strategic fit“. The tech and blogger community, along with Delicious fans, are crying ‘no.’ Michael Arrington says Yahoo is in “absolute disarray“. Even though Yahoo’s Delicious home page says it’s “the biggest collection of bookmarks in the universe”, many most internet users have probably never heard of the social bookmarking site. So, what’s the big deal? Forget all the PR blunders for a moment and the significant damage its done to consumer confidence. Here’s why it matters.

Yahoo bought Delicious in 2005. At the time, a post on the Delicious blog said:

We’re proud to announce that del.icio.us has joined the Yahoo! family. Together we’ll continue to improve how people discover, remember and share on the Internet, with a big emphasis on the power of community. We’re excited to be working with the Yahoo! Search team – they definitely get social systems and their potential to change the web. (We’re also excited to be joining our fraternal twin Flickr!)

I look forward to continuing my vision of social and community memory, and taking it to the next level with the del.icio.us community and Yahoo!

Note: The original blog post, cited when TechCrunch story broke the story, is of course dead. But thanks to web.archive.org, it’s still available.

Well, that part about taking it to the next level didn’t quite work out.

At the time of the acquisition, Delicious was one of the first exciting Web 2.0 companies. A product that could help the Web 1.0 portals, like Yahoo and AOL, evolve and take advantage of the soon-to-be tsunami of social. Techcrunch wrote “Yahoo, in addition to launching a flurry of new products in the last few months (and the pace seems to be accelerating), now owns the two most important tagging properties on the web – flickr and del.icio.us.”

When I first learned about Delicious, pre-Yahoo acquisition, I was very impressed. I thought it was great and even told friends about it. But, the service didn’t innovate much. Somehow, I learned about Diigolet, which took social bookmarking to a new level, with many new and useful features. So, i exported my bookmarks to Diigolet. Turns out, there are now many alternatives to Delicious.

It’s kind of shocking that a company with the resources of Yahoo couldn’t innovate and turn the site into a success. The founder of delicious, Joshua Schachter left Yahoo in 2008. He wrote a comment on the TechCrunch blog saying:

I was largely sidelined by the decisions of my management. So that was mostly the result rather than the cause, if that makes sense. It was an incredibly frustrating experience.

It’s not unusual for a founder to leave a few years after being acquired. And it’s pretty common to hear from current and former Yahoos that internal innovation efforts can be frustrating, despite some corporate initiatives to change that. To be fair, innovation can be frustrating experience at any company, big or small. When you own the company, of course, it’s much easier to get over the frustrations and focus on your vision and the reward.

But, here’s the problem.

In defending its decision to sunset Delicious, Yahoo wrote:

We believe there is a ideal home for Delicious outside of the company where it can be resourced to the level where it can be competitive… We believe there is a home outside the company that would make more sense for the service and our users.

Why can’t there be a home for Delicious (and potentially others like it) at Yahoo. There’s a whole slew of startups, without the power or baggage of Yahoo trying to compete in this space, or close to this space. Some of them, and their investors must think it can be profitable.

Why couldn’t Yahoo have a small team devoted to this and keep on innovating? Or at Yahoo, would there need to be tons of managers, VP’s, GM’s etc for such a project, with many levels of approval needed to get anything done. It can’t be as complex as search. (See Microsoft-Yahoo search deal, where Microsoft powers Yahoo search.)

A small team of developers should be able to run the system and make improvements. It could be done for a million or so a year in headcount. Then, probably a couple million more in infrastructure. To put that in perspective, in the last fiscal year, Yahoo spent $1.2 billion on product development.

After this week’s 4% staff layoffs, they still have around 13,540 worldwide employees. That presumably includes some staff at “Yahoo For Good,” whose mission is to empower people to make a positive impact.” Perhaps, it’s wildly profitable. I don’t really want to knock a site that encourages going green or spreading kindness. If you ran Yahoo!, which would be your priority, a social bookmarking site or spreading kindness?

Perhaps, one reason why Yahoo doesn’t innovate is the current culture. As former Yahoo-er Chad Dickerson wrote, “Yahoo! often got stuck doing PowerPoints about strategy instead of writing code and shipping products.” When Jerry and David started Yahoo, it was much more about writing code and innovation. When you have 600 million users, that gets harder.

There is still a lot of potential for a site like Delicious. Kevin Rose, founder of Digg, tweeted this week “I’d really like to buy del.icio.us and make a seriously rad social bookmarking site, screenshot archives of bookmarks/audio annotations etc.”

Some argue that sunsetting Delicious “makes eminent sense.” Of course, a company is wise to “stanch the bleeding” and shut down assets and re-focus on a new strategy (if it has a new strategy.) But, when you have ‘the biggest collection of bookmarks in the universe” in a potentially very social product and you can’t figure out how to run it in a lean, innovative and profitable way, it’s a real sign you are in trouble.

Disclosure: The author worked at Yahoo from 1999 to 2004, bled purple, and really wanted the company to succeed. But, he resigned Yahoo partly due to frustrations trying to launch new initiatives.

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Authors: Jon Orlin

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