Yahoo Thinking About Buying Into That Whole Social Networking Thing
NEW YORK (Reuters) - Yahoo is looking to buy companies that will allow it to become a bigger player in social networking and revamp its family of products, Chief Technology Officer Ari Balogh said Wednesday.
Context & Ripple Effects
Yahoo has been circling social networking for years without committing: it bought Del.icio.us back in December 2005, debated whether to chase the Google-led social networking alliance in early 2008, and was asked back in January 2006 whether its future lay with Yahoo or Microsoft. What changed by May 2009 is that the ambition is now being voiced from inside the company — CTO Ari Balogh told Reuters Yahoo intends to buy companies that make it a bigger social networking player, paired with a confirmed plan to revamp its product family.
The groundwork is already partly laid: Yahoo shipped its Updates feed to more than 600,000 third-party websites in March 2009 as a direct challenge to Facebook Connect, and it is experimenting with open OAuth alongside Twitter. But the same month Balogh spoke, several Flickr engineers confirmed their layoffs from Yahoo's photo unit — so any buying spree would sit awkwardly beside simultaneous cuts to the social assets Yahoo already owns. A rumored Jefferies analyst estimate that outsourcing search infrastructure to Microsoft could save $1–1.3 billion a year remains unconfirmed, but it sketches where the funding for such deals might come from.
First-order effects
- Yahoo's acquisition pipeline formally tilts toward social networking targets, with Balogh's stated intent layered on top of the confirmed product-family revamp and the existing Yahoo! Updates footprint of 600,000+ sites competing with Facebook Connect.
- Yahoo-owned social properties like Flickr become test cases for credibility: the confirmed April layoffs of Flickr engineers cut against the message that Yahoo is doubling down on social.
Second-order effects
- Rival identity and distribution platforms — Facebook Connect chief among them — face pressure on pricing and openness as Yahoo pushes Updates and OAuth-based integration across third-party publisher sites.
- If the rumored Microsoft search-outsourcing deal (an unconfirmed Jefferies savings estimate of $1–1.3 billion annually) advances, freed-up cost structure becomes the financing logic for the social acquisitions Balogh describes.
Third-order effects
- Legacy portals are converging on 'buy the social graph' as the replacement for organic audience growth, making social startups the scarce asset class and inflating what incumbents must pay for relevance.
- Distribution of social activity is shifting from destination sites toward embedded widgets and protocols (Updates, OAuth, Connect-style logins), which restructures competition around who owns the identity layer rather than the pageview.
The trend: First-generation web portals are turning to acquisitions rather than internal development to buy their way into social networking, with distributed identity feeds becoming the new battleground against Facebook.