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Yahoo-Facebook patent fight: more than meets the eye

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It has been an interesting day to say the least. The news of Yahoo (s YHOO) suing Facebook for infringing its patents has drawn sharp reactions from some of the more measured voices in our industry. Here is a small sampling of reactions:

Of course, there have been many more virulent and downright dumb reactions. Maybe you have read some of them by now. The industry wide indignation and condemnation of Yahoo has been quite amazing to watch, prompting me to make a few phone calls. During the course of the day, I learnt that Facebook is going to fight Yahoo tooth-and-nail.

However, what I have not been able to figure out why Yahoo has taken this drastic action, one that is leaving it bruised and battered in the court of public opinion, at least in Silicon Valley. The decision to sue Facebook has not had any perceptible impact on the Yahoo stock price. I have read many explanations — Yahoo is an incumbent, it is dying, it doesn’t innovate, it has done this before, it is a bunch of losers with no strategies. (Actually any one of my past posts could be summarized as such.)

However, being a natural born skeptic, I feel there is more than meets the eye to the whole Facebook-Yahoo scrum, for suing Facebook is a pretty drastic step for Yahoo.

Facebook Disconnect

Why? Because, today, it is pretty beholden to Facebook, thanks to a dumb agreement the company entered in 2009. Just to refresh your memory, on December 2nd, 2009, Yahoo announced that it would integrate Facebook Connect into all its products. Here is what I wrote then:

It’s clear that web identity is becoming a two-horse race: Google vs. Facebook. Back in the 1990s, Yahoo chose Google as its search provider and helped turn them into a major competitor and ultimately their nemesis. This deal is of similar importance, as it gives Facebook Connect a big boost. Yahoo, despite its claims, is going to become less relevant in the web identity sweepstakes. It is part of the company’s growing de-emphasis of its technological chops. They are giving away search to Microsoft and it seems they are happy to take a backseat in identity sweepstakes. I think the company in its desire to become a media-web destination is becoming technologically irrelevant.


Here is what Yahoo said in a press release and that pretty much says it all:

Yahoo!’s Facebook Connect integration will give consumers richer experiences on Yahoo!, including in Yahoo! Mail and on properties like Yahoo! News, Yahoo! Sports, and Yahoo! Finance. It will enable them to connect with Facebook friends on Yahoo!, view a feed of their friends’ related activity on Yahoo!, and share content–such as photos from Flickr or comments on news stories–with all of their friends on Facebook. The content that consumers share with Facebook friends will then create a loop that drives visitors back to Yahoo!.

Yup! Thanks to its then feckless and incompetent management (and the then technologically irrelevant board that made even bricks look smart), Yahoo gave Facebook access to the address books of its 600 million odd users.

Facebook, being smart enough to use that data, ramped up its own numbers from 350 million users into nearly a billion users. (Random tidbit: Facebook in February 2010 bought Octazen, a Malaysian contact importer firm and then shut it down and in doing so essentially eliminated any and all competition. In order to tap into address books, rivals would have had to build their own importers, no small feat in itself.)

Yahoo CEO Scott Thompson

Some technology industry insiders believe that Facebook was pillaging Yahoo’s email address books for a long time before the two companies signed the 2009 agreement. In fact, Facebook had been doing such a good job that at one point Yahoo blocked Facebook and started to scrape Facebook as well. This prompted Facebook’s attorneys to get in Yahoo’s face. Of course, Yahoo backed down. The two companies eventually signed the 2009 agreement that  only accelerated Facebook taking more control over the Yahoo user base.

In other words, there is and has been a whole lot of simmering animosity between the two companies. My theory is that for the first time in a long while Yahoo has management that is willing to mess with Facebook. Whether that is a good or bad move, it is open to debate – natch, a shouting match.

16 Responses to “Yahoo-Facebook patent fight: more than meets the eye”

  1. people will recall, yahoo sued google on the eve of google’s ipo.
    got a settlement and probably some valuable options/shares for the yahoo managers. I will not be surprised if the fellows at yahoo are looking to add that extra buck to its reserves. After all, the facebook kingdom is worth a lot more than the google :)

  2. Hiram Bertoch

    “In order to tap into address books, rivals would have had to build their own importers, no small feat in itself.”

    No small feat? Are you sure about that?
    The code would take a few hours at most to write. Then all you would need is a few dozen servers. I could have all the data inside of a month, while spending less than $5,000 to lease the servers.

    Just saying.

  3. This litigation strategy is entirely the doing of Scott Thompson. He is going to attempt to wring every cent out of Yahoo before he leaves. Watch what he does with Yahoo’s Chinese assets.

  4. Yahoo needs to do something innovative. They are always second in releasing products and their products are always second rate. Their web-mail UI still looks 10 years old.

    And the patents that are being used to sue FB, are ridiculous. US patent offices must be full of mindless people!

    • And Google paid giving credence to the litigation. Yahoo! wouldn’t do this if they didn’t think there was merit in their claims. They aren’t stupid. Facebook as run afoul of a lot of companies and that can only last so long. If Yahoo! didn’t enforce these patents, they would be doing a disservice to their shareholders opening themselves up to litigation.

      When Google settled the initial suit, Yahoo! ultimately made $1 Billion on the sale of that stock. Do you honestly think they would walk away from a similar pay out because a bunch of people think they shouldn’t?

      Most of the people that are coming out saying Yahoo! shouldn’t do this probably have a reason to be concerned. I would venture to say that the Venture Capitalists that are coming out against this are investors in Facebook or another company that could be sued by Yahoo! for the same reasons.

      Yahoo! is a stagnant company that needs a shot in the arm. It’s not a dying company. They’re a company without a consistent identity. They are a media company with a tech infrastructure that thinks it is a technology company. Everyone thought AOL would die, but it’s still around. Yahoo! has too many eyeballs and visitors to die. They may get acquired, but Yahoo! is one of those brands that won’t just disappear. They’ll get lumped into comfort brands like Johnson & Johnson, Sara Lee, and Allstate. All notable, but they aren’t sexy innovators.

      Google used to be a hot brand, but they are now finding themselves falling into the commodity brand category.

      Yahoo!’s actions, whether you like them or not, will have repercussions far beyond this suit with Facebook. The internet is still the Wild West. Legislators are trying to figure out what to do when it comes to lawlessness on the WWW, until then, companies have to legislate themselves. Facebook in this case is the Outlaw that stole Yahoo!’s cattle…and Yahoo! wants them back.

  5. Hi,

    The sad thing is, that as irrelevant as the digerati think Yahoo is, across the broader Internet userbase (those normal people in non-tech jobs), the people that Yahoo originally helped navigate on the open web, and helped give traction to both the likes of Facebook and Google, Yahoo really has the potential to be one of the alternative stools alongside Apple, Google, Facebook and Microsoft in the Digital sphere, if only it would pull its socks up.

    It really isn’t hard, just a question of strategic intent. and remembering Yahoo!’s History.

    On the patent front, yes they’re not ideal, but fact is Facebook has done a whole load of things lorded as innovative which aren’t, pincus and zuckerberg aren’t known to be the most ethical yet have made enough money out of non-virtuous behaviour, Amazon owns one-click, Apple thinks it owns swipe to unlock, in the 90’s Yahoo was as exciting as any other start-up from the 2000’/google in terms of working on the webs innovations, you can’t blame the new management for using whatever they have in the barrel to lay some extra road in front of them………….

    Of course, if they were to get an injunction on trade/access the way Apple has for hardware patent infringement, and then get an equity stake in return for removing that injunction for the rights to those patents for Facebook, it would be the greatest act of Lazuras in the post web2.0 era.

    It can be done.

    It benefits none of us, when the connected population exceeds 2bn humans, to believe there should only be a handful of sector leaders, let alone one social network or identity provider, forgetting all the earlier battles for an open and equal internet (e.g. see msn/microsoft passport); when there are 100’s of tv stations in smaller countries, newspapers, utility providers, et al, the only reason people think the internet needs single-market leaders is simply because of the laziness/ignorance of the media in telling new users of the variety of alternative options, i.e. there should be multiple federated soc.nets, video-hosts, etc. just as Amazon hasn’t been allowed to be the only online store, which would be a preposterous proposition!

    [/tangent_rant over]

    Also, lets not forget, that while mindshare is so important in sentiment of energy and innovative progress for web companies, so many are aided by cynical PR, insider-ism and conflicts of interest, hype, personal friendships and fashions where the latest coolest web companies can depend on free press and added awareness/traction, that the likes of Yahoo long lost, while the likes of the social networks were freely given access to and able to better harness……………..

    Yours kindly,

    Shakir Razak

    One possible strategic route, not the only one, I have many thoughts on Yahoo:

    • The court of public opinion will relegate Yahoo to Myspace relevancy in the end. This just accelerates the process. Facebook is the evil 800 lb Gorilla in the room you can no longer do anything about! People like to talk about how Google now does Evil, well if FB hadnt backed all these players into a corner with their bully tactics and shady practices, do you think the claws would have had to come out?

      No! Its a shame no one every bitch slapped Zuckerberg, lord knows he derserves it!