According to Battelle this didn't come cheap. He says that according to his sources the deal is pegged around $30-35 million dollars. There are other rumors that the figure was closer to $40 million. Update: Om, and others estimate this to probably be lower. Personally, If I had to wager a guess it would be something on the order of $15-20 million dollars. My estimate is in line with umair, which is based his estimate of a street value in the range of $10 million, and the supposition that Delicious could command a premium well over and above that.
Yahoo was acquiring the one thing My Web 2.0 lacked -- a good Firefox extension. The Firefox extension converted at least one user, Nick Wilson, who defected back to Delicious because of this dirth in My Web. Is Delicious' user community and tag meta-data worth $10-40 million? How many Firefox extensions did they buy for this chunk of change? Now, in all seriousness, if not for the firefox extension, Why Did Yahoo Really Buy Delicious?
The rationale for this acquisition is obvious, the community, of course! It's not about acquiring cool technology. It's about increasing the value of My Web 2.0 through the Network Effect. This states that the percieved value of the service is dependent on the number of users already using the service. See more about the network effect and MetCalfe's law on Wikipedia.
One thing to note is that Delicious' traffic curve is going in the right direction. According to Alexa, it's reach has tripled since October!
Update: BusinessWeek and others estimate the size of Delicious' user community to be 300,000 users. Depending on who you believe, this means that Yahoo paid between $30-100 for ever user's bookmarks. Maybe I should try auctioning my bookmarks on EBay and pay for some Christmas gifts. It remains, three hundred thousand users is a drop in the proverbial bucket to someone as big as Yahoo. However, I would wager that Yahoo's My Web 2.0 doesn't have the same exponential traffic growth curve.
Let me try and provide an inside look at a hypothetical a meeting at Yahoo HQ. Sitting around the table are Terry Semel, Jeremy Zawodny, Jeff Weiner, Jan Pederson, and other Yahoo execs. Terry asks, "So, how long for My Web 2.0 to reach critical mass?" The project manager gives a presentation that provides several different projections based on varying marketing spends, etc.., etc... but the bottom line is that it is still a ways out there -- he estimates 1-2 years and millions of dollars. The next big question Terry asks is, "How can you make this go faster?" The PM replies, "Well, if we buy a community like Delicious, it will cut the time in half ." They talk it over and then someone asks, "What would it cost us if that other company purchases Delicious and uses it to start their own community initative?" Ouch. They look at each other for a minute and Terry break's the silence, "Buy it."
The Yahoo leadership recognize that Delicious in and of itself may not be worth $30-40 million, but being the first to reach critical mass with the "community thing" is critical. As it stands, Yahoo can use Delicious' amazing growth rate and existing user base to accelerate the growth of My Web 2.0 and take an early lead in the market. If I were them, I would hope that the time to grow a community would provide a barrier to entry for competitors.
Overall, the acquisition isn't surprising, but I honestly say that it still caught me a bit off gaurd. I expected Yahoo to try and do it themselves, after all, they had the technology and the marketing money. As I said earlier, I think it really comes down to time and expertise. Joshua and the Delicious users can help Yahoo accomplish their goal faster.
Let's take a moment to compare this with the Flickr purchase. More than the traffic differences the biggest difference I see is in the audience of the two sites. The Delicious crowd is really super geeky -- look at the "Popular" pages and you can see what I mean. Flickr appeals to a wider audience that is more inline with Yahoo's audience. Perhaps Yahoo can bring Delicious to a wider crowd, but we'll have to see what happens to it. Nick Wilson has a really catchy quote in his post on the acquisition that I wish I had thought of:
So What Happens as Delicious Leaves the Geekerati and Joins the Mainstream?This acquisition will surely alienate some cyber geeks in the tech community. If you check out the comments on Digg, many are not happy and accuse Delicious of "selling out."
Ho John Lee posted some very interesting ideas in his repsonse to the news. Here is what he had to say that I found the most interesting:
Tagged bookmarking sites such as del.icio.us can provide a rich source of input data for developing contextual and topical search. The early adopters that have used del.icio.us up to this point are unlikely to bookmark spam or very uninteresting pages, and the aggregate set of bookmarks and tags is likely to expose clustering of links and related tags which can be used to refine search results by improving estimates of user intent. Individuals are becoming their own search engine in a very personal, narrow way, which could be coupled to general purpose search engines such as Yahoo or Google.Think of millions of users bookmarking sites. The early adopters might not bookmark spam, but will a wider audience? What about all of the SEOs who realize that creating accounts and bookmarking pages gets them more traffic in the context of a larger Yahoo audience? Finding interesting relationships in the user data is a veritable mountain of gold. The question is will this gold tarnish as it grows?
All of these acquisitions present Yahoo with some really cool properties, but also some interesting problems. How is Yahoo going to integrate Delicious and Flickr with My Web 2.0? How do you keep the fans happy while integrating all of these pieces into the bigger platform?
In a broader context, this acquisition will likely have ripple effects throughout the Web 2.0 community. Will it be a boon or a bane? If Yahoo is smart, they will provide ways for new services to leverage the Web 2.0 / Delicious platform to layer services on top of it. Delicious' lavish reward should also spur the number of "Web 2.0" startups that try to jump on the bandwagon. If some of them become successful will Yahoo.licio.us continue to interoperate with them, squash them, or buy them too?
I think this acquisition is a good thing for both Yahoo and Delicious. It's a win-win. Yahoo gets a lot of users and tag content to bootstrap their platform. Delicious gets cash, but it also gets the resources to take their business to a whole new level inside the Yahoo network.
My congratulations to Joshua, Fred, and the rest of the Delicious team.
Update: Greg also raises a lot of the same points as I do, albeit a bit more eloquently and succinctly. He also raises some even more interesting questions: Did they sell too soon? If this whole thing works out Delicious was in a great position to do better later on. A lot of search companies back in the dot com boom were bought up by large media companies only to be neglected and later abandoned. If one of those stuck it out they might have been the next Google. Another interesting point he makes is that this acquisition might lead to the perception that Web 2.0 companies are "in it to flip it." What are the long term business models?