In this blog post I write about a key mistake I think Yahoo made during my time there in the late 90s to mid 00s, because I think there are lessons there which are still very much relevant for today's modern web.
In part one of this post I talked about the three primary revenue streams (advertising, premium and transactional) as well as the benefits of converting new site visitors firstly into registered users and then into premium users. I also covered how Yahoo's strategy of having one universal login to allow users to access all their products and services put them in a very strong position to be successful.
There was one other very lucrative revenue stream. Revenues could be generated by forming effective partnerships. Before Yahoo went into or reviewed any viable product business we’d ask ourselves this question: do we build it, buy it or partner with it? This made a lot of sense as a business, particularly in Europe where we were headcount limited. In an ideal world it would have been great to build every viable product, but there just wasn't the scope to do that – and of course in many areas there were already very well established players. Buying these players was often an option; we certainly had a significant enough war chest to enable us to do so. But Yahoo never acquired or integrated businesses particularly well. In any case the easiest deals to get going were partnerships, because they could be driven at a less senior level than acquisitions or new builds.
A very good example of this was classified products in UK, primarily Jobs, Cars and Property. Internally we had tried to build these businesses, but there just weren't the resources behind them to deliver a product that could match that of our competitors. Consequently audience numbers were very low and so was revenue. Partnering made perfect sense. Yahoo would get quality content and functionality out of the deal, which it could more effectively monetise with banner advertising, which was then split on a revenue-share basis.
The thorny issue was always around who owned the customer. So when a user registered to use advanced features of one of the classified products, were they a customer of Yahoo, a customer of the partner or both? In all instances that I remember, Yahoo far too easily traded ownership of the customer to keep a higher percentage of the advertising revenue share.
But there was another more important reason why ownership of the user was also traded or lost. For a partner to be able to integrate its user registration technology with Yahoo's universal ID required some level of technical development. That integration cost money because it took time and both factors would inevitably hurt the bottom line of the deal for Yahoo. Even if it was a go-er, getting a foothold on the partner's technology roadmap was often difficult. And in any case where was the partner’s incentive? Why have that integration headache to enable Yahoo to have some registered ownership of the customer, when for you as a niche player the focus of building your user base was more important than hitting a few short term revenue goals?
So what happened? In the end we ended up with too many situations whereby a universal Yahoo ID didn’t apply to all products. The whole point of a single login was lost and swapped for a fudge where, under Yahoo branding, a user signed up and signed in to our partner instead. It was confusing for users who did not understand why changing a password in one area (like Jobs) didn't seem to roll over everywhere (like Finance). And for those who didn’t understand why some products required your username to have your domain extension, some didn't and on others, your username was completely different. That's before we even get into the various different user experiences for managing and registering accounts. Trading the sanctity of the universal ID was utter lunacy. Can you imagine in 2017 Google, Ebay, Amazon, Apple or Facebook doing the same thing? No. Which is why they are still here in force.
Ultimately the business reasons behind this were that sales and biz dev functions were primarily rewarded on a quarterly basis depending on whether they hit their numbers or not. And if you didn't hit your numbers for more than a couple quarters in a row there was little point you staying around. There was very little incentive from a revenue generating perspective to do anything that protected the integrity of the features that allowed users to universally manage their engagement with products. Of course the longer term effects of this over time were that it eroded the quality and quantity of the audience, which of course had a direct impact on the ability to make advertising revenues in any case. And of course Yahoo built up competitors well past the point where we could compete with them or acquire them.
This is all one very good historical lesson as to why having a universal ID to access your services is absolutely essential for a whole number of reasons. Failing to do so was one of the key ways in which Yahoo started to squander its opportunity.
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