Fixing Yahoo – Focus on Monetization not Developers

Read/Write Web is definitely one of my favorite blogs. Josh Catone has an interesting post this past week on how Yahoo should focus on building a socially-oriented platform as a way to pull itself out of its current funk. I like a lot of the themes in this post, but I’d like to offer a slightly different take on the matter. Before talking about whether or not Yahoo can build a great socially-oriented platform, I think it’s worthwhile to talk about what it takes to build a great web platform in this day and age. I think a really strong platform speaks to the needs of 3 constituencies and offers each of them value in their own way:

People who pay – Advertisers or merchants (in the case of e-commerce platforms) must get something out of the platform, be it lead generation, payment processing, brand advertising opportunities, or something else of value. Having people who are getting economic value out of your platform (and paying you for it) are key to providing the resources to build great products and support developers.

People who consume – The products and services the core platform provider offers needs to be of value to a wide audience of people. This is stating the obvious, but I think it’s good to get all the components down on paper first.

People who extend – There are a lot of developers and tinkerers out there who will build products and services to extend products that they enjoy. There is an art and science to getting these folks interested in building on your platform and making sure you provide them with enough resources to make it happen.

Just based on traffic, Yahoo clearly has good coverage in the “people who consume” category – they continue to be one of the top destinations on the web. However, if you’re in charge or running Yahoo, I’m not sure which of the other two open items you tackle first. Based on everything I’ve read, Panama does not appear to be the silver bullet solution to solving the “people who pay” part of the equation. So what’s a Yahoo to do? Do you focus on developers or focus on the revenue engine piece?

If Yahoo were a start-up, they could do what most of the start-ups out there are doing. Specifically, most of the emerging platforms (Netvibes, Pageflakes, Twitter, Facebook, etc) are taking a pretty smart approach based on their market position. First, get a user base. Second, get a developer community. Third, figure out how to monetize it. This seems like a reasonable approach to me – developers want to build on top of platforms that have adoption. Sometimes those extensions can create new products/services that deepen user investment in the platform. At some point one hopes to have enough users and scale to be able to monetize via advertising or some other medium.

I think it’s easy to argue that Yahoo should focus on the developer community – that’s likely to do a lot more in the short-term to boost the company’s profile and get more developers looking to Yahoo as a place to build their business. To me, however, this seems like the “easy” thing to do – Yahoo could likely spend the time and money to get developers interested in extending their products. And, to Josh’s point, the existing user base for many Yahoo products would make them enticing targets for people looking to build innovative apps.

Yahoo is not a web 2.0 start-up, though – it’s a large public company with thousands of employees and a big spotlight on it at the moment. Something about focusing on the developer piece at the expense of the monetization piece doesn’t seem to make sense to me.

What Yahoo really needs to do, however, is crack the “people who pay” piece. I am not sure that chasing search marketing dollars is the way for Yahoo to win — they’re in second place by a wide margin and making big bucks on search advertising really requires search market share. Until Yahoo increases its search market share significantly, I don’t see how pouring more energy into squeezing incremental increases in RPM is going to move the needle for them. The answer to what ails Yahoo is better monetization, not more popular products or more support from developers.

Switching gears, I think “platform” is a highly abused term these days. By my reckoning, there are a relatively small number of companies who have actually achieved true platform status in the web world. I look at Amazon (they have just about every service you would need to build an e-commerce business from scratch) and eBay as the two best examples of companies who have actually build platforms. I think there’s a lot to learn from studying these two companies – both have done a pretty good job of continuing to bolt on products and services that meet the needs of the core 3 constituencies outlined above.