Eight Billion Reasons Yahoo Didn't Buy Facebook
Author: Madison Lockwood

For much of the year, Facebook had been in negotiation to sell
itself to Yahoo. The market value of the "instant behemoth"
social service sites has fluctuated, as services both large and
small have changed hands this year. The first big acquisition
was Newscorp's purchase of MySpace for $580 million in 2005.
That set a benchmark, which was driven upward somewhat by the
NBC Universal purchase of women's online network iVillage for
$600 million earlier this year.

Social networking sites typically allow users to create and
share blogs, pictures and videos with friends and the wider
public. What makes Facebook different from MySpace? Its
founder(s) set out to create a social networking site that is
designed for post-high school users. It connects people by
region, college, company and high school.

Build a personal profile and connect with others that are
sharing your life experience as opposed to your social,
entertainment and artistic interests, which are the focal
points in MySpace. Facebook attempted to blend a little
maturity into the energized chaos found on MySpace, and they
have been successful. Their current membership is somewhere
north of ten million - compared to the 145 million that MySpace
claims.

The MySpace inclusion of 'artist pages' allows artists working
in audio and video mediums to freely distribute media from
within a social network. It has become a central feature of the
network. Artist pages exist alongside individual profiles, and
in addition to the regular profile features they allow the
artists to upload media and distribute it in the network.
Individuals can link to artist pages, endorse media, and
participate as fans. This feature resulted in bands using the
site to promote their music, one of the dynamics of the site
that has made it so successful.

Facebook's orientation around actual communities makes it much
more efficient as a connectivity tool. You can connect to
anyone within your group and you can search for people across
the entire Facebook spectrum. Specific interest areas are much
more easily brought into focus and it is easier to build a
group around them. The big question for Facebook is its
relevance past the college years. The question for MySpace will
be its ability to undergo a little maturation in the form of
advertising and control of commercial video and music posting.

In the marketplace Facebook has had several suitors on its
dance card, having held negotiations with both Microsoft and
Viacom over the past year. Microsoft has in fact signed a deal
with Facebook whereby Microsoft will sell and provide banner
ads and sponsored links for Facebook using its adCenter online
advertising software. Some medial analysts dismiss this deal as
minor, citing banner adds as passé and sponsored posts as an
advertising method that is showing some age as well.

In the Google corner, the company has announced a deal with
MySpace to pay at least $900 million in shared advertising
revenue and become the site's sole search provider. As part of
the deal, Fox Interactive Media will add Google search boxes to
MySpace and its other web sites. Google has first crack at
selling any display ads Fox doesn't sell directly. Google has
shown an ability to work partnership agreements and a
willingness to settle for a piece of the action that has served
them well in the feinting and blocking that occurs in the
Internet consolidation ring.

Google's purchase of YouTube ratcheted up the pressure on Yahoo
to close the deal.  It's worth noting that Google bought YouTube
with Google stock - a choice that was not open to Yahoo in their
Facebook negotiations. Earlier this summer Yahoo decided that
Facebook was too expensive at $1 billion and in July, came
close to closing an agreement at the $800 million figure. The
reported high offer of just over 1.6 billion was rejected, and
now Facebook claims it isn't for sale, but if it was, it's
worth at least 8 billion.

From a financial/cultural perspective, Yahoo had a lot on the
line with this acquisition because it would have significantly
reshaped the portal's efforts to establish and hold a Yahoo
"community." In one Yahoo corner or another, many of the
features contained in both MySpace and FaceBook can be found
already as Yahoo proprietary components. What is missing is the
packaging and the social cachet that both social networking
services hold for young people.

Yahoo has built a strategy of drawing Internet users and
advertising through building community-based services on the
Web, but acquisitions so far have been on a small scale.
Recently Yahoo has acquired Bix, MyBlogLog and Kenet Works. Bix
and MyBlogLog are built along social networking lines, and will
work (hopefully) as a complement to Yahoo's current properties:
Flickr, Delicious, Upcoming and WebJay. All of these have
slightly different orientations: FLickr is photo-centric,
Delicious is a blog tagging and sharing service and Bix is a
digital karaoke and entertainment site that takes amateur
uploads.

While the Yahoo / Facebook deal appears to be dead, the
evolution of social networking sites is bringing several
characteristics to light. There is some indication that user
loyalty is a slippery issue. MySpace users are migrating to
Facebook, YouTube and other sites as their primary "hookup."
Average visitation time on the site has dropped by over half.

On the other hand, Media metrics firm Hitwise has released its
Media Report which found that MySpace is still atop the social
networking mountain, with 82 percent of visits to the top 20
social networking sites landing on their site. Whatever the
figure, Yahoo's attempted purchase of Facebook would have been
an expensive bet on a hot product that could cool as quickly as
Friendster and others that have preceded it. Finding an
advertising model that works for the Facebook is also going to
be a challenge, particularly given the existing Microsoft deal
to handle some ad placement for the service. Given the
turbulence in the social network marketplace, the inability to
close the deal may end up being a positive for Yahoo.


About The Author: Madison Lockwood is a customer relations
associate for http://www.apollohosting.com. She helps clients
understand how a website may benefit them both personally and
professionally.  Apollo Hosting provides website hosting,
ecommerce hosting, & VPS hosting to a wide range of customers.