Yahoo's Open Invitation

Like counterparts at Facebook, CEO Jerry Yang plans to give developers more leeway in building tools designed to keep users on its pages longer

Last year it was the so-called Peanut Butter Manifesto, a sharply worded internal memo from a Yahoo! (YHOO) senior vice-president who criticized the company for its lack of focus and tendency to spread its resources too thin. The document became a testament to much of what had gone wrong at the Web portal.

This year, openness is the buzzword ringing through Yahoo's Sunnyvale (Calif.) campus, and executives hope it translates into a strategy that helps set fortunes right. In the months since Yahoo co-founder Jerry Yang replaced Terry Semel as chief executive officer, company leaders say they're newly focused on opening Yahoo's real estate to outside developers, who in turn can create tools that make Yahoo's pages more attractive to users.

More Risks

Already the company has released the source codes for Yahoo's e-mail in hopes of letting third parties create small programs, known as widgets, that mesh with users' address books and other mail services. The company is also working with partners to create applications that let users embed non-Yahoo sites and services onto their personalized Yahoo homepage. Yahoo says such steps are only the beginning.

Under Yang, Yahoo is increasingly open to new ways of incorporating third-party content and social tools that keep users hanging out on the site, says Brad Garlinghouse, author of the Peanut Butter Manifesto and senior vice-president of communications, communities, and Front Doors.

Garlinghouse sees a future where Yahoo Mail could include a widget from Web invitation site Evite, a subsidiary of Yahoo competitor IAC/InterActive (IACI), that could let users share events with their Yahoo contact list. Garlinghouse also sees potential for Yahoo users to include links to profiles on social networks such as News Corp.'s (NWS) MySpace within new Yahoo profiles. "We are going to experiment, we are going to take more risks," Garlinghouse says.

Welcome Mat

Yahoo's focus on openness is partly a proactive embracing of the consumer Web ethos, where users play a key role in creating content. And in part it's a defensive measure to keep from losing user attention to innovative up-and-comers. The early years of the Web were dominated by large portals like Yahoo and Microsoft's (MSFT) MSN that lured users by creating microcosms of the Internet within their own walls. New Web darlings such as Facebook and Bebo have risen to prominence by acknowledging they cannot build the best of everything. Instead these new sites let users bring fragments of their favorite destinations onto personalized pages within their sites.

It's not that Yahoo completely walled off its site. Yahoo began in 1995 as a directory of links to other sites. And even as Yahoo developed more of its own editorial content over the years, it has partnered with third-party creators for much of the information available on its pages.

But Yahoo brass say they are now taking openness to the next level. For example, the test version of the new My Yahoo lets users link to Google's (GOOG) e-mail service, Gmail. It also includes widgets—known in Yahoo-speak as "modules"—from partners such as Netflix (NFLX) and The New York Times (NYT) that let users choose to see movies and read stories from their customized homepages.

Trojan Widgets?

In the future, Yahoo plans to release source codes (known as APIs, or application programming interface codes) enabling a wide array of third parties to develop modules to personalize Yahoo users' surfing experience. For example, a user could choose to see a specific set of sports scores on a section of the Yahoo sports homepage. "We are trying to make Yahoo into more of an open platform that lots of people can plug into," says Scott Moore, head of news and information for Yahoo's Media Group.

Of course, how much Yahoo actually embraces the open-platform model remains, well, an open question. The company wouldn't provide a timeline for releasing new APIs or details about which Yahoo properties could soon become playgrounds for developers. Tapan Bhat, Yahoo's vice-president of Front Doors, the division of Yahoo that oversees the homepage and start pages, would only say that more modules were coming and that Yahoo users will be able to share them.

Yahoo's unwillingness to set a timeline could be because it wants Yang to spread the news after a 100-day review, which will end in October.

Or, Yahoo could simply be uncertain of how committed it really is to openness. While it may be hip to be open, Yahoo has to be more careful than the typical young social network about letting in third-party developers. Done poorly, a torrent of advertisement-laden widgets could diminish the experience for Yahoo users. They could also anger Yahoo's own advertisers, who could view the applications as competing for attention with their own ads. Yahoo must also be leery of letting in widgets laden with glitches.

Facebook has learned all too well the benefits and pitfalls of opening up. In part thanks to its decision to let in outside developers, the site's user base has swelled, to more than 30 million in August from less than 8 million a year earlier. More than 65 million "applications," as widgets are known on Facebook, were installed just a month after the company announced its new openness. At the same time, however, Facebook has had to deal with outsider applications that spammed user contact lists with notifications or showed visitors user sites' advertisements instead of the applications the page owners saw.

Encouraging Participation

Still, Yahoo, like Facebook, is likely to see more positives than negatives from an influx of tools and other content that keep people on Yahoo's site longer. "Part of the reason people come to Yahoo is people expect a certain amount of editorial professionalism—so I think there is some downside and reason for them to be careful," says David Weiden, a partner at Khosla Ventures, who has invested in widget companies such as music discovery service iLike. "But overall I think the upside way outweighs the downside."

Yahoo has already caught a glimpse of that upside. In July, the company teamed up with widget maker RockYou to create a Yahoo music widget for Facebook after first creating its own version. Yahoo's solo version garnered about 8,000 users, says RockYou Co-Founder and CEO Lance Tokuda. The RockYou version was adopted by more than a million users in the first month. "What we are seeing is that everyone is opening up their APIs," says Tokuda, "That is the direction that the majority of social networks are heading."

Other Web giants also say they plan to open up, albeit perhaps not as broadly as Facebook. In June, Google began offering widget makers several-thousand-dollar grants, or up to $100,000 seed investments. The company reiterated the importance of outside applications during a conference the following month, when an executive said it is as focused on widgets as it is on search. Microsoft has enabled developers to build widgets for its personalized homepage for years. Time Warner (TWX)'s AOL has released the API codes for its instant-messenger service to encourage the creation of communication widgets.

Whether Yahoo will open up broadly, like Facebook, or give access to only a few properties such as My Yahoo, is still anybody's guess. Yet, it's clear that openness is on Yang's agenda. Yahoo Media Group's Moore even hinted that long-awaited comments from Yang due in the coming weeks on the company's future direction would touch on the topic: "It will have elements of being open."

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