Written by Emre Sokullu and edited by Richard MacManus

Yahoo has had its problems lately. Bad financial results in the 3^rd quarter of 2006 and the peanut butter manifesto of senior vice president Brad Garlinghouse resulted in doubt about the company's ability to compete against Google and others. Some also think that Google's YouTube acquisition meant that Yahoo had failed in the crucial online video industry. But for us, things are not so dark. In this article we look into Yahoo's recent acquisitions and their new de-portalized strategy.

Acquisitions in the Web 2.0 Era

Today, Yahoo spends very little in acquisition when compared to the dot com era. Also 2006 was very slow for them. Although there was speculation about a billion dollar Facebook acquisition, this never eventuated - and in total, Yahoo bought only 3 companies last year [Update: We've been informed by Yahoo's PR that in 2006, as well as Jumpcut, Bix and AdInterax, Yahoo also bought Wretch in Taiwan and Kenetworks in Sweden in social networking, as well as Meedio for IPTV. They also made strategic investments in Right Media and Gmarket, among others.]. With the acquisition of MyBlogLog in early 2007 though, the new year has started fast for them in terms of acquisitions.

Now let's look into some of the acquisitions in this era of the Web (which for our purposes here, we'll say is 2005 and beyond).

Blo.gs - Blog Search

We don't know how much Yahoo paid for Blo.gs, but the number is estimated to be very very low - more at acqu-hiring levels. And what did Yahoo get in return? The ownership of a relatively big, open source and beloved blog ping service. Blog pings are indispensable, particularly in date-ordered blog search. Yahoo does not own a big blog network like Google does with Blogger, but Yahoo is a big authority in blog updates and can keep track of them with full control. Blog Search is important because it helps users keep up with real-time events and learn peoples opinions on current issues.

Flickr - Photo Search

Many people think Yahoo paid $40M to Canadian Flickr just for its innovative photo hosting service, but that's just the visible part of the iceberg. Flickr's tagging culture actually makes photos searchable. So Yahoo bought searchable media and integrated this into other Yahoo products. Now Flickr is a widely visited property that adds more and more tagged, licensed photos to Yahoo's media repository.

Google tried to follow Yahoo's pattern with a game based strategy - Google Image Labeler. But this was far too geekish and it didn't take off.

Upcoming.org - meetup, event search

Last year, eBay invested $2M in meetup. Organizing the offline world, social activities, events, reviews and event search is becoming hot. Yahoo took place in this race by snapping up upcoming.org for a very low fee.

del.icio.us - Web Search

Many people consider del.icio.us as bookmarking, but as I stated in my previous search article, del.icio.us is also an excellent tool that can empower your algorithmic search results. In 2002, Yahoo paid $235M to Inktomi to empower Yahoo Search. Del.icio.us, with its low price, can still have a big effect on Yahoo's search results.

Konfabulator - say hi to Desktop

Google made a good entry into the desktop world with Google Desktop. Yahoo has jumped into the desktop world with Konfabulator. Konfabulator makes your desktop background something really useful; it allows you to embed widget-like clocks, games, utilities in your desktop. Plus it's fully open for 3^rd party add-ons. However, the new Windows Vista OS from Microsoft offers similar functionality - which may not be good news for Yahoo.

Jumpcut & Bix

Instead of making a billion dollar acquisition (which they could not) in the video industry, Yahoo wanted to enrich its services and offer entertainment around video to attract consumers. They wanted to add online video editing to their portfolio and so they bought Jumpcut. 

Then they acquired Bix, a karaoke entertainment service. This could be a huge incentive for people to move to Yahoo Video, but Yahoo is slow in integrating this into their video site. They prefer to improve Yahoo Video's visibility by taking videos to the Yahoo homepage.

MyBlogLog - the Distributed Social Network

$1B to Facebook? This never happened. But Yahoo ended up acquiring another social networking platform, in a very different form. MyBlogLog is a blog-based distributed social network. It does not have a large user base like Facebook; but this distributed approach is really promising!

The biggest properties of social networking are self-expression and communication with friends - building new friendships. In MyBlogLog, the idea is that the blog is the best place for self expression - because it's the place where you publish your ideas and photos, and present them in your own fashion. MyBlogLog connects blogs and adds them into a social networking platform. MyBlogLog has the potential to become very big if they can keep the same acceleration.

Now what?

You might ask, well why are Yahoo financial results are so bad if they made such good acquisitions? The reason is their core business, advertising - the one that pumps blood to sustain all other Yahoo services. Yahoo's ad network does not yet adequately compete with Google's AdSense/AdWords. But Yahoo took a smart step in this field, with the following acquisitions:

AdInterax - RightMedia - TeRespondo

TeRespondo was a step to take the big Latin American internet ad market. This was obviously a smart move to dominate such a large and important market.

AdInterax was bought to empower Yahoo's web based ad tools.

But the biggest hit was the investment made in New York based RightMedia. RightMedia is a meta ad platform, that allows site owners to get maximum return by a real time bidding system that abstracts all existing ad providers, including Google Ads. Yahoo owns 20% of the company and this was an important investment made for the future of their ad revenues.

Conclusion

In 1999, Yahoo acquired GeoCities for a huge sum, $3.6B. But today GeoCities is a forgotten property.

Yahoo's latest acquisitions are cheap and smart. In effect the Peanut Butter manifesto is actually the new de-portalization strategy. However, although it's good not to kill brands (but keep them as separate entities and don't touch the soul that brought them success) Yahoo could be faster in getting the advantages of having so many related products. For instance, del.icio.us and Yahoo Search, or Jumpcut and Yahoo Video - these really should have been brought together already.

However slow (steady?) integration is normal for Yahoo. A prime example is OddPost, which was acquired in 2004 - but is still working its way to become Yahoo's default mail interface. So it probably takes 3-4 years for Yahoo to integrate its acquisitions into their main product line.

Bearing in mind Yahoo's de-portalization strategy and penchant for cheap and smart companies, which startups do you think will be bought next by Yahoo - and why?