Most of my business readings this weekend have been various analysis of the potential Yahoo/Microsoft deal. Unfortunately, I haven’t been impressed by the level of the debate as many of the comments were all about “Microsoft is evil” and its corollary “Google is not”. I was hoping for more level-headed reflections but I think the involvement of Microsoft in the story created a highly-emotional environment in the tech blogosphere.
One of them stood out for me. Tim O’Reilly looked at the big picture and tries to extract some industry meaning, showing once again his crystal ball is one of the most polished in the industry. Talking about industry consolidation in general and Yahoo in particular, he offered:
The web companies that have a chance of surviving as independent entities are those that truly understand and exploit the rules of the new platform: harnessing collective intelligence to build rich troves of data that literally get better the more people use the application, running ahead of any possible competitor simply because of the network effects that pile on to keep them improving faster than any newcomer. Some of Yahoo!s properties (e.g. Flickr) have that characteristic, but Yahoo!’s business as a whole did not. It was ultimately a halfway house on the way to Web 2.0. It’s original business was based on a literal aggregation of user generated content, but it quickly became a more traditional content and services portal. Later companies like Google leapfrogged it by building services that tapped more directly into the native network effects of the Web.
The other important characteristic of the winners, of course, is that they tap into a data stream that really matters. Owning network effects around consumer photos, for instance, is much less powerful than owning network effects around paid search. So one of the key questions we have to ask ourselves going forward is this: what are the major data subsystems of the future Internet Operating System. Location, identity (and social graph), search (and not just web search but also product search, in which Amazon has a very strong position) come to mind. In a lot of ways, finding the data associated with the old vectors who, what, when, where, and how is a good place to start.
What it means: O’Reilly posits that local search (Location + Search) is one of the key elements of the future Internet Operating System. I completely agree with him. I would add that no one has locked the market yet. No one in that field is deeply embedded yet in the Web O/S. So, this still represents a major market opportunity. And the big question remains: who will own “where”?