The Economics of Web 2.0

Yahoo!'s recent update has been termed a "relaunch," though it's basically just a new design. The major upgrade, and definitely a technological one, is Yahoo!'s inclusion of third-party "apps," which allow you to add functions from, and snapshots of, sites outside the Yahoo! brand network. Of course, this "network" approach has been Yahoo!'s Achille's Heel throughout its history.

Yahoo! never figured out that the Web is an entirely new medium and attempted to force what it knew of other mediums onto the Web; Yahoo!'s former idea of a portal was offering everything in one place, instead of offering access to the services you are already likely to use. Although it may seem that including external websites is an invitation to Netizens to leave your site, this should actually make the personalized My Yahoo! page "stickier." After all, if you have no new Friend Requests on Facebook, and no new mail at MySpace, you might not bother logging-in, which leaves you on My Yahoo!, looking at other options.

New management has been upfront about taking this approach, and the new deal with Microsoft exemplifies it. Yahoo! will carry the Bing search engine, but retains 88% of the ad revenue it generates. Actually, Yahoo! will only carry the "Power by Bing!" logo; Yahoo! will determine how the search results are garnered, and may key them to individual accounts, allow users to customize them, and more. The primary motivation here is to upset Google's market share.

Both Yahoo! and Microsoft will benefit from the combined search technology, and Yahoo! estimates a $500 million increase in operating finances within the next three years. But the agreement is for 10. While the combo is steadily taking a larger piece of that market, search is far from the only product either company offers - but search is far from the only thing Google offers these days. Google's Chrome OS is set to usher-in a new technology posited to change the landscape yet again: Netbooks and cloud computing.

The Browser Wars didn't end well for either side, and allowed browsers with smaller market shares to make great strides. Google and Microsoft are both leaders in their flagship field, but Yahoo! needed a deal like this to keep it afloat. Maybe now, Yahoo! will maintain its leadership and become the hub of "your online life."

© C Harris Lynn, 2009