Lessons from the Del.icio.us Acquisition

Simpler is Butter.

If you sat down in 2002ish and said, "I want to start a webservice." and you said to yourself, "I am going to start with one form and watch how people use it."  you might have made 17M the other day.

From 37Signals to Robot-Coop to Adaptive Path, we're seeing a renaissance in web design: simpler is better.

Ari Paparo recounts what Blink had that del.icio.us didn't and vice versa:

My intent was to show that product design matters. We had more money, more users, a five year head start, and some really, really smart people working on bookmarking in 1999. The bottom line is that we simply didn’t get it right. Some simple innovations like using tags instead of folders, making public the default, building better discovery features, etc made the difference between being an also-ran and a hot acquisition target.

Simpler is better is certainly a lesson that we've learned the hard way. Our motto has been to build comprehensiveness and to jump when one or two lead customers asked us to.  As a result, we've suffered from feature bloat. When a new user starts, it takes them 1 hour and a lot of patience to figure out the scenario that works for them.

The hard part is correcting that. And simplifying. It is hard to let go of something that works. This comes back to choosing a market and running with it. It is imperative that we pick one market, and design the simplest tools that meet that market's umet needs. There are so many markets and opportunities. It is just difficult to narrow the scope from world domination of events - to world domination of one type of event. But, it needs to be done. Focussed and simpler is the way to go, as proven by the success of the aforementioned companies above.

Community has VALUE

Greg Yardley has more about the del.icio.us acquisition:

But most importantly, the del.icio.us acquisition says ‘hey, community is worth something.’  The technology behind del.icio.us was easily duplicated - thanks to the open-source clone de.lirio.us and the social-app-building service Ning anyone can start a similar service, just like Yahoo did with My Web 2.0. It’s the del.icio.us community that can’t be duplicated. Yahoo didn’t buy del.icio.us’ technology; it bought our bookmarks and tags - and for quite a price.

Greg goes on to guesstimate the value of each of our bookmarks. Similar to the way that a lot of people tried to guesstimate the value of our blogs after the weblogsinc acquisition. His numbers may be off. But, the notion is certainly ON. A critical mass of users + Yahoo! = a larger critical mass of users = a critical mass of advertisers.

When users are creating content for free (royalty free content), recruiting others to do the same (0 customer acquisition costs), the only cost becomes development and bandwidth.

Yahoo is Building People Powered Search

If it wasn't obvious before, Yahoo is returning to its roots of using people to better organize the web. Yahoo started with the directory managed by a ?few hundred people? or so at its prime. Then, google came along with their fancy algorithms that used millions of people's links (eg votes) to better organize the web. Not to be outdone, Yahoo purchased a lot of algorithmic and contextual-ad search engine companies and started assembling their own internal team, to compete. They are still second fiddle in algorithmic search, though.

So, not to be outdone again....

They now realize that the only problem with their original directory approach is that there weren't enough editors AND that it wasn't about recreating the card catalog, but about creating an infinitely expandable folksonomy powered by algorithmically searchable keywords (ie tags): The directory built from the bottom up by unpaid amateurs.

From the acquisitions of flickr to upcoming.org to launching Yahoo's new Q&A engine, Trip Planner, to acquiring del.icio.us, Yahoo is building a platform for millions of volunteers to organize the web.

Brad Burnham of Union Square Ventures, the VC firm that invested a [supposedly] modest amount of money + time (eg effort) to help flip del.icio.us, has a similar sentiment about del.icio.us taking Yahoo to the next level in search:

We have long felt that, in a world awash in information, navigation and discovery would be increasingly important. Algorithmic search has proven to be invaluable, but it has limits. We invested in Delicious because we believed that its invention of a new form of people powered discovery would address a class of web navigation problems that could not be solved with algorhythmic search.

The question becomes: Will Microsoft be willing to pay for the same thing?

Venture Capitalists Used Primarily for Their Connections

I don't know the facts that support this argument extremely well. So, take this last "Lesson" with a grain of salt, based on me as the source and what I've read in the public domain. But, here's my logic: Del.icio.us was something that Joshua Schachter created for himself, then realized it was useful. He continued to tinker and a lot of other people found it useful. He still had a full time job. A VC firm and a few angel investors invested a small amount of money. The money was a small amount because a lot wasn't needed. They needed more servers and 2-3 resources to make the code more stable and scalable. So, why was a VC firm interested in it? I don't know about you, but almost every VC firm I talk to about investing in us, wants a re-assurance that their investment will turn low-revenue producing Company A into a 100M revenue generating business in 5 years.

Well, besides the fact that users were rabid fans, VCs bring bigger connections. The intention with del.icio.us was never to take it public. They purposefully avoided making money. (They could have easily added contextual ppc ads to their site and probably had pretty good click throughs, given the ability to target it - SINCE - we're telling them the damn keywords.)

This is where I make some leaps of logic - based on nothing more than my brain's loose wires. So, the intention must have been all along to flip this to a big internet search player, so that they could use it to better refine and target search engine results (paid and algorithmic). There aren't too many players in this game. So, I'd bet that the rumor-reported millions of dollars paid for del.icio.us was a result of a small bidding war between the big guns of search.

And that is a sale that Joshua wouldn't have been able to make himself. So, why did he need VCs? To get acq-hired by the right company w/ retirement money in hand.

Give Credit Where Credit is Due

Congrats to all involved. Whether I am right on or not with my crazy statements, this was the right move. Together, Yahoo and del.icio.us can turn a single form and a 'database with probably two tables'  into the future search-engine results' refinement-engine killer-app.

Update: Ross Mayfield concurrs:

Yahoo Social Search always held promise of more relevant, useful and fun search.  Just one problem.  Not only did I have to use it for it to be useful, so did my friends.  Now, with the del.icio.us acquisition, my online social network does.  Then consider the high-level metadata they have with del.icio.us, Flickr, Upcoming and more to come; and how they leverage it to enhance search overall.  That is, of course, if they respect the social contact with the community and continue the process of opening (they are far from done).

Comments

[Greg Gershman]

All in all, spot on. I was going to write most of the same thing, but now I'll just link to this. ;)

One thing to consider: although Google is technically algorithm-based search, consider the source of the data: users (they are gleaning metadata from links that are left by regular old folks like you and me). So I think the distinction that you make between algorithm-based search and people-based search is not so significant.

I do agree, however, that del.icio.us represents a valuable asset in refining the search process. What I think is significant is the method by which thae tag data is collected. The beauty of tagging is that you are getting users to tell you in their own words what a page means to them. Links do this sometimes, but often they don't and sometimes they can steer you quite in the wrong direction. Couple this with the timeliness and social factors, and you have a powerful asset.

This does in a lot of ways represent the failure of MyWeb 2.0, which I think is an important lesson: Yahoo could not take this idea of tagging/linking to the masses. Maybe they didn't really try, but still, delicious is mostly if not completely run by geeks and bloggers. If this data is relied upon too heavily, there is a risk of greatly skewing the results in the wrong direction.

[Peter Caputa]

Good points, Greg.

I especially have been thinking about your last point: most del.icio.us users are geeks and 'geeky' bloggers.

Yet, they had captured the market. Yahoo is definitely building the social platform for geeks through acquisitions. I wonder if this stuff will be useful for other audiences?

Would an equivalent system that is used primarily by bands OR 13-21 year olds be as valuable? If Yahoo bought this for the community, is this community really that valuable?

I know a lot of people consider bloggers to be lead adopters. But, I am not so convinced that anyone follows.

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