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And then there were two… February 3, 2008

Posted by David Gillespie in industry news.
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I’ve spent the last couple days thinking about what Microsoft’s play for Yahoo really means for the Wide Open Spaces we call the world wide web, it having changed so quickly and constantly. And just as the dust seemed to settle around a landscape where Facebook held everyone’s attention, the most dominant software company we’ve known sweeps in for a hostile takeover on what was the shining light of Web 1.0.

I remember reading Po Bronson’s seminal Web 1.0 text Nudist on the Late Shift and being enthralled with the chapter on Yahoo!. Bronson framed it around the notion of meeting billionaires Jerry Yang and David Filo, neither of whom were yet 35, which in his eyes made the whole thing seem even more surreal. 13 years after Yahoo! was founded it finds itself mired in lay-offs, under-performing products, and perpetually treading water while everything other than Flickr fails to gain traction, and even that has been outdone by Facebook which has become the largest photo-sharing site full stop.

The play revolves around three things; search, email, and advertsing.

Search
Microsoft have long been the distant cousin in this space. Google dominate the landscape; Yahoo! hold a distant but solid second place. Indeed it can be argued they are the only ones who’ve been able to hold some ground against the relentless force that is AdWords. Microsoft have failed to offer up a compelling alternative to Google, and the end result is an increasing loss of market share in search while Yahoo! bail water out faster than the guy next to them. With the need to compete for second place out of the way, both companies can down-size, hone in on strengths, and be confident that nobody else has the market share to make a play for #2. What they do need to worry about is people moving away from a Yahoo! service who had arrived there in the first place because of a distaste for Microsoft.

Email (your inbox)
Mark Zuckerberg (Facebook founder and CEO) has spent more time than I care to acknowledge talking about the social graph. Simply put, it is a map of the relationships you have with people. Facebook is supposed to represent that, but Google have already pointed out that the social graph is already well represented by email; what you send and what you receive paint a far more accurate picture of your online interactions than a site coined so loosely as a “social network”; email doesn’t rely on the walled garden mentality, and as such maps a more realistic path for social interactions. If one age old rule of marketing is that the most compelling campaigns are formed around trusted sources, then having a solid understanding of who an individual’s sources are is key.

Microsoft & Yahoo! will have a combined online mail share of somewhere between 4 and 5 hundred million users (depending on whose numbers you use and how you skew the data). The sheer quantity of data available and what they can learn about their users is staggering; the task there though is turning it into something meaningful. Both companies have proud traditions of innovation that have somehow been lost along the way; finding that spirit again is key to taking the fight to Google and Facebook.

Interestingly, the key differentiator between Google’s Gmail and the others is Google fails to offer a paid-for premium service and instead is ad-supported based on key words in the messages you send and receive. You would think a competitor to this product would have to be in the works at at least one of the companies; hopefully these products would be finished and rolled out before any moves were made towards a single super service.

Advertising & the future of online
There have been nervous mutterings recently around Google’s advertising intentions. In September last year they hired Andy Berndt who was President of Olgilvy & Mather in New York, and two weeks ago announced the Publicis Group had been brought on to assist with their creative. While this is a coup for Publicis, people don’t seem to understand that Google have been the dominant force in online advertising ever since the introduction of AdWords; they have been in advertising for years, the traditional media folk just didn’t pick up on it because it didn’t look like the advertising they were used to.

Google’s presence coupled with its now approved purchase of Double Click means it wields an influence not seen since the months before Microsoft began being probed for anti-competitive tactics. People are still so worried about a giant in Redmond that Google was able to quietly go about its business and snap up anything and everything that made its search offering stronger.

Last year Microsoft finally caught up in a public way, purchasing a series of companies to kick-start its advertising play. Yahoo! had also been on a spending spree and now a single entity gets the fruits of those labours. This page shows a period of two years over which acquisitions were made leading up to mid-2007; all the serious plays are around advertising and search, regardless of company. Steve Ballmer would have been fuming that they didn’t land Double Click, the move for aQuantive was a no brainer after that.

If and when this deal goes through, Microsoft will own a handful of also-rans, but in addition to Yahoo!’s mail offering they will also have del.icio.us and Flickr, two of the most prominent and popular Web 2.0 sites. Facebook still lurks out in the ether, its next move known only to a handful of its executives. If anyone stands to gain from this, I think it is them – they can operate in exactly the same fashion that allowed Gogle to become quietly dominant. This move puts the spotlight on someone else, it allows Zuckerberg to spend some time thinking about where he wants the business to go and to focus on executing that vision rather than putting on the media darling suit that doesn’t quite fit.

Google have recently reached a point where they can do whatever they please, when Microsoft reached that spot it rapidly became the least interesting kid on the block. Google need to show they are hungry, that they have the fire and the stamina to win. 2008 is going to be a phenomenal year for online, and that is without even touching the launch of Android, Google’s mobile platform, the 700MHz spectrum bid, or Open Social, its vision for a completely open socially-networked web. Once Microsoft hammer this deal out, it makes for two massive fish in a (thankfully) endless pond. That’s just the kind of environment the Facebooks of the world need, one where they can hide away and get back to what made them great in the first place.

And the wide open spaces just got a little wider…

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Comments»

1. Matt - February 4, 2008

And software? Google wants everyone running Linux and Google Docs. If I was Bill Gates I’d get out now as well…

2. David Gillespie - February 4, 2008

Hehe, interesting point Matt. I think you’re half-right, Google do want everyone running Google Docs. But I don’t think they care what OS you run much beyond a general desire for Microsoft to have less capital to out-bid them on purchases it wants to make. Google, much like Facebook, are looking to establish a platform for online development the same way Microsoft did for personal computing; it means everyone uses your services and once you’ve been going down that road for a few years there’s little to no turning back.

Right now it seems like Microsoft is fighting to make sure the programs on end-user hardware still matter, that is not a winning strategy though. Not long term anyway.

3. linksubs - February 4, 2008

Very informative post. Thanks for that. How would you like to discuss business related topics on the all new business forum. So many members could gain knowledge from your business experiences and advice.

Please think it over.

Thanks,

Col :)


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