Yahoo!: The Business of Change

Peter Merholz has been on a philosophical bend regarding the continued development of Web 2.0 and the role of business for a few months now, and I’m pretty much in agreement with most of his assertions.

Changing a large, old school domain’s approach to interactive product development — specifically, in the Web 2.0 arena — doesn’t occur solely through the availability of smart engineers armed with APIs, feeds and Ajax alone. Unless the business has evolved its underlying approach and culture to facilitate this paradigm shift, the resulting efforts will be futile, or to quote Peter, “they’ll fuck it up.”

The powers that be must believe in and back the philosophy behind the technology.

ChangeSo when it comes to business — I mean straight up, hardcore, numbers driven business — philosophy better equate with an explicit road-map to profit, otherwise we’re not talking business, we’re talking charity. More succinctly put, corporations won’t structure their annual and long-term corporate initiatives around Web 2.0 “open” principles and the investment in the underlying technology if they don’t explicitly understand how and why it will positively affect both their brand position in the market and the bottom line — both now and into the foreseeable future.

Now, I don’t hold a MBA from Wharton, so my ability to speak to the nuances of business is somewhat limited, but I did have the opportunity to spend the last three-years of my life within the walls of a conservative corporation. During my time there, it was extremely difficult to espouse any degree of change to their approach to design, development and serving their clients without raising agenda sniffing eyebrows — even when only attempting to sell the basic concept of listening to your own users when designing user experiences.

That concept alone took years to gain traction.

So while change within the Earth’s environment is as natural as a sunrise, within traditional businesses the mechanisms that foster change often signifies a threat to both the corporate strategy and the management team alike. One cannot move into traditional areas of business looking to flip long standing product development paradigms and revenue models overnight.

Yahoo! SohoA recent Economist article ("Yahoo’s personality crisis") suggests that there’s a schism developing in the Yahoo! strategic and brand position, while Google is poised to sprint light years ahead. Peter’s latest post," Yahoo!: Walled Garden or Commons," tacks onto that perspective, suggesting that Yahoo!’s internal tugging between an open and closed  web philosophy, and their imminent plans to open a Hollywood office, could become a mission critical issue if not paid proper attention. The Economist even went as far as comparing present day Yahoo! to AOL from back in the days of the first web revolution.

AOL?

If we were talking about Bob Davis and Lycos, I’d have to agree, but we’re talking about Yahoo!, a company that has always been forward thinking, willing to tackle any attribute of traditional media and turn it on it’s head to make it useful on-line. With their soon-to-be-expansion into the mainstream media bastion of Hollywood, Yahoo!, for better or for worse, continues to operate as a change agent in the information age.

Simultaneous focus on open and closed aspects of the web is a solid business approach

Yahoo! has been at this web thing for more than 154 years now (posthumous math courtesy of Dick Sabot). In that time they’ve established a huge member base around the world, while designing a majority of their domain to be accessible to non-members with zero usage fees. A person can use most of Yahoo! without ever spending a dime until coming across a service with direct, fee-based competition already in the market. This holistic business model may seem passe by today’s standards, but that’s only because Yahoo! set the benchmark years ago; they were the early adopters of such an open business philosophy on the web.

This approach has provided Yahoo! with the means to both create and promote very precise revenue streams, leveraging the continuously growing reach of their membership and platform. Simultaneously, their focus on a variety of forward thinking, open tactical initiatives, such as flickr, 360, News, Music, etc. continues to move their domain forward with the best practices of the medium.

To the naked eye, this overarching strategy hints to be a metaphorical form of iterative change management, but not on the project or Yahoo! domain level, though; it’s more like change management for entering untapped external markets and media industries. In other words, Yahoo! seems to make closed moves (i.e. extending its domain by dealing with old school industries) in order to tap and evolve an established sector into a more open and web-centric format.

So does that make cents, compared to Google’s approach? Let’s see…

Snap12_1Google is also made-up of a brilliant group of people, creating forward-thinking user interfaces and search retrieval algorithms, but where Google’s daily operations differ from Yahoo! is their position in the market.

Their underlying funding relies almost solely on revenue established from their AdSense program and by floating company shares into a market that has provided a whopping market evaluation, based primarily on growth potential. So who really has the edge to last, riding through and continue contributing to the infrastructure of Web 2.0?

They both do.

Yahoo! has a consistent, upwardly moving market cap SMA since the bubble burst, whereas Google is on a meteoric rise post-dotcom crash. How much do you think the assertions of this chart tie directly into the two company’s strategic approaches to extending market reach? What about their commitment to open forms of Web 2.0 development? To the non-economist (that would be me) it would seem that each company has it’s own DNA to deal with and make decisions accordingly.

  • Yahoo! took its bruises, but made it through the bust and learned their business lessons
  • Google’s people felt the crash, but missed it all together as a company with a bottom line and shareholder’s interests to protect, so they’re more aggressive
  • Yahoo! has more than a decades worth of experience, so they operate like a surgeon
  • Google swings wildly at product opportunities with brilliant, broad strokes and precise algorithms to quickly iterate change

Basically, there’s room for multiple approaches to paving and extending Web 2.0.

Crafting an interactive world, one industry at a time

Take a moment to think about your life before Yahoo! took off. Ten years ago, the average American received their daily news through a newspaper and/or a TV broadcast. Due to Yahoo!’s revolutionary efforts to establish News aggregation for the public, I can barely remember the last time I read the newspaper during the week. Yahoo! forever altered that paradigm, shifting me and countless others in front of their screen for a news upload each morning.

Since Yahoo! News launched, Google raised the bar by expanding indexed sources to include international and local perspectives, while recent feed services like Rojo have cropped up, pushing the information boundaries into gourmet concept feeds.

Yahoo! set all of this in motion and continues to play a major role in how a large number of people (members or not) receive a variety of news items at their fingertips. By iterating the open, tactical aspects of their holistic user experience (i.e. feed widgets, top mailed articles, reviews of articles, etc.) while adding content (i.e. specific opinion blogs such as the HuffingtonPost.com), Yahoo! innovates by keeping one foot in the tactical realm of Web 2.0, with the other firmly planted in the strategic realm of the business philosophy.

It takes two feet to walk the walk.

As DeWitt Clinton has recognized, Web 2.0 is also about working together to reach a common goal across company lines. Forget the feeds and the tagging and the asynchronous display of data; collaboration between progressively run web firms is the biggest open paradigm shift one can imagine. Could this concept of collaboration and strategic balance be something that Yahoo! — a former Google-type firm which did experience the market correction of all market corrections in the bust of 2001 — has mandated itself to follow? Maybe it’s not schizophrenic to play both sides of the Web 2.0 fence; maybe it’s a solid business model.

With their historical record of successful brand extension — creating and/or acquiring useful, engaging experiences to change actual industries (i.e. News, Finance, Jobs, etc.) — I wouldn’t bet against Yahoo! in convincing Hollywood, through either the front or backdoor, to operate in a fashion that is more open than not.

Will the geek-to-media employee ratio be higher in the Valley than in Santa Monica? Sure. When in Rome, hire Romans, but so what? 154 years of Internet experience isn’t going to be thrown out the window because a handful of media executives are brought on-board. Will the output of this venture be as revolutionary as Yahoo! News or Finance? That’s left to be seen, but with Yahoo!’s track record, why be pessimistic?

Yahoo! espouses the tactical and philosophical pillars of Web 2.0, yet also understands business and how to engage in change. They’re no AOL.

UPDATE: AOL bought Weblogs, Inc. Let’s see how long it takes them to assert full control.

0 thoughts on “Yahoo!: The Business of Change

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s