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What do Yahoo’s monetization woes have to do with social networking sites?

Yahoo’s woes
Here’s an interesting excerpt from a recent NYT article on Yahoo’s troubles: Yahoo’s Vision-Goes-Here Strategy.

… Mr. Yang and Ms. Decker’s strategy is essentially “vision goes here.” They want to be the “starting point” for users on the Web. They want to be the “must buy” for advertisers. And Mr. Yang said he would assume an “aggressive investment posture.”

The only thing missing from that is the substance. Why would users start at Yahoo? How are advertisers going to find Yahoo superior? And what will the company invest in?

The fascinating part is that Yahoo absolutely *is* the starting point for many users on the web, particularly when it comes to e-mail, IM, and news.

The problem is bridging the gap between two "modes" of user behavior:

Communication:

  • e-mailing
  • IM
  • news
  • entertainment
  • etc.

to:

  • search
  • shopping
  • reference

… the latter which are better for monetization, because ultimately it combines motivation and intent with sending traffic off of the site.

Sound familiar?
Of course, this problem exists not just within Yahoo, but for any company that focuses on a high-traffic, high-growth area which has poor monetization.

This includes companies like:

  • Hotmail
  • Geocities
  • MySpace
  • Skype
  • Facebook
  • etc.

All of these companies ended up with big valuations, but never made the jump to monetizing the way Google’s able to. In Yahoo’s case, this is particularly depressing because the core of the company was always a place to jump off to other sites via a directory – but now it’s a communications hub.

I think the woes of Yahoo are one in a long string of companies that have had huge traffic, but the wrong KIND of traffic. Question is, who will figure out how to cross this gap? This is probably the single most important monetization issue facing the social networking and UGC industry.

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