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Yahoo ups the ante
How the founders of Flickr are helping to change the focus of the search engine giant.
November 14, 2005: 3:45 PM EST
By Erick Schonfeld, Business 2.0 editor-at-large

NEW YORK (Business 2.0) - Does Yahoo have a new secret weapon in its war against Google? It hopes the secret weapon might be you.

Yahoo (down $0.03 to $38.46, Research) is opening up a new front in its war against Google centered on its recent embrace of "social media" -- content that is generated and tagged by Web users themselves, that essentially allows consumers to create their own entertainment and share it with everybody else.

Key to Yahoo's conversion to social media is its acquisition in March of Flickr, the rapidly growing photo-sharing site. Flickr has 1.5 million rabidly loyal users, who have uploaded more than 60 million photos to the site so far. Some 80 percent of those photos are public, meaning that anyone can look at them, and more than half have been "tagged" with user-created labels, making them searchable.

To use Flickr is to belong to the culture of participation sweeping the Web -- where you write your own blog, produce your own podcast, and post your personal photos for all to see. For new parent Yahoo, Flickr has helped ignite a larger strategy by providing it with fresh insights into how it might leverage its existing relationships with its 191 million registered users. What would happen if Yahoo could form deep, lasting, Flickr-like bonds with all its users -- and get them to apply tags not just to photos, but to the entire Web?

For one thing, the company could make a lot more money. More rabid users mean more ads and more premium subscriptions such as Flickr Pro, whose users pay $25 a year to take their photo-uploading allowance from 20 megabytes to 2 gigabytes a month. Such user fees account for 13 percent of Yahoo's revenues. Together, ads and fees added up to $3.8 billion in revenues and $1.2 billion in profits for the first nine months of this year.

It's a strategy that comes right from the top. Social media "is going to be a gigantic piece of what we do," says Yahoo CEO Terry Semel. "I don't think old media is what people are going to spend most of their time doing on the Internet. This paradigm needs its own inventions, its own methods, its own way to go forward." That doesn't mean Yahoo is ignoring traditional mass media -- quite the opposite, in fact -- but when it comes to the future of social media on the Web, Semel is winning praise for being one of Silicon Valley's savviest CEOs. "Yahoo has done the best job of the large guys of getting the concept," says tech guru Esther Dyson, who was an early investor in Flickr.

And social media places Yahoo one step ahead of archrival Google (Research) -- at least in this arena. That upstart in neighboring Mountain View may have a better reputation for search, it may dominate online advertising, and it may always win when it comes to machines and math. But advocates of social media, like Flickr's co-founder Caterina Fake, have ambitions to turn Web searching itself into a social event -- the idea being that you can find what you're looking for faster if you first see pages saved and tagged by people you know and trust. Done well, it could play as the triumph of the humans over Google's cold mechanical approach.

This is an especially attractive idea to Yahoo veterans, since it harks back to the vision Yahoo founders Jerry Yang and David Filo had in their Stanford University dorm rooms: Categorize the Web and recommend the best sites for its users, using human editors. That vision had to be abandoned when the Web got too large. But this time the users and the editors will be one and the same, there will be enough to tackle the entire Internet -- and Yahoo won't have to pay them.

To read the full article in Business 2.0's December issue, click here.

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