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Why Yahoo! Isn't Google: A Theory

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Last week, the inevitable finally happend: Yahoo! co-founder Jerry Yang finally stepped down from the company's board. Whether the once dominant tech company can right the ship under new CEO Scott Thompson is anyone's guess. Insiders say that, with Yang out of the way, at least Yahoo! now has at least a fighting chance for a resurrection, although no one expects Apple-like results.

In reading the postmortems on Yang's 17-year run at Yahoo!, I was struck by how many products and services the company offers. Yahoo! Mail is the second most popular webmail behind Hotmail. It offers real estate, dating, chat, job search, weather, and a bevy of other services, most of which are free. It's still the fourth most popular site on the web according to Alexa.

Despite all of this, the company has clearly lost its mojo. As I write in my new book, The Age of the Platform: How Amazon, Apple, Facebook, and Google Have Redefined Business, Yahoo! is much like AOL, Microsoft and MySpace: It's clearly much less relevant than it was a decade ago.

Some people claim that Yahoo! spread itself too thin. Who can forget the release, more than five years ago, of the Peanut Butter Manifesto? There may be some truth to this, but hasn't Google done basically the same thing? It's hardly only a search company anymore. It has also added important features to its platform (called planks in the book), something that Amazon, Apple, and Facebook, have also done.

Planks Are Not Enough

To build an effective platform capable of withstanding increasingly nimble and powerful competitors, you have to do more than add popular and integrated planks. You have to embrace the concept of an ecosystem. You have to give developers, users, and third parties the tools to take your platform in new and exciting directions. I'm talking about open application programming interfaces (APIs) and software development kits (SDKs). It is here that Yahoo! has fallen short.

To be sure, early attempts to create development tools showed enormous promise. I remember playing around with Yahoo! Pipes years ago and being impressed with its potential. Yet, tools like Pipes were few and far between. They didn't seem to evolve and catch on, certainly not as fast and not to the same extent as the tools of Amazon, Apple, Facebook, and Google.

But enough tools alone aren't sufficient. Incentives matter. Why else would people develop apps for the App store, sell their e-books on Amazon, create games for Facebook, or embed Google AdSense in their websites? Simple: Because they can make money by doing so.

I don't have the solution to fix Yahoo! That's now Scott Thompson's headache. It may well be too late. For companies trying to build their own true platforms today, though, learn from what Yahoo! should have done differently.

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