to move their data elsewhere, it will be hard to bring them back. Any purchaser would have to be trusted by the existing community otherwise they would be paying for a ‘dead’ web service. To give you an idea of the migration problem, prior to the Delicious news breaking it cost just over $4 to set up an account at pinboard.in; that cost goes up by $0.0001 for every new user that joins up. At the time of writing this post is $8.93. That means that well over 400,000 people signed up for an account. Some of these people may have been made aware of the advantages of social bookmarking by the subsequent furore online, but an appreciable number of them are refugees from Delicious. And that’s just one bookmarking service, there are many more out there like Mister Wong, Evernote and Diigo who had serious performance issues due to the influx of new registrations.

In an ironic way Yahoo! may have made a market for social bookmarking services by sunseting Delicious.

The timing is very interesting on this move as curation of social media is starting to gain real interest amongst developers and the media industry. If you think about services like Newser or Flipboard on the iPad you can see how the media industry is thinking about curation. I get a regular audience on this blog for my Links of the Day posts. One of the key questions that businesses looking at curation need to ask is how Delicious didn’t manage to make a sufficient profit that Yahoo! couldn’t fail but to keep it in the fold?

How it ends for Yahoo!?

This is the question that no one knows, but every one of you reading this have the answer to. In order for Yahoo! to thrive it needs audiences; people like you caring enough about it to use Yahoo! as a central part of your online life: to follow your stocks, get the latest sports news, indulge in the schadenfreude of celebrity gossip and sharing moments with friends online.

At the moment there are lots of sites which allow you to do this: Google has been very good at covering a lot of these bases and Facebook tackles sharing moments with friends online. In the western world, these sites have managed to cherry pick the more valuable users resulting in great advertising revenue whilst Yahoo! has stagnated. So what would Yahoo! have to do in order for you to care enough to make it a central part of your online life? What do you want your Yahoo! to be? For former Delicious users, Yahoo! is likely to have its work cut out.

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