Monday, May 17, 2004

Why is Yahoo on the Social Networking Sidelines?

What is Yahoo thinking? Well, first a little background. Social networks are proven viral growth engines. They connect people with each other and facilitate the creation of user generated content. Most of the leading social networking sites, including Friendster, Orkut, LinkedIn and Tribe, all had to reach a critical mass of users to establish the value of their networks. The externalities all had to be created from scratch.

Yahoo, on the other hand, already has a ton of the basic building blocks for a successful social network. They've got:

==> Users: last I heard, their user base was the HUNDREDS OF MILLIONS. Now that's critical mass.

==> Social networking data: Yahoo Mail, Yahoo Address Book and Yahoo Instant Messenger already contain the world's largest social network. Everyone that has an email address stored in their Yahoo address book, or email addresses in their Yahoo Mail account or buddies in their IM buddy list has already shared with Yahoo information about their social network.

==> Community tools: My Yahoo, Yahoo Groups, Yahoo Briefcase, Geocities, etc. All have the basic community building functionality any social network needs. It just needs to be tied together in a new interface.

==> Daily interactivity: People visit Yahoo daily to get essential information, including news, entertainment and communication with others online. Adding a social network would constitute a trivial adjustment in the relationship with users.

==> Monetization: Yahoo already has the sales channel and the expertise to monetize the value of user generated content from a social network, perhaps better than any other organization on earth.

So what's the hold up? It's ok for Yahoo to be follower, given their significant ownership of users, but how come they are so far behind? One can only speculate, and here are my observations.

Compare to Google. Google has Orkut, which was launched a few months ago. It only got off the ground because Google nurtures entrepreneurial and creative activity, however. If Google didn't allow engineers to spend 20% of their time on a creative endeavor, and one engineer over there hadn't devoted his creative development time to this project, Google would still be on the sidelines as well. I suspect Yahoo's culture is nowhere near as innovative and flexible. Launching a social network will demand that someone in Yahoo champion the effort and lead a drive to allocate resources to the activity. For a public company being driven by quarterly results for the last several years, even a few extra bodies can be precious. If you are public company and you don't have tight controls on this kind of activity, things can get out of hand. Still, this is why people leave big companies in favor of start ups. Plainly said, you can just get more done with less effort.

Bottom line: I'd predict that we will see a Yahoo social network by the end of 2004. Also, if Google can keep costs contained and their organization focused, they will be a powerful innovator in the Valley for years to come.

3 comments:

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linroc said...

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roclin said...

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