By stern on Mar 26, 2008
Personally, I think the Microsoft-Yahoo mash-up is a Truly Bad Idea, but not because of competitive or market forces. It's something that "can only end in tears" to quote one of my favorite staff peers. I'm neither a financial analyst nor do I play one in my blog, but on the surface, the deal seems to have interesting, material impacts like accounting for the premium paid, and the minor bump in net income to cover other Microsoft experiments in media. And finally, I don't see how owning an advertising platform makes Microsoft into a media company, if that's where their joint strategic vector is aimed. It's difficult to discern sources of other operational leverage, unless Microsoft wants to re-engineer Yahoo's platforms (pure cost always has a bad return on investment unless the future cost savings are measured in orders of magnitude, not percentages). The New York Times summarized the situation quite neatly by comparing the deal to building a spaceship out of spare parts.
So what bugs me about the whole deal, and makes me smile to see Google grating? It's a long prolegomena to any future meat-physics, built on three premises: (1) The difference between advertising platforms and media companies; (2) Yahoo's creed of "connecting people" and (3) the decreased utility of thinking in hierarchies.
Yahoo is an advertising platform, not a media company. True media companies make their money from end users paying for content, and in a world of long-tail economics, they grow those markets through other types of content -- blogs, linked references, word of mouth, email, tagged content, or just about anything else that expresses opinion or organizes ontologically related thoughts. The "head of the tail" will still be advertising driven, but the long tail doesn't rely on ad displays, click throughs, or content analysis to drive volume. Part of the itchiness here is that Microsoft only makes those "head of the tail" products, and monetizes essentially nothing in the long tail. So buying an advertising platform aimed at other heads seems reasonable -- and is a reflection of the media company == advertising platform structure that brought us the writer's strike.
Yahoo's creed is to connect people to their passions. I love ice hockey, eBay, baseball, the New Jersey Devils, Princeton, and my family, and aside from some very infrequently used Yahoo group-based mailing lists, there's zero net interaction with Yahoo there. I used flickr but switched to SmugMug; anything I want to tag I put on Facebook. I'm not sure where the connections are supposed to come from, and I certainly don't find clumps of targeted ads useful in these narrow, single-topic facets of my life. So Yahoo hasn't helped me find any other parts of my interest taxonomy, nor have its ads stimulated me to buy things based on intersections of those interests. Some might claim that I'm not taking full advantage of the Yahoo experience, but that's because I find the experience too much like using the Yellow Pages (the alphabetical, printed kind, not the maiden name of NIS). I don't want more content, I want more organization. Which leads me to...
The "H" in Yahoo means "hierarchy". Perhaps the root cause of Yahoo's consumption stems from holding on to the "H" in the likely ex post facto Yang and Filo acronym for too long. Hierarchies imply that you start at the general and work your way to the more specific; in the advertising platform of the future (or better yet, the media company growth platform of the future), you'll go from specific to specific. When I do my annual Locus magazine sci-fi shopping run, I'm not starting with "Books" or even "Space Opera" but rather looking for additional input from writers and editors whose output I trust, and in three years of picking my beach reading this way I've discovered half a dozen authors and consumed all of their works. No click-throughs, no banner ads, and no in-store display required.
That, in a nutshell, is the issue: connecting people to concepts (things, communities, ideas, markets) is a graph problem, and if you want to focus on the graph problem, you need to think about the edges of the graph, not the nodes in the graph. Let the nodes (the content sites, the media companies) flourish, and build a better, richer, more wonderful graph traversal experience, and you have succeeded. It's why I read BoingBoing and why getting slashdotted is so powerful. It's why FaceBook has promise, once it figures out how to get around the walls of its content garden.
But unless Microsoft dramatically changes its designs on media company status, I believe the focus will be on the nodes in the graph, and advertisements for those nodes, rather than the edges connecting the nodes. And at some point, the "Yet Another" part of the acronym expansion dominates the end result, while the "Officious" and "Oracle" potentials - to create node-to-node links that nobody suspected were interesting until they discovered passion in their targets - are forever encapsulated in the cells of an M&A spreadsheet. And that's something to cry over.