Missing out on a break through company

There are many stories in business today about how companies decide not to purchase a company that has since gone on to be a market defining company. Yahoo! is one of the worst offenders. Yahoo managed to turn down both Google and Reddit both in very different ways. In the case of Google, Yahoo realized their mistake and tried to buy Google and then Google turned Yahoo down.

A company like Yahoo is in a tough spot when approached by a novel company that’s trying to compete in a market that Yahoo doesn’t really understand. Although, this isn’t really the case with Google, but Yahoo was much more confident in the technology they knew as their search platform and didn’t understand the potential ad growth that Google was eventually able to deliver.

Reddit, according to Alexis Ohanian and his book Without their permission, an executive at Yahoo told him that reddit was a rounding error to Yahoo’s web traffic. Which so greatly insulted Ohanian that he has used this as a motivational statement to this day.

Eventually Google IPO’d while reddit was bought by Condé Nast media. I believe that because of the direction of management that these companies were both able to flourish to this day. Google is obviously, one of the largest companies in the world, while reddit has become a huge community that the members still feel as if they are in a special club no one knows about.

It is likely that if either company had been acquired and managed in a different way, we wouldn’t have the same internet we have today. Condé Nast essentially left reddit alone and has only started to push the company to become profitable – 7 years after they were bought. It was only 3 years ago they introduced reddit gold and within the last few months they included a daily target for profitability using reddit Gold. In that time reddit has exploded in user base and introduced features to increase user base and interest in the site. If you’re interested in reading more about the history of reddit Randal Olson has an amazing analysis here, it’s really interesting.

On the other hand, Google has gone on to create an amazing ecosystem in Android, Chrome, Glass, the web, and so on. They have shut down more heavily used platforms than most companies create. None of this would have happened if Yahoo had bought Google, because Yahoo doesn’t or at least didn’t think that way.

Yahoo has two fairly large social platforms, Tumblr and Flickr, and is looking to acquire imgur. Acquiring Imgur is essentially admitting defeat with Flickr, as imgur was designed to make sharing photos on reddit easier, and Flickr is horrible to share photos with on reddit. So, it’s likely Yahoo will survive and possibly thrive in the future, but why did it miss out on yesterday’s internet of the future?

Missing out

I believe that these decisions aren’t because of bad managers. In fact, it’s likely because of high quality “traditional” management. While the internet was evolving companies like Yahoo developed metrics like views, clicks, and click throughs, to measure success of a website and the growth of a platforms. As Yahoo is a platform, being approached by other potential non-compatible platforms that were smaller was something to be expected. It is likely that Yahoo turned down hundreds of other unsuccessful platforms along with Google and reddit.

Yahoo wasn’t able to understand the potential of these different platforms, because their metrics were different than Yahoo’s. Yahoo was likely looking at both volume and number of clicks within the platform, while both reddit and Google’s engagement model focused more on sending users to other websites while minimally keeping the users on their platform. However, because of the content the users would continually come back.

Using the innovator’s dilemma as a lens here, we see that the quality of these platforms is much lower than Yahoo’s. Google’s home screen is the same as it has always been. Just Google with a search box and two buttons. Reddit on the other hand is a series of blue links with little to no ads and some arrows next to each link. Very plain and simple. Very different than Yahoo.

Furthermore, these platforms were servicing different users. Google users were searching the internet more broadly, while Yahoo was trying to both allow searching and be a one stop shop. Reddit was trying to engage with the politically active techie, which is a VERY small subset of the internet user base. Yahoo was servicing a lot of the people that had fairly recently left AOL and wanted a similar portal. It makes the internet less scary to have a platform for inexperienced users.

Measuring these platforms with the same metrics and vision of Yahoo, these would have made very bad buys and likely would have been killed off, directionally changed from the trajectory they were on and led to their success. Condé Nast essentially provided a “skunk works” area for reddit and enjoyed the clicks to the other sites that they owned that redditors also visit frequently.

It is likely that if Yahoo had bought either or both Google and reddit, the end result would not have lead to internet we have today. These platforms would have been warped into very different products that many young people would have avoided. I believe that Yahoo has learned a great deal and will likely do a better job with Tumblr and Imgur than they have with Flickr.

Social network patent war?

Today the first salvo has been launched in what will likely be a brutal and bloody patent war in the social networking world. Yahoo! has decided to go after Facebook with several patents which were bought from Friendster a now long defunct social networking site. As I’ve mentioned in previous posts companies that start suing over patents likely have lost their competitive edge. However, I think this is going to have long reaching impacts.

Facebook will likely try to find something they can use to counter-sue Yahoo! Which I believe will open a huge can of worms. A large number of companies have put forth effort into creating social networks and there are companies that are built on top of those networks. Essentially, this is an entire ecosystems of companies and products that interconnect and work together. Until now, it has been rather peaceful except for a few angry words tossed back and forth.

I’m not really aware of what patents are out there for these types of sites, however, it is likely that all the major companies are going to be scrambling for patents. Some of the companies involved have already been in patents wars, Google for example. I don’t think Google is going to sit by and allow other companies to attack them the way that Apple has gone after Android. This would be an extremely foolish business move so, I think it makes sense for Google to actively defend (attack) competing firms by acquiring patents and aggressively targeting firms that may be infringing.

Apple has also tried to get into the social networking side of things with their Ping network. Based on their previous patenting strategies, it seems likely that they have built their own war chest of patents and we know how Apple likes to use them.

Yes, much of this is simply speculation. However, as the entire ecosystem of social media and networks have developed into a huge new area of business and marketing, we need to be aware of how these could impact us. Systems that allow access to multiple different social media accounts could be shut down using patents to enforce the use of each platform. I use tweetdeck and I know other people that use Hootsuite they essentially work in the same way (results may vary), but could a patent derail their use? I don’t know at this point, but i’m not happy about the prospect. I’ve mentioned before my distrust of Facebook, which is why I use tweet deck and sign in using Incognito. An all-out patent war could seriously disrupt this growing environment and reshape the way we use these networks.

Google’s Antitrust Problems II

I think that I started this discussion at just the right time. According to cnet, South Korean officials have raided a Google office over anti-competitive practices relating to Android. They claim that it’s anti-competitive to force companies to use the Google search engine with Android if they want Google applications and the Google logo on the device. Personally, I’m not really sure how this is anti-competitive, or at least why Google is being singled out for this. Apple does the same thing, as does Nokia and Microsoft. When I still lived in the US, I remember Verizon forcing Bing on me and changed my default internet settings on my Blackberry (granted Korea couldn’t go after that one) but the idea to me is bizarre.

However, this is a great way to discuss how Google, in a broader sense, is at risk for antitrust action from many national governments. In my last post I explained the idea of market foreclosure, which Microsoft used in an attempt to capture a monopoly in the server market as they had in the PC market. South Korea will most likely be arguing that Google is using a captive audience to force their search engine on their users. In the bigger picture, I think this sort of tactic will likely be used for other markets. For example, Google is using their large market share, and the social capital they’ve gain from being a trust worthy site, to build email products, then office suites, map and geolocation services (with recommendations), and of course blogging sites like the one you’re currently reading. Since I have a google account, from way back when Gmail first was created, I’ve gotten all these additional features for free. i haven’t had to do anything and they just appear as services that I can use.

Even if I’m not logged in to Google and I go to Google.com there’s a huge selection of services that I can use without logging in. However, they become more powerful as soon as I log in. Google is using their monopoly of search engines to leverage users to use other products they’ve created. Let’s say Yahoo! decided to try to create an office suit in the same manner as Google and basically try to emulate Google in every way with all of their products. I’m sure that some of the users there would take advantage of the free document services. However, I also believe that Yahoo! and Google cater to different portions of the market. Yahoo! has become the defacto home page to an older crowd than Google. Which could mean that the users of Yahoo! may not want the same products. I have a Yahoo! account, which I only use for Fantasy Hockey and Football. I never use it for email, I never search the web using Yahoo! I only use Google. Why? Because it gives me the results I want.

So, now that we understand that Google has been leveraging their search market share to move into other markets what kind of impact does that have? I think that it will actually prevent other people from using other services out there. However, I think that with internet systems there is no real reason to keep with one product family over another. It’s a matter of trust. I think that people trust Google more than other companies, which is why they are willing to use them for other products. I couldn’t imagine people using a Facebook Docs the same way that people use Google Docs.

In my next post I’ll discuss more of these implications of these topics. I will also compare some of the Google products to Windows Media player and how something that seems like a big deal today, may not be a big deal in a year or two. Technology moves so fast.