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Yahoo & Facebook: Deal or No Deal?

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.

37 Responses to “Yahoo & Facebook: Deal or No Deal?”

  1. Facebook has strong network effects. If Yahoo was to pay 1 bn+, the bulk of that goodwill would be for Facebook’s network effects.

    Your suggestion of cloning facebook could potentially work, but Yahoo’s management is simply so poor that the likelihood of properly executing a kill-facebook plan would be low if not nil.

    If anyone from Yahoo is reading this and would like my detailed 2 cents (my email is [email protected]). I’ve competed with Facebook in Singapore (I launched an SNS with less than $2k got 3500 users, and Facebook jumped in roughly 1 mth after us.

    Our realization was that the SNS model alone simply doesn’t work.

    Those of you who believe that Facebook is entrenched permanently are dead wrong. What all of you are forgetting is that there is a significantly larger K-12 market, particularly for High School students. These users are unencumbered with pre-conceptions, and many of them have not registered or even heard of Facebook. (Many of you will recall Facebook’s huge push into the HS market, Facebook knows that it needs to secure the HS market and continue to secure it – or else their advantage will slowly dissipate).

    There are 4-4.5 mm incoming college students (roughly 1/3-1/4 of Facebook’s total base).
    Facebook will likely keep its lead with Classes below 2010-2011 and with college alumni, but if Yahoo was to make a strong push, they should do it in K-12, and integrate an Education package.

    This is my kill two birds with one stone approach:
    -Rapidly deploy an Education suite (like Google Apps for Education) with an SNS built in
    -Approach IT Admins at schools and offer Yahoo Mail (in the school’s interface) with 1 gb as a replacement for School Webmails (most IT admins will fall over themselves to take Yahoo up on this, especially since Google is lagging with Gmail approvals) (this will enable Yahoo to grab users fast, college students check their email as much or more than facebook)
    -Buy a Learning Management System (something like Blackboard and integrate it with the SNS): this will enable Yahoo to integrate courses and homework (even more traffic to monetize) and great for K-12s or Colleges that don’t want to pay Blackboard $1mm/yr in license fees).
    -Customize the system for New Student Orientations (several schools such as UChicago, Upenn already offer Facebook/Friendster clones to their new students during orientation, Yahoo should actively court these schools)

    Rapidly promote the product to K-12s and to Colleges. Get market share.

    This strategy if executed properly would enable Yahoo to fight back Google in the Education space (something Yahoo doesn’t seem to be paying much attention to, but is critical) and grab users en masse through administrative channels (e.g. Webmail, etc.).

    BTW my company is working on the “kill two birds with one stone” strategy so if anyone from Yahoo is reading, seriously email me. You guys are missing ideas and plans, I have plans + ideas + a deployable system.

  2. Eric took the words right out of my mouth. The approach he recommends “Introduce a high level “Yahoo profile” with social network features (friends lists and the such), and span it across everything; let organic networks form around photo sharing, autos, cooking, even finance – with that profile being customized according to whatever site section you’re looking at.”

    …that’s the ticket. Organic networks forming around actual usage of Yahoo’s services…maybe even the addition of an ajaxian widget that, as you navigate the Yahoo network, shows profiles that match a certain number/type of your preferences on that service…so your “friends” are constantly morphing based on ‘where’you are and what you are doing/have done on the Yahoo network..and when you “save” a story, or photo or vid, or post, to your widget’s “save” box, it saves it as well to your organic network friends widget’s inbox. And you can set your preference to view selected friend’s input, or view-all.

  3. I think Yahoo should come up with their own design and innovative social network site. Surely that’s better than trying to copy what someone has already done. ie Facebook. It’s that lack of innovation that is holding Yahoo back.

  4. Anyone can whip together a social networking site practically overnight. If “start your own” was any kind of solution, every company would be doing it.

    Getting users is the tricky part. Simply cloning facebook isn’t going to inspire any users to either switch sites or even to use both products at once.

    IMHO, if there’s any acquisitions that Yahoo should be looking at, it’s SixApart and/or Technorati. Blogs are still social media, and Livejournal is still alive and kicking as a social networking site goes. And Yahoo’s got nothing right not as far as blogging goes, that’s the hole they need to plug.

    But even that said – it’d be smarter for them to focus on what they have.

    Rather than try to clone Facebook, I’d suggest to Yahoo that they leverage their real strength: A mind boggling array of properties that capture almost every interest a person could have. Introduce a high level “Yahoo profile” with social network features (friends lists and the such), and span it across everything; let organic networks form around photo sharing, autos, cooking, even finance – with that profile being customized according to whatever site section you’re looking at.

    Or minimally they should brush the dust off of their groups offering and better integrate their other services into that (Like why does each group get an abhorrent interface that allows all of 10 mb of photos, instead of simply linking itself to a Flickr photo pool?)

  5. Perhaps someone has brought this up already but it appears to me that Yahoo wants to put the Facebook song and dance to bed once and for all via a purchase the company.

    That isn’t the issue, I believe they would have already if it were possible. The issue is that Facebook isn’t comfortable with Yahoo. Really, I can imagine Zuck viewing selling to Yahoo as a slap in the face unless they gave him a huge role in the company. Going forward, Yhoo is more of an operating company than development house and a. Zuck has no business being in a high level management role at yhoo and b. yhoo exodus of what is left of mgmt would accelerate if Zuck was put in any type of major mgmt role other than directly for facebook. I can’t see any of the current SVPs or even VP’s accepting a position which reports up to Zuck. Not a chance.

    BTW – Robert, you are the best Om has so I hope he shows you the money :)

  6. I have heard the idea of a new FB that is just for college students touted again and again. Each time I hear it I become that little bit more annoyed – it simply will not work. There seems to be a general misconception of how students view FB – they do not go to FB because it is full of other students. They go to FB because that is where their friends are, 99% of whom are going to be students themselves.

    Any people who have a problem with FB being open to non-students are generally going to be the typical maven personality type who always want to feel in control of what’s going on. So FB gives them a great deal of control over their privacy settings, this keeps them happy. You also have to remember that purely in terms of product, FB is miles ahead of anyone else. As a website and social network it is wonderfully simple to use and continually innovates.

    An idea that has more legs is a FB that is LITERALLY open only to students i.e. academic staff cannot use it. This is a big area of controversy atm in my old school, Oxford, where FB has started to be used as a means of finding evidence required to discipline students. However since FB relies on educational email addresses to classify people as students, it’s hard to know how this would be implemented in practice.

  7. Even Yahoo wants facebook, can they have it? If google can acquire youtube, why it’s not possible to acquire facebook? It’s cutting edge, it has the content. It has the technology. Google has one social network youtube, There is no Google job. Acquiring facebook may gave Google an edge to build a premium Google job board, anyone?

  8. Back when I started making video games we would always try to duplicate what othe people were doing…it’s often a recipe for disaster. It wasn’t until we published some innovative games like Ripper and Grand Theft Auto that we really got traction.

    IMHO – the game is not copying facebook and certainly not buying it. Instead, it’s in leading the pack. They go the way of Microsoft at the moment. Do something profound!

  9. PWB & RY…no, you’re missing the point. A copy would not be accurate. In fact, a copy done by Yahoo! is doomed for failure because it’s brand image doesn’t mesh with the College demo.

  10. You’re all missing the point. The point is that Facebook gave up its secret sauce by opening up to anyone. Even a mediocre copy by Yahoo would be adequate so long as it maintained the closed membership.

  11. Ha ha ha…yeah right.

    “Yahoo should immediately clone Facebook…This market opportunity, which is the exact same opportunity that Facebook exploited several years ago, is now available once again. “

    No way my friend. Yahoo could never duplicate or come close to the success of Facebook …especially within the college realm.

    Facebook is the best site on the internet. I said it, and I really believe it.

  12. You guys are all making it too complicated. Facebook succeeded because it explored a concept that was never done before – tapping into college networks. Long-time users will remember that moment of awe when first registering and entering their class information… there was never anything else quite like it.

    Needless to say, it is well nigh IMPOSSIBLE for Yahoo to pull off a similar coup. They could hire the best coders in the world, invest as much money as they want… but the one obstacle they can’t get around is that EVERYONE IS ALREADY ON FACEBOOK. People enter college, they join Facebook because 95% of the rest of the school has it. It becomes a daily activity, a lifestyle that is catered specifically to college students (I’m excluding new non-college registrants). A new social network created by Yahoo wouldn’t just have to win over individual users– it would have to win over entire college campuses, and this is realistically not going to happen.

    Furthermore, Facebook has consistently shown that they are not going to rest on their laurels. They innovate with great ideas (News Feed) and they imitate where appropriate (Facebook Shares). Even if someone (Yahoo) comes up with The Next Great New Feature… if it’s that great, Facebook will also implement it shortly. Advantage destroyed.

    This is the same phenomenon that happened with AIM. AIM as a software product has sucked donkey balls for a long long time (it has since caught up to its rivals considerably). I remember as an early user that I hated it and wished I could use something else, anything else… but why switch out of the network where all your friends are? Why indeed… this is why Facebook is here to stay.

  13. 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 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!

  14. 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.

  15. Yuvamani

    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.

  16. 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.

  17. 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.

  18. Once again, some zingers from Robert Young.


    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).

  19. 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.

  20. 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 … ;-)