Okay, I have to say this, despite my self-imposed hiatus.
There is only word for Yahoo’s purchase of social bookmarking service del.icio.us: sno.ooker.ed. While Yahoo apparently didn’t pay as much as it did for Flickr, it also bought…
- …technology that is freely available elsewhere as open source
- …a tiny team
- …a largely unmonetizable product, and
- …an installed base of early-adopter geeks utterly unrepresentative of anything approximately a larger market than del.icio.us’s current 300,000 supposed users.
As I said, sno.ooker.ed.
[Ed. I was given an assist on the most excellent title of this note by someone who would like to remain anonymous.]
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My theory is that they aren’t buying products, they are buying goodwill among the hacker/tinkerer community. They are differentiating themselves from the pie-in-the-sky Google PhD’s in terms of marketing and recruiting.
Plus, while the team is tiny, Joshua probably has more insight into applied/innovative collaborative data mining than anyone except maybe Josh Peterson of Amazon personalization.
But yeah, point taken. I certainly hope the valuation was no where near Flickr.
Until a true purchase price is known, I don’t see how anyone can make a (value) judgement on this transaction yet.
Or you could look at it as Yahoo buying the ongoing search/classification services of 300,000 geeks for maybe $10-$100 per geek.
> While Yahoo apparently didn’t pay as much as it did for Flickr, it also bought…
…a URL – the only part that matters.
I’m still trying to figure out why eBay bought Skype
I’m sure it’s been said before, but this is reminiscent of M&As of questionable value we’ve seen among pharma, media, and other companies. These large incumbents are sitting on piles of cash, need to meet aggresive growth expectations, and are therefore comepelled to take action. (As Homer Simpson once said, “There’s a time to think and a time to act, and this is no time to think”) Perhaps soon they’ll start building skyscrapers – the ultimate death knell.
agreed. delicious is close to useless, but i grant that it could change. the challenge of the web is how to filter the noise to focus on stuff that matters to you. search obviously helps. delicious sort of helps, but since “x other people” might be in totally different fields, their glomming onto a given article doesn’t necessarily mean anything to me. if they refine that…they could have multiple, useful, massive meta-blogs…then i might use it. – ed
I could not disagree with you more on this. From a product strategy perspective, this is a perfect fit. As for price, it’s worth one dollar less than the next best alternative. If it was anywhere near the rumored estimates, I think it’s a huge bargan for Yahoo, and a giant windfall for del.icio.us. How often do you see that??
To address your points individually:
1. As far at technology goes, you’re probably right. But I’m confident that played no role in this decision whatsoever. Do you think Flickr has defensible technology? Yahoo has legions of smart engineers so there isn’t anything they wouldn’t be able to figure out on their own.
2. As for a tiny team, what does that have to do with anything? Not sure if you’re arguing that Yahoo needs more employees? It wouldn’t surprise me if in this case, the smaller team actually made them more attractive (i.e. higher value).
3. A largely unmonetizable product. On this I agree 100%. I’ve posted several times about my problems with del.icio.us and the privacy problems they ultimately must face if they were to monetize their asset in any meaningful way. I’ve even said that companies that can’t figure out how to generate ought to dis.appe.ar.
I experimented with del.icio.us and had a few bookmarks there, but if they ever turned on an ad-based revenue model, I’d have dropped them like a hot potato.
4. As for their installed base, and the tagging they’ve done, that’s the entire asset. That’s what was bought. End of story.
As a stand alone company, del.icio.us had some serious challenges, but thouse problems were small compared to the strategic challenges Yahoo faced trying to get My Web 2.0 off the ground.
As small as they were, what do you suppose their market share was (as measured by tagging population, tags, links, whatever measure you like)? I’ll bet it was in excess of 50%.
The value of these types of networks, and by extension, their ability to be a credible relevancy alternative for search, follows Metcalf’s law. Anecdotally, and from my own experience, I believe the network effects were already beginning to take hold for del.icio.us. Who’s going to bookmark in two different places? No one. Where are you going to go to get the biggest, best tagged link network? Del.icio.us.
Try this experiment. Go to del.icio.us and search any tag, then go to My Web 2.0 and do the same search? I’ll be that del.icio.us has about 100 times more links tagged. ONE HUNDRED TIMES MORE LINKS! And with a user base that’s probably 2 orders of magnitude less!
Yahoo was getting creamed by these guys.
So, if you’re Yahoo, and your strategy for social search is going nowhere, what would it be worth to you to have dominant market share? Probably a lot.
If your del.icio.us and didn’t have any revenue, and a playing alongside three lumbering elephants smashing up your turf, at what price would you sell? Probably any reasonable offer.
Now, all that said, I’m not very bullish on tagging and social search. I’ve posted on some inherent limitations (identity, group bias and sampling errors) that I think prevent it from truly capturing a meaningful portion of the corpus on the net.
While I don’t think Yahoo is getting much with the acquisition, I suspect the amount was too small to label it “snookered”.
i agree with you pk (disclosure: i am a Y! with a double digit employee number). the only thing i can suggest is that they are buying it to improve search. yahoo search research authored a (public, i am not giving away company secrets) paper on an approach to search called “trustRank”. a pageRank based on links people trust. they needed a seeding technology for this, which in the paper was left to the future. perhaps they see delicious becoming this trustRank seed.
now, will delcious fill up with spam that negates the trust factor? perhaps.
in general i agree with you that this service is absolutely meaningless to yahoo’s mainstream demographic. i think part of it is just acquisitions-as-PR: yahoo wants to appear to be part of the new generation of early adopter applications, even though its mainstay apps and audience are definitely ho-hum mainstream stuff.
its tough to make a splash on the web these days. most markets are sewn up, users don’t immediately jump on new tech in a monetizable fashion, and new applications don’t seem to be falling out of trees. as i say to people now, “its almost boring”. i have no idea why the public continues to capitalize these firms to the current extent. none of the web companies is going to solve any of the major economic problems in IT at this point…for example, electronic medical records. ok, search…well thats 2003.
Wrong. I use delicious every day and now say “delicious” instead of “bookmark,” just as I say “google” instead of “search.”
Last I checked, YHOO had $3.5 billion in cash sitting around, so why shouldn’t they put a fraction of 1% of it to work on something promising. They weren’t sno.oker.ed; they were sm.art!
They bought the big “M.”
The user base momentum and goodwill should prove to be well worth the price in time.
If they had developed their own and crushed del.icio.us they would have lost that good will.
If they had developed their own and failed it would have been because of del.icio.us’ competition.
I think it was a good buy. If you can’t understand why the del.icio.us model works and has this momentum you should study it a bit more closely.
grumpY!, I’m not sure del.icio.us data is useful for TrustRank. The TrustRank paper
http://dbpubs.stanford.edu:8090/pub/2004-17
proposes propagating trust from a group of very trusted sites out across the link graph. The paper makes the claim that a very small seed of trusted sites is sufficient.
I doubt that data on a large number of sort-of-trusted sites from del.icio.us would be useful. It seems that data quality probably is more important for TrustRank than quantity.
Paul,
Yahoo! is a $56 billion market cap company that paid, MAYBE, $10-$15 million for del.icio.us [you may know the exact amount, but I wasn't privy to that number].
This acquisition was a rounding error for them. They got snookered when they paid billions for Broadcast.com. Adding the leading thought leader in terms of intelligent tagging and a vastly loyal and INFLUENTIAL customer base for a fraction of a fraction of their available capital seems like good business.
I think you summarily underestimate the collective value of del.icio.us’s user base. Time will tell, but Yahoo! is on a role of at least showing the world they “get” the long-tail.
Greg,
I don’t think del.icio.us bookmarks as sort-of-trusted input for TrustRank would work very well, but I think the current aggregate is probably already useful for estimating the search topic for limiting the search domain and biasing the ranking results. The value may decline rapidly, though if current users move to other platforms and/or the new users and link spammers raise the “noise floor” too high.
I think it was a good deal (for both) based on the 10-15M estimate. I mention a few reasons why here:
http://pythonzweb.blogspot.com/2005/12/yahoolicious-and-me.html
(for what it’s worth I almost became del.icio.us #3)
Also check out their growth
http://www.alexa.com/data/details/traffic_details?q=&url=del.icio.us
IMO it’s pretty staggering.
I believe that the Y! M&A Team took Clayton Christensen’s Innovator’s Dilemma a little too seriously. But really, is it not a great hedge? Spend a few million on a company that might one day make money from tagging or buy them and not worry about it either way. I mostly agree with Jason Wood.
I’ve heard that there is a growing, serious demand for an intranet version of Del.icio.us. If Yahoo came out with a Del.icio.us branded intranet package, it might look really attractive…
In addition, why do you discount the 300,000 users of Del.icio.us for being early adopter geeks…early and second-wave adopters are the sellers of the product. They sneeze it to everyone else. I know, I’ve given many recommendations for folks to use Del.icio.us. I’ve even had 2 or 3 actually say “you got me using Del.icio.us”. Seems powerful to me.
Also, my guess is that Del.icio.us has a paid-for version right around the corner. What do you pay for? Privacy.