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Summary:

Now that Yahoo has announced its reorg, many are wondering and speculating as to what the ailing Internet giant might do in terms of M&A. Put another way, will Yahoo rely on acquisitions to fix its problems and plug up its holes? Or will it depend […]

Now that Yahoo has announced its reorg, many are wondering and speculating as to what the ailing Internet giant might do in terms of M&A. Put another way, will Yahoo rely on acquisitions to fix its problems and plug up its holes? Or will it depend on its internal resources, now that they have streamlined for improved execution, to strengthen its strategic weaknesses. Given the company’s weak stock price, itís much more likely that they will opt for the latter path if at all possible.

Take Facebook as an example. Rumors of on-again, off-again acquisition talks notwithstanding, Yahoo must take steps to gain a leadership position in social networking. As the Internet’s largest community and communications company, the fact that Yahoo is *not* a leader in social networking represents one of the biggest missed opportunities in our industry’s history.

Just as Viacom’s Tom Freston got fired by Sumner Redstone for losing the MySpace deal to Rupert Murdoch, someone’s head should roll at Yahoo for the fact that they have virtually no meaningful presence in social networking.

But what to do? Should Yahoo take the highly dilutive plunge and buy Facebook for $1 Billion-plus? In my opinion, no, they should not — there is an alternative that is better, and a lot cheaper.

Yahoo should immediately clone Facebook. But as not Facebook is today; rather, as Facebook was before they opened up. In other words, Yahoo should develop and launch a social network designed exclusively for college and high school students. This market opportunity, which is the exact same opportunity that Facebook exploited several years ago, is now available once again. It’s a low-hanging fruit in the social networking space, one that would be very easy for Yahoo to pluck off. Cloning the original Facebook would also shore up one of Yahoo’s most glaring weaknesses it would bring back the 14-22 student demo.

For a company like Yahoo, social networking is not a market that they should buy into. Yes, Murdoch needed to, being a traditional media company with no real Internet competency. Even Google’s acquisition of YouTube made sense from the perspective of core competency since Google is notoriously bad when it comes to anything “social.”

But for Yahoo, social media is as natural a market as they come. It already possesses everything it needs to lead and succeed in that space. But they got lost during the last few years. Bringing in someone like Lloyd Braun to head up their Media Group was indicative of how misguided they were. Don’t get me wrong.

Braun is a tremendous TV executive. After all, he’s the one at ABC that green-lighted “Lost” and “Desperate Housewives”. But inside Yahoo, when the big opportunity in the market was clearly social media, it was inevitable that someone like Braun would himself become lost and desperate.

By Robert Young

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  1. yahoo needs to gets its own house in order first and foremost and asap: focus and get-working what it already has – i am losing patience with yahoo360 (surely the world’s longest beta?) – indeed the last thing it should do is squander a billion or so on facebook or a.n.other and only compound its problems.

    when observers argue a key reason to acquire is to get the users of the target company, i love the irony of the fact that most of the users are cross-pollenated on dozens of similar sites.

    ie, my demographic profile and so my demo-value is the same on my yahoo account, my google account, my typepad account, my facebook account, my myspace account, my youtube account, my plaxo account, my flickr account, etc. i could cite a few more but i am sure you get the picture.

    pretty much everyone i know is a similarly omnipresent user, mirrored across dozens of such sites.

    so, what’s the point? get your developers finishing off code, yahoo (eg, 360!!!) and get creating new clones, as you suggest.

    use the users you already have – for free!! anyone thought of consolidating all these oh-so valuable user databases into one true database with only the unique users? now maybe that would be worth something … ;-)

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  2. If Yahoo were to clone Facebook, they’d need to do it as a spinoff – I can’t see anyone in the under 25 demographic getting excited about joining something directly associated with Yahoo. Facebook took off because it had an edge, that “hip” factor in being college-only and cleaner than MySpace. It is losing that edge, so there is definitely opportunity to fill the void. Yahoo 360 was sort of a play into social networking, but it wasn’t very well designed or executed.

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  3. Once again, some zingers from Robert Young.

    However:

    The only problem with Yahoo trying to beat Facebook at its own game is that Facebook still has a grip on the college scene.

    Here’s how the average student thinks about the issue:

    “Well, some of Facebook’s latest moves — you know, the news feed and the opening-up thing — have bugged me. But all my friends are on it. And the news feed is actually pretty useful. And the new users aren’t able to mess with me and my friends. So whatever. Why take the time to move my entire social network over to a clone?”

    Facebook also has a great startup story still fresh in many users’ minds. By not selling out to a conglomerate that only wants to make money (cough… myspace… cough), by continuing to tweak the site for better usability, by not introducing more features that their users can’t handle, they’re doing a pretty good job of maintaining brand loyalty.

    If Yahoo were to buy Facebook, it would partly be paying for street cred — something that’s hard to create from within a large corporation (so almost priceless).

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  4. As echoed starting a social network is not “let’s just develop and launch one”. That would be a very long term and risky strategy.

    If big companies could build the same thing then why have they been buying startups? Why did google purchase youtube despite having one of the top video startups?

    This post is light on any real analysis or validity.

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  5. This is like Mircrosoft Zune trying to eat away at the ipod market share. It is very easy to replicate something, but to create an original is very difficult. Facebook has too much momentum I don’t see anyone really taking this away.

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  6. Does anybody need one more social network? Honestly ?

    Every second week I get an invitation to join another social network because some friend joined it and sent an invite out accidentally…

    I routinely treat those mails as spam, and I am sure most users do … To get into social networking, Yahoo needs to buy facebook, simple. Whether the pricetag is justifiable is another matter.

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  7. Yahoo has to acquire users, it knows how much it can make from each user. Acquisitions is the only way it can build momentum. Cloning something does not clone the community.

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  8. Total agreement. Facebook had one major thing going for it: membership was restricted. It was not offering “edge” or “hip”.

    And, I wouldn’t underestimate how rapidly users might switch. Social network churn is already massive. Couple that with the college market which inherently churns 25% per year and you have a major opportunity for a new entrant.

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  9. I have to agree with Eric Eldon… trying to create something from scratch that is similar to Facebook is not going to be ab easy thing to do.

    First, Facebook has too much of a lead currently. We’re talking almost a two year-plus head start…Yahoo! would be hard pressed to catch up to that because there’s just so much that goes into creating that. What developement platform/language would this service be built in? Is this platform easily extensible? Once you get that out of the way, then you’ve gotta get your network issues together which includes buying extra servers, SAN units to store all of your info plus extra bandwidth to cover all of the new users that you don’t even have yet. You don’t want this new service having Friendster problems.

    THEN after all of that is out of the way, you gotta build it and test it and test it and test it and test it some more. Where are you gonna get the hundreds of beta testers from in the demographic that Robert young suggests? Remember most people consider Yahoo! to be old and stuffy so you gotta deal with that whole street cred/coolness factor. You can’t really go to the Flickr and Del.icio.us userbase because most of those people are already using Facebook and are more than happy with it.

    Then on top of all of that, you gotta match all f Facebook’s current features without seeming like a rip-off of Facebook…and that in and of itself is hard as hell to do: Just ask the Xbox developer team.

    The only way that I could see Yahoo! actually being succesful at rolling their own social network aimed at the College/High School demographic is if they did like Microsoft: hire some developers (maybe 37Signals..) and give them complete and utter autonomy to develop and create a network to compete with Facebook. This is the only way that I could see them being succesful!

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  10. we’re talking about a social networking site here – not putting a man on mars.

    for goodness sake, lol!

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