1. Poor Management 101

Yahoo started off so strong. They started with the most dominant portal on the internet. They acquired a great suite of innovative web companies. They could not pull them together to create a compelling value proposition. This is what happens when management can't get their act together. The street gave them a lot of time; constantly giving them strong P/E multiples and always ready to bounce the stock price up on any hint of good news. But the benefit of the doubt doesn't last forever with Wall Street. This recent crash certainly indicated that Wall Street can't afford (or doesn't want) to have patience with Yahoo and the stock price dropped to $18.

2. The Good and Bad About Microsoft

Kudos to Microsoft for stalking its prey so patiently. They tried to be friendly and my guess is that the offer prices were higher than they are now. Now with the market down and Yahoo vulnerable, Microsoft sheds the friendly attitude and pounces of the straggling target. The bad news is this can be viewed as a confession by Microsoft that its web strategy is not working as planned.

3. Two Wrongs Don't Make a Right

Alright lets do the math. We got one company with a wealth of first rate web properties and an ineffective web strategy merging into another company with struggling web properties and an ineffective web strategy. Is there any more that needs to be said? And we haven't even begun to discuss the clash of cultures that would arise from a Micro-Hoo merger. Atleast, the will have a whack of cash to throw at their combined problems. That always work - doesn't it?

It was nice to see the recent Robert Scoble - Facebook email-scraping incident re-engergize the call for facebook to open up its user data, but it also brought to the forefront an more interesting side issue:

"When you 'friend' someone in social networking sites, what permissions do you give them to use the data on your profile pages?"

Jeremiah Owyang, Michael Arrington, and Loren Feldman have raised the issue that taking the email of a Facebook "friend" and exporting it to another contact web-app violates the "friend" privacy. Their underlying argument goes that a Facebook "friending" only gives the friend permission to use the data within Facebook. I argue that this is not realistic and that the "friend" permission should be considered more broadly to connecting in a number of different ways.

I argue that Facebook information is no different from a business card. When I hand you a business card, it serves as identification and a call to contact with me for business purposes. Facebook is a connection medium; common sense demands that the permissions extend to connecting. There are practical reasons supporting a broader definition of permission than advocated by the above people. If we put conditions that everytime we try to anything with our "friend's" personal data that they made available to us we need user permission, the system will become unwieldy.

I am not arguing for broad use rights; just a call for common sense. If someone "friends" you on Facebook, you can use their information to connect with them (even using another service like Plaxo). They may not spam you or sell your email addresses to a third party, but certainly they can connect with you. And that is what Plaxo would allow Scoble to do. I think these calls for user permission are a knee-jerk reaction to the automated nature of scraping 5000 Facebook friends. What is the difference from manually entering the email address listed on Facebook and scraping it using a Plaxo tool? I think this is a good discussion, but I don't want to see it dominated a immediate gut reaction.

Well it seems that Facebook wrangled a $15 billion valuation from Microsoft (and possibly some other hedge funds). The question on many people's minds is "Are they really worth that?" After all look at ebay and the $3 billion purchase (approx.) of Skype. They're not looking so bad right now. In my opinion, the cost is irrelevant. The price has been set; no sense looking backward now.

The real issue is that Google dropped the ball in the social networking space. If they moved quickly (back when the MySpace acquisition was all the news), they could have prevented a Facebook from ever happening. Now, Facebook's got a load of cash in the tank. With that kind of reserve, they can survive any tactics Google throws at them and continue to build their business model. Unless a radical change happens in this area, Google will have 2 big competitors in this space for quite a while.

When I look at how slow Google has been in this area, I think that they must have another goal outside of the consumer social network. They had to know this was a threat. There was never a serious marketing push behind Orkut. Maybe they thought that with their advertising deal with MySpace that they did not need to build a competitor, but I don't believe that. I wonder if Google is willing to concede the consumer space to MySpace and Facebook and its real target is the business space. It makes sense on some level. They are building their office applications and host email in their enterprise services. What if they build a social network for businesses? I've been in companies with only 20 people where I really did not know the skills and goals of some of my colleagues. What better way to connect an organization than with a social network. From inside the network they get access to those free Google office app's? More on this later.

The primary strategy for successful web companies should be to enhance their core product and integrate with complementary services of other successful web companies.

Big and small companies continuously fall into this trap. They figure that since their customer base probably buys this other product (which they have no expertise at producing or delivering) why not build it and sell it to them? Honestly, it's like a farmer saying "Hey I sell fresh vegetables to families, families like to rent movies, so why don't I do that as well?" This reasoning has been continually proven wrong. The web is a big minefield for this train of thought because it is so easy to build a rough prototype of any service.

Therefore, alot of companies use the "Let's try it out" strategy that screams lack of focus and discipline. The problem is that while web prototypes are easy to build, they take alot of effort to perfect (and we haven't even discussed the likely business needs that are different from the core business). The "Let's try it out" strategy is one of the worst ways for an established successful company to take advantage of the web. They fail to remember that the web offers unprecedented connection with others. If it is easy to build a prototype, think about how easy it would be to integrate another successful web service into your business.

The primary strategy for successful web companies should be to enhance their core product and integrate with complementary services of other successful web companies. Facebook should not pursue this music distribution strategy. It should focus its resources on enhancing its core product (I think adapting it to the needs of a business market would make google and microsoft very nervous). If it wants to offer music downloads on its site, partner with one or more successful companies already in the space. Set up a revenue sharing agreement, integrate the applications into the core Facebook offering, and continue to do what they do best which is keeping people connected.