by Charlene Li

Facebook just announced "Facebook Connect", which they position as the natural evolution of Facebook as an open platform, which started from their initial API in 2006 and expanded with Facebook Platform in May 2007. This is how they describe Facebook Connect:

"Facebook Connect is the next iteration of Facebook Platform that allows users to "connect" their Facebook identity, friends and privacy to any site. This will now enable third party websites to implement and offer even more features of Facebook Platform off of Facebook – similar to features available to third party applications today on Facebook."

Details on the four main feature -- Trusted Authentication, Real Identity, Friends Access, Dynamic Privacy are below in the extended post. Overall, this means that all of the fun stuff that developers are building into apps on Facebook Platform will now be available for third-party developers to build into applications OFF of Facebook.com.

I spoke with Ben Ling at Facebook, and the hypothetical example he used was yelp.com. If I link my Facebook identity to my Yelp identity, I'll be able to port over my profile, my content, my reviews. Also, I'll be able to see if any my Facebook friends are also members of Yelp -- and be able to automatically have our friendships authenticated and visible on Yelp.

This is the beginning of the future I laid out earlier this spring, where social networks will be like air -- everywhere you need and want them to be. Facebook has a distinct advantage in this space, given its vibrant member base AND its relationships with developers who are already creating these social apps. Ben gave me some startling numbers: 24,000 Facebook applications, 350,000 developers on Facebook Platform, and 70 million Facebook users who have installed an app.

So in a few weeks, we can expect to see Facebook leaving the confines of its server, allowing users to take their Facebook experience anywhere they want. Instead of damaging itself and eroding the value proposition, Facebook is extending the reach of its social network through the Web.

With Yahoo! Open announcing and MySpace in the data portability game, it's now a battle not for just users, but a race to see who can open faster -- and more importantly, play well with other sites. Remember Facebook Beacon? That was an innovative program with partner details not very well thought out or implemented. I don't expect Facebook to make the same mistakes and if anything, they are ahead of the game having learned from that painful experience.

I did ask Ben about the timing of the announcement, coming as it does on the heels of MySpace announcing that it was joining the Data Portability Project. He said, "Openness is part of our DNA, We want to be transparent about our intentions, about the type of functionality we will offer to developers. There is a lot of mistaken perception that we are a close community."

So welcome to the race -- and look for a lot of interesting things to happen as the giants in this space - MySpace, Facebook, Yahoo!, Google, Microsoft -- all try to outdo each other in connecting with other sites. I for one am very much looking forward to it -- good bye social silos!

What "dream applications" would like to see developers build in this brave new world of social networks being extended into other sites? And what concerns do you have, especially if you work on a site that could be linked to these social networks? Let me know in the comments below or email them to me at cli at forrester dot com.

by Charlene Li

There was an audible collective sigh of relief that the Microsoft-Yahoo! acquisition soap opera was finally at an end. For three months, the tech world has been paralyzed by the prospect of “Microhoo”, believing that the deal was inevitable. Sanity prevailed on Saturday, as the two giants couldn’t come to an agreement on price and Microsoft declined to pursue a hostile bid that could have proven ruinous to both companies. (Full text of the Microsoft announcement and the Yahoo! response are available.)

A year ago, I wrote about why such a deal wouldn't work, and also how Google would act as Yahoo!'s savior. An acquisiition may still come to pass in the future, but at a significantly lower price. But the world continues to turn and both companies will have to explain themselves to investors, employees, advertisers, and consumers.

Microsoft must define and deliver on a strategy that shows how they can “win” now without Yahoo! as a search jump start. (Frankly, we were skeptical that Microsoft could have integrated Yahoo quickly and effectively to realize the full value and vision of the acquisition). Rather than continue to chase Google’s dominant search position, Microsoft should redefine the “battle” to one where search is an integrated part of the marketing mix. Microsoft has assets and relationships that GOOG doesn’t have: 400 million users relationships through communication tools like Hotmail and Messenger, the aQuantive acquisition, strong display advertising business, and investments/relationships like Facebook. Moreover, AdCenter is well positioned to service advertisers on both the display and search sides, although actual offeringDeal is offs that tie the two together are still in the works. But the thing they don't have today is a strong search user experience, the root of the problem.

With the Microsoft acquisition threat fading, Yahoo! has been given a reprieve but it must explain and execute on a strategy that supports their belief that the company is worth $37 a share – or face another round of acquisition attempts and shareholder revolt. Yahoo!’s three-pronged strategy of being the starting point, advertising platform for the Web, and openness is sound but it has been muddled due to poor communication and tactical steps. At the core, Yahoo! has to convince advertisers that it still believes in its advertising platform, especially in light of the tests it was conducting with Google’s search marketing platform. If Yahoo! ends up trading in its Panama search platform for higher search revenues from Google, it will be giving up any potential for a workable integrated ad platform.  Yahoo!'s advantages especially in behavioral marketing could strongly tie together display and search marketing and the foundation for new marketing solutions and revenues. And it's new Yahoo! Open strategy could position it well regain the engagement of users.

And let's take a quick look at Google. From any perspective, Google was going to come out strong from this three-month soap opera. A dispirited Microsoft and floundering Yahoo mean Google can point to itself as the safe haven for both marketers and consumers.

What do you think about each company's positioning and strategy -- does each company have the right game plan and assets in place? And if not, what should they be doing?

My previous posts:

May 4, 2007: Why Microsoft + Yahoo! makes sense -- and why it won't work

Feb 1, 2008: Microsoft's bid for Yahoo!: What it means

My pick of the best analysis thus far:

Paul Kedrosky: Analysis of the Microsoft Decision, Plus Yahoo's Hari-Kari

Michael Arrington: Yahoo's Tough Week Ahead

Om Malik: Microsoft to Yahoo: Take A Hike

Kara Swisher: Yahoo's Nightmare Scenario: I'm from Google And I'm Here To Help!

Joe Wilcox: The Microsoft-Yahoo Blame Game

by Charlene Li

Yahoo! unveiled Yahoo! Open at O'Reilly's Web 2.0 Expo today. In a nutshell, Yahoo! is doing the following:

1. Rewiring Yahoo!. They are making it possible to create applications that can be shown throughout all of Yahoo!. That means search, mail, front page -- everything.

2. Open Yahoo! to developers like never before. Third party developers will be able to write applications that appear throughout Yahoo!. That's right -- you can write a mashup that integrates Yelp reviews into search results that appear anywhere -- on search results or even the home page.

3. Making Yahoo! more social. Yahoo! has over 10 billion connections lodged inside its various services -- think about all of the relationships expressed in address books, Messenger buddy lists, and most importantly, Yahoo! Mail flow. You'll be able to have your social graph appear throughout Yahoo! as a results (more on what this will look like below).

For me, this is a significant step forward in the next phase of social networks and the social Web. I wrote about this last month in a post about the future of social networks, where social networks will be like air. It makes no sense that your social connections be locked up in a social network -- when I receive a message within Facebook, there's no way to forward to it my work colleagues, friends, and family who are not on Facebook. And that significantly reduces the effectiveness and value of Facebook to me.

Yahoo! is clear that they are NOT creating another social network. Yahoo! CTO Ari Balogh said in his Web 2.0 Expo speech, "This is about making Yahoo! social in every dimension. Social is not a destination -- it's a dimension and it will infuse all aspects of a consumer's experience on the Web."

I couldn't agree more. Yahoo! is the foundation for hundreds of millions of users every month (Ari said that 500 million people worldwide use Yahoo! each month). But the real potential of this is that the social experiences that a person has on Yahoo! will be ported to other sites. In March, Yahoo! announced that it would support OpenSocial, meaning that applications developed for and on Yahoo! will be portable to other OpenSocial sites like Google and MySpace.

The potential here is that what will become portable is more than just the applications, but also the social graph of each Yahoo! member. There are still plenty of details to be worked out, in particular, control over each person's social graph. But in my discussions with Yahoo!, I'm confident that they will take the appropriate measures to ensure that each person has full control over how their activities and relationships are mapped, expressed, and revealed.

Ari didn't discuss specific timing, but I suspect that we'll see parts of Yahoo! Open rolling out over the next few months. I'm especially interested in seeing how Mail integration rolls out, especially the prospect of being able to implicitly map out my relationships. That's because I don't use Yahoo! Mail -- I use Gmail. Will Yahoo! enable me to reach into Gmail with its APIs and map out the relationships? I believe that they will -- after all, it behooves Yahoo! to bring me back into the Yahoo! network, even if I still keep my feet firmly planted in Gmail. 

The question inevitably arises -- is this a "Hail Mary pass" on the part of Yahoo! to fend off Microsoft? I think not. To Yahoo!'s credit, they have been focused -- as much as a company can be under the circumstances -- on executing on a strategy initiative that started last year. Regardless of how the Microsoft/Yahoo! dance turns out, Yahoo! will be setting a precedent for other portals and social networks to follow.

So it will be interesting to see how quickly the other players -- like Google, Microsoft, MySpace, and Facebook -- answer the challenge that Yahoo! has set down. I don't think it's a matter of if, but rather, a question of when.

I'd like to hear your thoughts about what a completely open, "social-ized" Yahoo! means to you. What experiences would you want? What concerns do you have?

by Charlene Li

The 60 Minutes segment on Facebook is being well covered by the usual players TechCrunch, Silicon Alley Insider, et. al) and Kara Swisher has an excellent summary. Here's the video as well, so you can see it directly.

Reading the reaction to the video, especially from the peanut gallery of Facebook and fellow industry watchers, I have a few thoughts:

- Many people said they didn't learn anything new. Come on -- how many of you honestly expected that Facebook (who are notoriously not forthcoming) going to say something new and interesting on 60 Minutes?

- This was groundbreaking, not because of any new news, but because it was completely new for the mainstream. The vast majority of my social circle is *not* on Facebook, and there's now a fair chance that they know at least a bit more.

- Facebook won/lost from the additional exposure. You can say that Facebook came out looking pretty good, others will say that the dive into Beacon at the end potentially scared off potentially new users. I say it was a fair, balanced look at a company that has a lot going for it, and lot to figure out still.

- Google will be challenged by Facebook -- and LinkedIn, and Bebo, et. al. This was my very small contribution to the segment, so I think this deserves a bit of elaboration. Right now, Google is the search leader -- and there's no better place to go to look up *information* like the lyrics for a song, or a list of hotels in Maui. But when it comes to opinion -- such as the best places to visit in Maui for a family with young kids -- Google falls flat. What's better is getting advice from people who both have been to Maui with their own kids *and* also know the interests of my kids.

Here's another example: I recently asked on LinkedIn Answers the best programming language to teach my son (must be signed-in to LinkedIn to view). I received 28 answers, but more importantly, I can see the background for the answerers -- is the person a software engineer or a Web designer? That provides context, which is extremely important in the answer. Google is great at finding facts, not so great (at least today) at helping me make complicated decisions. For that, I need advice, and social networks like LinkedIn and Facebook provides the context for that advice.

- "Is Mark Zuckerberg the right person to run Facebook? Is he too young?" I was asked this question by Leslie Stahl, but it didn't make it on the air. I don't think it's an issue of age - as a first time entrepreneur, we'd be having this conversation regardless of whether he's 23, 33, or 43. He's made mistakes along the way, especially with Facebook Beacon, but remember, he also greenlighted Facebook Platform which has arguably reshaped the entire way we think about this space. That type of vision is what Facebook needs right now, especially if they want to take on much larger, aggressive players like Google. What they don't need -- at least not for a while -- is a "mature" CEO who lacks the vision but abounds in management experience. A better question to ask is if Mark and his team have the right level of judgment that's needed to succeed, especially when it comes to understanding user privacy and advertising sensitivity. This appears to be their repeated blindspot, and they would do well to learn from their mistakes. That's the core of judgment, which is gained only through experience.

- Is Facebook worth $15 billion? This was never a significant issue raised during the piece, and I think rightly so. There's a small group of people -- Microsoft and Facebook's other private equity investors -- who agreed to that valuation. Otherwise it doesn't matter. Lonely CEO Media put it well -- the more important question is does Facebook provide value to users and advertisers trying to reach them. As long as they focus and deliver on this, they can potentially be worth a great deal of money. But is it $1 billion, $10 billion, or $15 billion? I'm not qualified to run those calculations, nor do I have close to enough information to even begin.

Again, I'd like to hear your thoughts about the segment, in particular, what people *outside* of the industry are buzzing about it. After all, in the echo chamber of our industry, our opinion counts for much less than what is filtered by 60 Minutes to the mainstream.

by Charlie Golvin

(Note: My colleague, Charlie Golvin, covers wireless devices and services, and he was kind enough to provide his insights on Google's latest mobile announcements - Charlene)

The Android platform that Google and its partners in the Open Handset Alliance announced today will significantly impact the mobile market — eventually, but the time for this impact to play out is lengthy.

Android is most impactful on handset vendors because it provides a very cost effective software solution that can reduce their licensing, development, and maintenance costs. The greater the portion of their portfolio that Android makes up, the more true this is.

Android holds a similar promise for developers, reducing the complexity of their development efforts that currently span multiple platforms and multiple versions within those platforms. Paradoxically, Android will increase complexity for developers initially since it represents yet another platform to support. But the platform also promises more flexibility in distribution and business models, more akin to the Net today.

Carriers have the opportunity to benefit by virtue of the innovation among developers Android will help spawn. Also, carriers now in search of business models that extend beyond subscriptions and pay per use have a greater chance of succeeding with partners that bring the necessary skills to make ad-based models succeed (try to think of one).

But there are some things Android won’t change — like the distribution model for handsets in markets like the US where carriers are in control. Those of you dreaming of low-cost unlocked handsets sold at retail along with flat rate access plans should sit back, take another hit off your bong, and mellow out. Not gonna happen, not just by virtue of Android’s presence, anyway.

Oh, what’s in it for Google? Reach to an audience that is larger than Net users on the PC, and growing larger, plus relevance for the next billions of Net users, the majority of whom will only experience the Net on a mobile phone, not a PC. And the opportunity to sell ads to anyone who wants to reach them, on any of these new Net-powered mobile apps or just on the mobile Internet through a browser.

(Note this goes nicely with the OpenSocial effort, since all those widget developers won’t have the tolerance for the complexity of today’s mobile environment but definitely want to be able to extend out to phones.)

Tags: Google, Open Handset Alliance, Android, mobile,  Forrester Research, Groundswell

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by Charlene Li

Google and a slew of partners announced the formation of OpenSocial (URL will be live late Thursday), which Google's Joe Kraus, in a briefing earlier this week with me, described as "a common set of API's for building social applications across multiple sites." There are three specific sets of APIs that tap into 1) member profiles, 2) the social graph, and 3) member activities.

The idea is that developers would have to learn only one set of social app APIs and create apps that will work on any partner's platform. Moreover, the OpenSocial API is written in HTML and javascript (and supports Flash), compared to Facebook's proprietary API. Initial partners in the new API include social networking sites Friendster, hi5, Ning, Orkut, Plaxo, and Viadeo, as well as application companies Oracle and Salesforce.com.

Note that there are some major players not included, namely Facebook and MySpace. Also missing are Microsoft (aligned with Facebook) and Yahoo!, as well as other smaller social networking sites like Bebo and Piczo.

Here's my take on what this announcement means:

* Facebook isn't threatened -- for now. Application developers are going to go to where the heat is, and that heat is red hot at Facebook. They have not only a lead with 6,000 social apps already on their platform, but also close to 50 million users actively using those applications (Hitwise reports that Facebook traffic is 9X the OpenSocial coalition, but this doesn't include international traffic). Add on the third leg of the social app stool -- monetization, which Facebook is set to announce Nov. 6th -- and you have a developer's dream. Any developer worth his/her salt is developing on the Facebook platform, trying to figure what works, what doesn't. And because of this head start, developers will still develop for Facebook FIRST before developing for OpenSocial. It's similar to search engine optimization -- most Webmasters optimize their sites for Google's bots first, and then worry about the other search engines.

However, in the long term, Facebook's ability to dictate how social apps are built will deteriorate under two scenarios. First, closed platforms put a tremendous burden on developers, so the benefit of a vibrant community has to be enough to justify that extra effort. Facebook has tremendous growth and vibrancy, but it will have to sustain that in the face of increased competition. Second, as social applications will spread beyond social networks (see below for more details), Facebook will be less and less able to act as the primary destination for all social application usage. For example, Facebook may still require that the only way someone can read book reviews from friends is on Facebook via the Amazon social app, where as Amazon may be able to show OpenSocial member book reviews on its site.

* OpenSocial gives the partners a fighting chance. Now just because OpenSocial won't displace Facebook in the short term doesn't mean that it's a failure. In fact, it's just the opposite. Without OpenSocial, none of the partners would have had a chance of capturing developer time and attention.

* Developers win big time. Let's say you’re a wannabe social app developer -- you're dancing in the cubicle because you can now get lots and lots of distribution on new sites without expending a huge amount of effort. This is especially important for developers who haven't made it big on Facebook, which is dominated by early movers like Slide and RockYou. Watch for the smartest, most aggressive developers to move over to the OpenSocial platform, eager to create apps that will gain early, viral traction in these new networks.

* Social apps will go beyond social networks. Note that Oracle and Salesforce.com are also partners. They have a strong interest in "socializing" their applications  -- I've written about applications like FaceForce that pull profile data into Salesforce.com. This opens up a whole other space for OpenSocial, namely any Saas or online site that would benefit from social information. Examples would include recruitment sites like Monster.com or CareerBuilder and dating sites like Match.com.

* Things will get interesting when MySpace opens its platform. MySpace announced at Web 2.0 plans to open up its platform, but no details have been forthcoming. If MySpace decides to remain independent and not work with OpenSocial, developers will then have three APIs for social apps to learn,further disadvantaging OpenSocial. But if MySpace is smart and can set aside its competitive impulses, it has more to gain by supporting OpenSocial as a default standard and stranding Facebook all by itself.

* This isn't truly "opening" up social networks. OpenSocial is a set of APIs for developers to create social apps ON platforms that leverage data within each specific platform. One of the biggest complaints about Facebook today is that it's a "walled garden", meaning that all activities that leverage its social graph have to take place on Facebook itself. As I wrote above, imagine the utility of being able to read your friends' reviews in Amazon, or having a social graph of a contact appear in Salesforce.com applications. We're a long, long way from that happening anytime soon.

Lastly, I think OpenSocial will re-energize social networks as they broaden the activities their members can do on their sites. In particular, I'm looking forward to moving beyond the typical fun yet frivolous apps like food throwing developed by 20-something developers. I'm going to closely watch LinkedIn, as collaboration and expertise location applications built on top of its professional business networking social graph will make the site more relevant to me.

I'm interested in your take, especially if you're a developer -- will OpenSocial make a difference in how social apps are created?

Other relevant stories from:
New York Times
TechCrunch
ZDNet
ZDNet's Garet Rodgers on developing apps on Open Social "Google's OpenSocial platform is great!"
Ning backer Marc Andreessen on Open Social

Tags: Facebook, OpenSocial, Google, social apps, Forrester Research, Groundswell

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by Charlene Li

The New York Post and WSJ.com just came out with stories of a rumored merger between Yahoo! and Microsoft. On paper, the deal makes sense for the following reasons, but in the end it's going to be so hard that I don't think it will happen.

First, let's take a look at why it makes sense:

- Audience combination. Yahoo! and Microsoft have two of the largest online audiences – according to Nielsen//NetRatings, 107.8 million and 95.4 million respectively in the US in March 2007 (Update: note that these are BRAND level unique users for Yahoo! and MSN/Windows Live). Google had slightly more uniques than Yahoo! (108.4 million), but the combined unduplicated audience for Yahoo! + Microsoft is 129 million.

- Advertising powerhouse. While Google leads in search marketing, Yahoo! and Microsoft dominate display advertising. Google’s recent acquisition of Doubleclick (which Microsoft was bidding for as well) puts extra emphasis on the need to shore up their dominance in this space. Microsoft’s upcoming Strategic Account Summit next week should be particularly noteworthy given the rumors.

- Technology strengths. Microsoft is a powerhouse when it comes to engineering talent, between Microsoft Labs, worldwide investment in technology research centers, and fingers in all aspects of information technology ranging from enterprise search to mobile. Yahoo! is no slouch either, with particular strengths in display advertising management (specifically behavioral targeting) and search, but in this area, Microsoft is providing the bulk of the value.

- Media and Web 2.0 smarts. This is where Yahoo! really shines – its acquisitions of Flickr and del.icio.us and emphasis on social search and media position it well for new challenges. Yahoo!’s executives – with their strong media roots – truly understand what it means to build and maintain and audience.

So on the surface, it looks like it would be a good idea. Fueling the merger fire is the strategic need that the companies have for a combined company. After all, why would Microsoft want to ante up $38 billion for Yahoo!? For one reason (and it isn’t simply Google). It’s Windows, or rather, the declining importance of the operating system as it gets relegated to the background. I personally (almost) seamlessly switch between a Windows machine at work and an Apple at home, using a Firefox browser and online email. Microsoft has the technology to do parts of this, but not all of it. To survive going forward, Microsoft needs to have a robust online strategy and Live.com/MSN just doesn’t cut it.

Yahoo! comes to the table needing something too, but with less urgency. While it’s struggled with the launch of its new Panama search engine, it’s in a much better position to compete in this new world because of its focus on media and content. Its biggest weakness is that the fight is also on the Web services/API front, where the technology smarts that Microsoft bring would be a benefit.

But instead of debating the merits of whether this makes sense or doesn’t, I’d like to paint a picture of what the future would have to look for a merger to make sense – and why I don’t think this future will come to pass.

- Separate Yahoo/Live.com/MSN brands get merged into one brand. To fully realize the value of the merger, I believe there needs to be true audience consolidation under one brand. This will be tough to do as there are huge overlaps in the audience, and it would be tough to give up on all of that extra traffic and page views. In some markets – in Europe in particular – the MSN brand trumps Yahoo!, and in others, Yahoo! is much stronger while in the US, the brands are equally strong. So why consolidate at all? Because maintaining separate destinations for essentially the same audience and purpose diverts valuable resources that could be used to create a unique, powerful experience that can compete and win.

But there is one major reason why I don’t think Microsoft executives have the stomach for any sort of brand rationalization -- the continued dual branding of Windows Live and MSN. Each time I have a conversation with Microsoft about Windows Live, I get a different explanation of what it is and how it fits with MSN. If the company can’t event figure out its branding strategy with existing properties, I don’t hold out much faith that they could do so with a premium brand like Yahoo!

- A new company emerges with new leadership. Note that this would be a merger, not an acquisition. This means that Microsoft and Yahoo! will each have to come to the table ready to forge a new company from the assets of the individual ones. Egos and innate disdain from being competitors over the past decade would have to be set aside. Geographic distances (Seattle to Sunnyvale) would have to be bridged. And most importantly, a new company ethos, leadership, and culture, would have to be created. Neither company has ever been through a merger, or even an acquisition of this size and scope. And all of this done in the context of one of the most dynamic, innovative areas of business and in the shadow of a fierce competitor, Google. Even in the best of times, successful mergers are hard to pull off and I’m not hopeful that executive time spent on company politics will be minimal.

- The new company dominates over Google. Given the problems of a merger, the key measure of success in three years time is whether they will have made any progress in fending off – and catching up to – Google. After all, that’s the main impetus behind the merger, that together they would be better able to compete against Google. But given the distraction of the merger, and also, given that Google won’t be so encumbered, I think it would be unlikely that a combined Microsoft/Yahoo! entity would be able to do anything against the powerhouse. In the very long term (3 years+), there’s a chance that a revitalized company would be in a better position to compete, but this assumes that Google stands still for them to catch up.

Given the messiness of a full out merger – and also the limited benefit it would bring to Yahoo! – I believe that a merger won’t be in the works anytime soon. More logical would be partnership agreements where the strengths of each company are shared. These tentative first steps to a merger would make a lot more sense, giving both companies the ability to “test the waters” before jumping into the deep end.

But if I’m wrong and a merger does get announced, I wish the two companies good luck – they are going to need a lot of it to pull it off.

So what do you think – is a merger a good idea or a disaster in the making?

Tags: Microsoft, Yahoo, merger, charleneli , Forrester Research, Groundswell

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by Charlene Li

I just posted on the acquisition of Right Media by Yahoo! on Forrester's Marketing Blog, primarily to keep the discussion/comments there for that audience. But I know that some of you follow the advertising/portal space closely so thought you'd like to know about the detailed post.

From a social technologies perspective, there are two things to point out.

First, Right Media could be an interesting alternative to AdSense, specifically for graphical display ads. The distinguishing characteristic is that CPM rates are visible to both the publisher and advertiser. This gives site and blog owners the ability to optimize each and every impression.

Second, Yahoo! has a strong audience of social computing-adept users via acquisitions like Flickr and del.icio.us, but doesn't aggressively monetize them on those sites. One of the opportunities Right Media  could offer is the ability to serve ads to users when they are off the Yahoo! site.

For example, someone who views content about hybrid cars on Yahoo! can be served ads from Toyota for the Prius. That user may then leave Yahoo! and go over to Treehugger.com to read more about environmental news and products. If treehugger.com is a member of the Right Media exchange (this is a hypothetical example), it could potentially serve ads to that hybrid-interested buyer from Yahoo! advertisers (like Toyota) on treehugger.com. The ad exchange would serve as the trusted intermediary to identify the users and serve the ads -- without actually exchange data about that user. As with other behavioral ad networks like Tacoda, such a system would need to have multiple privacy and content safeguards in place.

For blogs that draw a unique audience, this could be highly lucrative. Treehugger.com already draws an audience that is pre-disposed to buying a Prius, but doesn't know who is a potential car buyer unless that user lands on Treehugger's car/transportation section. By passing along that interest, Yahoo! makes it possible for Treehugger to realize a higher CPM for that run-of-site impression, while Yahoo! gets an additional ad impression to sell it Toyota.

Tags: Yahoo, Right Media, charleneli, Forrester Research, Groundswell

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by Josh Bernoff

While reading the Wall St. Journal online I was irresistably attracted to something unusual on the side of the screen -- an ad for Gmail in the form of a YouTube widget. This had to get clicked on for several reasons:

• I've hardly ever seen a YouTube widget as an ad on a regular media site.
• It looked like it would be really silly.

And clicking paid off -- it was really silly. But in its own Google fashion, it told the story -- some nice features that Gmail has. And it also told another story, since it appears to have been made by a bunch of engineers with a video camera and leftover office supplies -- that there are real people working at Gmail and they're trying to make a good product.

In his book "All Marketers Are Liars" Seth Godin talks about how marketers need to tell an authentic story that stands out. Bingo. Google marshalled all its assets -- YouTube, authenticity, actual product features -- to tell a compelling story. Microsoft couldn't tell this story -- it wouldn't seem authentic. Apple would never let its engineers look this amateurish. Way to go, Google, on embracing your own image to sell your product.

Tags: YouTube, Gmail, Google, bernoff, Forrester Research, Groundswell

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The anticipated Yahoo! reorg hit tonight -- the press release with all of the details is up on Yahoo!'s site, as well as stories in the WSJ and CNET. Here's a quick summary and my take of the announcement.

Yahoo! will be reorged into three groups:

1) Audience Group, focused on audience building. Note that this is not about content creation, but instead, "focused on building the largest and most valuable audiences and relationships on and off the Yahoo! network". Kudos to Yahoo! for understanding that this is not about creating more and more content destinations a la Yahoo! Food, but creating new experiences, especially with social media. Despite Yahoo!'s acquisitions of Web 2.0 darlings like Flickr and del.icio.us, Yahoo!'s social media initiatives remain mostly isolated, siloed products like Yahoo! Answers. The key to their success: spreading the social media mindset far and wide into all of the dark corners of Yahoo!.

One other key thing to note: Yahoo! recognizes that the audience relationships are key both "on and off the Yahoo! network". I think this is a huge recognition that the world does not revolve around the the yahoo.com domain and is moving into the mobile and devices space. I'm also looking forward to seeing the expansion of Yahoo! Widgets beyond desktop widgets and into more Web-based widgets a la Google Gadgets for Web pages.

Of all the groups, I think this is the one that will make or break Yahoo!'s strategy. In the end, the race is not to be the best search engine technology-wise, or to have the most advertisers. It's about being relevant to your audience, no matter where they go or what they do. This has always been Yahoo!'s core strength and I'm glad to see they are putting it front and center where it belongs. Now, they have this small detail of hiring an executive to lead this group....

2) Advertisers & Publishers Group. In what is being seen as a CEO-grooming move, current Yahoo! CFO Susan Decker will be shifting over to the revenue generating side of the business. A key challenge: regaining momentum lost with the delay in launching the new search advertising platform. But even more important will be the integration of Yahoo!'s leading brand advertising solutions with search -- a potentially powerful and potent advertising offering that ties bridges the consideration gap between brand awareness and purchase.

3) Technology Group. This group centralizes technology development under CTO Farzad Nazem. This means that core platform infrastructure -- like social media, search, communication, and very importantly, profile/identity management will be under one unified roof. In the past, there appeared to be individual product teams developing these core technologies in isolation of each other. The most glaring example is identity. I actually have TWO profiles on Yahoo! -- one that's associated with my Yahoo! account and another that's part of my Yahoo! 360 page. The new centralized technology group will certainly help rationalize such inconsistencies, but a key challenge will be maintaining that consistency while giving enough room to allow developers to innovate broadly -- and quickly.

One last thing of note: the press release contained a coherent mission statement for Yahoo! -- "to connect people to their passions, their communities, and the world's knowledge." I really like this because it puts "people" at the center of Yahoo!'s strategy. Compare this to Google's mission "to organize the world's information" and you get an idea of how each company's battle plan. I have been a long-time Yahoo! user and this past year saw my slow defection from Yahoo! Mail to Gmail and Yahoo! Calendar to Google Calendar. I still use Yahoo! Maps for local searches, but am finding my loyalty shifting there as well to Google Maps simply because of the availability of the Google search box in my browser. It breaks my heart, because I do have this emotional attachment to Yahoo! and would love to give them a chance to win back more of my online experiences.

So kudos to Yahoo! for taking the bold, tough move -- I'm looking forward to seeing what transpires in the next few months. I'd love to hear what you think of the reorg -- and what you think Yahoo!'s biggest challenges going forward will be. How could Yahoo! win *your* loyalty?


Technorati Tags: yahoo, reorg, google

So here’s the next big rumor – that Google will buy YouTube for $1.6 billionM. The WSJ article, the TechCrunch post had some of the early takes, but rather than add to the furor of whether the rumor is true or not, I’m going to focus on why Google and YouTube would be interested in working together.

Here’s my quick take on the rumored acquisition:

Why would Google buy YouTube? To start, 35 million users in the US and 100 million daily video views. But it’s not just the sheer numbers that grabs Google’s attention. YouTube is a gem because it figured out what Google, Yahoo!, MSN, AOL, and all of the other video players in the marketplace couldn’t – that it’s not about the video. It’s really about the community that’s around the video.

Take a look at the screenshot below of the same “Extreme Diet Coke And Mentos Experiment” video on YouTube and Google Video. You’ll notice that YouTube has many things you can do with the video – rate it, save it to favorites, comment on it, share it, see other related videos, and view the user’s playlists, etc. I think you get the idea.

Then take a look at the Google screenshot. Let’s see… you can add a comment (that’s new). There are a few other additional features like browsing related videos or via tags. But clearly, the focus is on the big, dominant video player.

YouTube is winning the hearts of the audience because video search simply doesn’t work. You have to instead rely on the opinions, ratings, and playlist compilations of others to discover good video. 

Why would YouTube want to be bought by Google? My colleagues, Josh Bernoff and Ted Schadler, discussed earlier this week in their blogs that earlier this week that YouTube faces substantial risk with lawsuits coming from music and video copyright holders, and how they could potentially address those concerns – namely by developing technologies to identify copyrighted materials against a body of work provided by the copyright holders. But who is in a better position to develop that technology – 60 burnt out people at YouTube or the legendary technical minds at Google?

Moreover, Josh points out that YouTube faces potential “cease and decease” actions from copyright holders, and risks following in the footsteps of Napster where it could its activities can be seriously compromised. But this morning, Josh and I discussed that a copyright holder would be much more likely to negotiate and partner with Google than a start-up like YouTube. Update: Josh just posted his thoughts on the rumored acquisition as well.

Is YouTube worth $1.6B? You betcha. That’s 4 cents per video stream ($1.6B divided by 100 million daily views * 365 days) and it’s still growing. Another way to think of it is that YouTube has roughly 50 million users (35M in the US according to Nielsen NetRatings, and probably another 15M worldwide) which comes out to $32 per user. It’s high, but it’s also reasonable.

Granted, YouTube is just beginning to monetize its audience, but having access to  Google’s über-ad network gives it a huge leg up. But this is where I hope YouTube stays the course in not cluttering up its unique interface with sponsored text ads, or its video experience with pre- and post-roll video ads.

The real opportunity for YouTube is to create a completely different kind of advertising form, one that is based on community engagement and involvement, rather than the traditional interruptive style of advertising. Take a look at their home page – here’s a screenshot from today. There’s a small text link to a “Follow the Finger” video contest sponsored by Butterfinger (screenshot also included). Advertisers are loathed to develop these special campaigns together – they would much rather slap on existing banners and promotions. But given the size and attractiveness of the YouTube audience, the site can command not only top dollar with exclusiveness, but also demand that advertisers adhere to specific standards that guarantee the best user experience.

If the acquisition goes forward, Google will be pressured to quickly realize a return on its first major investment. My hope is that Google will resist the temptation to turn YouTube into yet another cluttered ad space and allow the company to push advertisers into this new, engaged form of advertising.

I’ve been watching the stories about the rumored acquisition of Facebook by Yahoo for $1 billion and finally feel compelled to comment on the rumors, something I usually don’t do. Here are a couple of the thoughts that I’ve shared with several clients and reporters over the past day:

- Facebook is worth a lot of money in the market. I’m no financial analyst so can’t really say what Facebook is worth, but here are some thoughts on how to value it. First, take a look at the recent IPO of Mixi, the leading Japanese social network. I wrote a post on it last week that looked at how to use it to value US-based social networks. Mixi’s IPO value was a little shy of $1 billion for its 5 million members. Using that as a base, Facebook’s 7.5 million members would be worth roughly $1.5 billion.

- Yahoo! needs a social network. The reason Yahoo! is so interested (and willing to pay top dollar) is that it’s core strategy is built around social media, with people and profiles at the center of the strategy and technology. One of the core components of a social strategy – and of social networks – are robust profiles (I wrote about this in a research piece waaay back in July 2004, “Profiles: The Real Value Of Social Networks”). On Yahoo!, there’s no strong, integrated use of profiles.

Here are two examples of my profile on Yahoo!. The first is the one associated with my Yahoo! ID – there’s not much there. The second is from my Yahoo! 360 ID, which has links to the reviews I’ve done across Yahoo!. Note that they are completely different and not really linked. Even more telling, at Yahoo!’s analyst day earlier this year, Yahoo! executives talked extensively about their social media strategy – and never mentioned Yahoo! 360 once. Yahoo! 360 is kaput, so they need to jumpstart their social networking initiatives – and an acquisition is the fastest way to do it to counter the growth of MySpace and YouTube.

And there’s also substantial affinity between Facebook users and Yahoo! According to Nielsen//NetRatings, 83% of Facebook users also visited Yahoo! at least once in August 2006. Also, Google has the same amount of overlap – 83% of Facebook users also used Google that month.

-         The rumor effectively tests how Facebook members will react to an acquisition. After the news feed fiasco, Facebook can hardly be blamed for being cautious about moving quickly. This rumor effectively is a great test to see how its members will react – and if they will bolt to another service if an acquisition goes through. There is an official petition on Facebook called “Don’t Sell To Yahoo!” which 502 members have joined (as of this posting), which is nothing compared to the almost 700,000 members of the “Students Against Facebook News Feed” group. But give it some time – there is substantially less value if the Facebook membership objects strenuously to the idea of an acquisition by Yahoo! (or anyone for that matter).

So what’s really going on, especially with the antics described in the WSJ.com article? This is the classic case of a hot hot hot company sitting in a very nice spot with many options. Facebook (and its investors) will sit tight until the right offer comes along – or never and take their chances on the IPO market. In the end, I think being a part of larger entity would serve Facebook well, mainly because a social network needs context. And as Facebook opens up and grows beyond its core membership of college students, it will have to replace the context of the college campus with content and experiences that people share – something that Yahoo! has in spades.

My first grade daughter has been bringing a swim bag to camp most days this summer -- it was one of those tchotchkes that I got at an industry event. So last weekend she was getting ready to go to a swim birthday party and asked, "Mom, where's my Google bag?"

I stopped dead in my tracks and said, "Honey, it's a Yahoo! bag."

"Oh yeah, that's right. Well, do you know where it is?"

My daughter is your typical Silicon Valley kid who knows how to use the Internet, can type in URLs, and has heard me and my husband talk endlessly about companies like Google and Yahoo!. What struck me dumb was that even though she was carrying around this large purple swim bag emblazoned with Yahoo!'s name on it all summer, she thought it was her Google bag. It's incredible to me that the Google brand carries such weight that it became top of mind for my six year old.

Just to double check, I asked her later if she knew what the difference was between Google and Yahoo. "Yahoo! is the place where you go to play games (she uses Yahooligans)," while "Google is what shows up on your screen when something doesn't work." (Google is the default search engine on the kids' computer so it appears to the side of the Web browser when a page can't be found). My son (a second grader) chimed in that Google was good for finding stuff you needed to know about, while Yahoo! was the place you go to find pictures, play games, and check your email.

So while Yahoo! doesn't appear to be top of mind for my daughter, she definitely has a more positive opinion of Yahoo! than of Google. There's hope yet for Yahoo! to win the mind as well as the heart of my daughter.

What struck me is that my informal, anecdotal survey of my children closely mirrors the brand perception of the major portals. Hitwise recently published some data about the brand attributes of three major search engines – Google, Yahoo!, and MSN (collectively known as GYM). Hitwise took the top twenty search queries across all search engines that contained the name of these three sites to gauge their respective brand attributes. Hitwise GM Bill Tanner wrote:

Google's queries center on finding things, be that information, geographical location or multimedia content. This confirms what we've seen with our breakdown post, that Google, despite building some very attractive "portal-like" tools, maintains in consumers minds as a brand that helps you locate things.

Yahoo! in contrast, demonstrates a clear portal identity with well rounded interest on a variety of their channels or portal offerings. There is a clear difference when we compare Google's terms with Yahoo's... search versus engage in an activity or consume a specific type of content.

MSN queries are clearly distinct from both Google and Yahoo!, with their queries dominated by specific tools such as the new Messenger download, but also showing some portal characteristics with Music, Games and Money.

The data also shows how far Google still has to go to shed it’s one-trick pony image with consumers -- even though I believe they are starting to make progress in this area.

I’ve long called Google a “one-trick pony” because so much of their business comes from one primary revenue stream – online search ads. This has been further reinforced by recent articles like Businessweek’s article, “So Much Fanfare, So Few Hits” where the uses traffic data to show that most of Google’s new products haven’t gained traction in the market (with the exceptions of Google Maps and Google News). Paul Kedrosky also takes an excellent look at the Hitwise data to reinforce this point.

I don’t dispute the facts, but make a different conclusion – I think Google is actually making progress in diversifying out of search and into new businesses – yes, the pony is learning new tricks. But just like training a real animal, it takes time, patience, and the pony performs some tricks better than others.

I took a look at Google’s most recent traffic data from Nielsen//NetRatings but looked specifically at Google’s unique users and page view data. I wanted to see what percent of Google’s users were using search versus its other properties. I also compared the traffic between June 2006 with traffic from June 2005. I found that traffic to Google Search accounted for 88% of Google’s unique users in 2006, down from 91% in 2005, and drew 49% of total page views in 2006 versus 62% of page views in 2005 (see the figure below). More importantly, properties like Gmail almost doubled in unique users from 4.3 million uniques in the US in June 2005 to 8.3 million uniques in June 2006.

Note that there problems with this methodology: I don’t know how NNR categorizes the properties or if they were consistent from 2005 to 2006; the data from NNR wasn’t available for Google Local/Google Maps, and I don’t know half of Google’s page view traffic is going if it’s not going to Google Search. But I still think it provides a different, temporal look at Google’s portfolio.

So, Google’s done a decent job in building momentum behind a few of its properties and will likely continue to gain steam. Its biggest problem was pointed out in the Businessweek article – that there’s only so much that you can push through a single search query box. Google understandly doesn’t want to clutter the home page, but it should take a close look at Ask.com’s new home page redesign which pushes its most popular tools to the surface – and allows users to customize the interface as well.

The other problem is actually diversifying the revenue base. Pay per click search ads remains the mainstay, but Google has been busy developing cost per impression display ad options, cost per action ads, and extending into offline markets like radio. None of these products will be run away hits, but with billions of cash on hand, Google can afford to be patient as these markets develop.

My point is that we should give Google’s product team a break. Before you think I’ve gone soft on Google I haven’t – I’m just asking for a bit of realism in thinking about new product development at Google. It took Google several years to become the dominant search player – and this is for a product where there are very few switching costs. As I wrote in March about Google Finance, it’s going to take a long time to tear users away from highly involved, personalized services. It’s only been four and a half months since Google Finance – it’s going to take a while for it to gain traction against Yahoo! Finance’s ten year lead! But you gotta start somewhere and at least Google’s getting started.

Google unveiled its long-awaited wallet service, codenamed “GBuy” and officially called “Google Checkout”. While frequently described as an “eBay killer”, I believe that it’s actually positioned to solve a perplexing and core problem at Google – how to drive more search ad revenues, especially in the retail sector where search spending is plateauing for top keywords.

Here are the basics of Google Checkout:

-          Increase conversions with a better checkout process. The goal is to make it easier for buyers to checkout with retailers. Retailers today often see users abandon their shopping carts, so anything they can do to help potential buyers finish the transaction will increase their conversion rates. Google Checkout stores billing, shipping, and credit card information to enable speedier checkouts. Better conversion rates mean that retailers will be able to spend more money on advertising and marketing – for example, search ads – which is great for Google.

-          Build trust for merchants. AdWords advertisers using Google Checkout will have a “badge” (which looks like a shopping cart) appear in their search ads. Over time, Google hopes that consumers will see this as a signal that the transaction will be safe and secure. Why does it matter? Think about the last time you bought something from a no-name retailer – did you hesitate when it came time to enter your credit card? For many consumers, concern about security and privacy are major reasons why they didn’t buy with a specific retailer. Smaller, less established retailers in particular will benefit from using Google Checkout.

-          Provides a discount for AdWord advertisers. And AdWords advertisers will get some of their transactions processed for free. The standard flat rate for Google Checkout will be 2% of transaction value plus 20 cents per transaction. Compare that to PayPal’s lowest rate of 1.9% plus 30 cents per transaction for monthly payments over $100K and PayPal’s standard rate of 2.9% plus 30 cents per transaction for up to $3k in monthly payments received. So not only will Google’s rate be lower for most retailers, but participating merchants also get 10 times the value of their AdWords spending for free transaction processing. So if you spent $100 last month on AdWords, you’d get $1000 worth of transaction processing (which translates into $20) for free. Do the math, and that’s a 20% effective discount on your AdWords buy. And yes, Google hopes that retailers will plow that savings back into more search spending.

So hopefully you’re beginning to see the virtuous circle that Google is building with Checkout and how it supports the core search business. It’s brilliant – by tying the wallet service to search, Google creates a huge incentive for its retail advertisers to participate. This is what differentiates Google Checkout from other wallet services like Yahoo’s now defunct PayDirect, AOL’s Quick Checkout, or Chase’s I4 Commerce's Bill Me Later.

While smaller merchants are the natural targets for Google Checkout, don’t count the larger retailers out. While some may be reluctant to “turn over” the customer relationship to Google, in the end, I think they will try and stick with anything that will result in better conversions.

What It Means For eBay

Poor eBay – its stock took a beating today on the anticipated news of Checkout's launch. The money on the street is that eBay/PayPal will be the losers in this, but I’m not so sure. PayPal is a payment method which fills a big needs in P2P transactions, especially for auctions. Will some eBay sellers defect and start using Google Checkout instead? Not if they want to remain fully integrated with eBay AND also offer non-credit card options (which Google Checkout currently does not offer). The battle will be with the merchants – PayPal will have to step up its efforts to get retailers to accept PayPal as a payment system along side traditional payments like credit cards – and hope that they can do this before Google launches its own payment system (more on that later). If eBay can convince enough merchants to accept PayPal, those merchants will eventually push Google Checkout to accept PayPal as well.

And I fully expect that the current eBay/Yahoo! partnership will launch a competing product to Google Checkout that mirrors the search advertising tie-in. So this battle is far from over – stay tuned.

One of the side “benefits” of Google Checkout is that consumers will be able to see their full transaction history. This isn’t a problem as long as you’re comfortable having all of that information reside with one player, which I anticipate will be the case. But now we have Google tracking our search history with personalized search, email with Gmail, and online spending with Checkout. At what point do consumers get that squishy feeling in their gut that Google knows too much? Our research shows that while consumers have a great concern about privacy, they aren’t willing to do very much and in many cases, willingly provide personal data as a fair exchange for a valued product or service.

All of this would be honky-dory for Google given its strong brand and trust it's built with consumers. But what happens when the inevitable phishing attacks begin, or payment problems ensue? In the pre-briefing of this announcement, Google did not discuss customer service issues, but clearly, it’s one thing to serve several hundred thousand advertisers paying for their search ads, and quite another to serve potentially millions of consumers.

I suspect that “all things Google” will soon start to w