Home Yahoo’s Acquisition Pattern: Smart and Cheap

Yahoo’s Acquisition Pattern: Smart and Cheap

Written by Emre Sokullu and edited by Richard MacManus

Yahoo has had its problems lately. Bad financial results in the 3rd 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 3rd 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
) 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

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.


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?

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