Can Yahoo come back?

Today’s report on Facebook becoming the 3rd biggest US web property by valuation is really amazing. Their growth has been simply spectacular. But on the same note, I was wondering about one of the earliest pioneers on the web- Yahoo. Can Yahoo really come back ? A lot has happened since the fall out of the Microsoft deal. Investors were really an upset lot back then in May 2008.

I really think there are a lot of similarities between Yahoo and Facebook. To start off, they are both about communities and content. Secondly they are both globally accessible platforms with massive scale. Thirdly the variety in content on both platforms is huge.

Unfortunately for Yahoo, the similarities end right there. When digging deeper, the relevant question is ‘what type of community and what type of content?’ Also what is the relationship between the community and the content?. Per a September report, Facebook users took top honors in collective time spent online per month at 41 B minutes compared to 37 B minutes of Yahoo.

Obviously this is an important data point from the point of view of an advertiser as higher time equals higher stickiness of content.

The key difference here is the inherent connection of community and content at Facebook unlike Yahoo. Users perceive the site to be more sticky when the content is about themselves or their friends. That is, they have a vested ownership in the content.

On a separate note Yahoo invested about $1.2 Bil in R&D last year(about 18% of revenues). If they can somehow use these investments to build a ‘social bridge’ between their content and their community things may start to look up.

On the other hand there are operational costs with Yahoo’s model that may be higher than Facebook’s. Consider that Yahoo has to buy most of its content from contributors or media aggregators while Facebook has it’s users working for it all the time- Free!

The acquisition of Associated Content earlier this year by Yahoo perhaps reduces long term content acquisition costs but still their model has to compete with Facebook’s zero cost content model.

Enabling the community to participate and own content will be a strategic one-two punch on operational costs and site stickiness for Yahoo. Can Yahoo pull it off?