Digging Deeper into Yahoo's Buzz

Sure, Yahoo's new service is already driving almost as much traffic to outside Web articles as Digg does. But how does that help Yahoo?

News-aggregation site Digg may be losing a little buzz—to Buzz. Web-based publications have for years placed "Digg It" buttons under or beside articles in hopes that Digg users would help spread the word about their articles and drive traffic to their sites. But some Web publishers say Yahoo's Buzz, a Digg-like service introduced in recent weeks, threatens to out-Digg Digg.

In three weeks, Yahoo (YHOO) is driving only 10% less traffic to publishers' sites than three-year-old Digg.com, according to a Mar. 17 study by research firm Hitwise. The site drove more than 1 million visitors to Salon.com in one day and funneled more than 800,000 unique visitors to political blog the Huffington Post, according to stats from Yahoo. "It's clear that a link from Yahoo.com blows away anything Digg or any other competitor can offer," wrote TechCrunch founder Michael Arrington after seeing the effects of Buzz on his widely read technology blog.

News of the effectiveness of Yahoo Buzz in driving traffic to media sites is great news for publishers. But it brings into focus a big question for Yahoo: Can Yahoo make money from its Buzz effect?

Still in Beta

Although Yahoo Buzz may outstrip Digg's ability to generate traffic for publishers, Digg has something Yahoo Buzz doesn't yet appear to have: a clear business model. Digg's 26 million monthly visitors see ads when they visit Digg's site. There are no ads yet on Yahoo's Buzz site. Yahoo plans to roll out a new advertising package as well as special promotional offerings for publishers that have a relationship with Yahoo, said Tapan Bhat, Yahoo's vice-president for Front Doors, in a conversation before Yahoo Buzz's February launch (BusinessWeek.com, 2/26/08). He declined to provide additional details, saying the site is still in testing.

Yahoo Buzz is an example of the company's recent attempts to come up with new ways of making Yahoo more important to users and partners, as well as to generate more revenue. The company needs such initiatives if it is to prove to shareholders why it deserves to shun a more than $40 billion takeover bid by Microsoft (MSFT)—though according to news reports, representatives of the two companies have held discussions in recent days.

Part of what has made Yahoo Buzz successful in diverting traffic could hurt it in the advertising arena. Yahoo Buzz users are more apt to visit the sources of articles than Digg's audience, according to Hitwise. That's good news for the publishers who want readers on their sites, but it's not clear how it helps Yahoo to have users moving away to sites where it's harder for Yahoo to generate sales from ad placement. Digg still has a larger audience than Yahoo Buzz, even though the Yahoo tool is diverting more traffic back to other sites. "Digg.com received a 75% larger share of U.S. Internet visits" than Yahoo Buzz in the second week of March, wrote Hitwise senior analyst Heather Hopkins. "Despite being a much larger site, Digg sends only slightly more traffic to news and media Web sites."

Been There, Done That

The upshot for Yahoo? Sure, it gets the benefit of its name brand on major publishers' sites through its Buzz It buttons. It also plans to roll out applications known as widgets that publishers can place on their sites that would drive more traffic to Yahoo Buzz. It also could make better use of the information on users' reading preferences to make the front page more relevant to them, getting them to spend more time on Yahoo. But it's not as if Yahoo is exactly hurting for notoriety or traffic. With more than 138 million monthly visitors, it's already the No. 1 site on the Web—with arguably the most recognizable name brand.

What Yahoo needs is a way to make more money from its millions of users. In the future it could perhaps work out a compensation model that lets it either get a portion of the ad revenues from publishers' sites or serve ads on publishers' sites in exchange for highlighting them more prominently on its own network. If publishers end up paying in some way for Yahoo Buzz's firehose of traffic—say, by needing to place ads on behalf of Yahoo or one of its partners—they may become less excited about the service. Moreover, users may trust the information less if they view the prominence of an article as influenced by an advertising relationship and not simply from community support.

Digg CEO Jay Adelson says the company isn't concerned that Yahoo Buzz will eat into its advertising revenues or traffic. Since Yahoo Buzz launched, Adelson says, Digg's growth figures have remained on track. "[Buzz is] serving a different purpose," Adelson says. "Yahoo seems to be concerned about putting things on the Yahoo front page, and Digg is about collaborative filtering and all the challenges of building an engaged community that surrounds that." He adds that "there comes a point where publishers get frustrated with too many buttons [beside their articles], but I don't think Digg is in any danger of falling off the short list."

Despite all the talk of Yahoo's recent struggles, the company is in no danger of falling off the traffic short list, either. Yahoo has consistently held the No. 1 spot in terms of audience size, and it's no surprise that any link on its front page—or anywhere on its site—would greatly increase traffic for publishers. It has always been clear what Yahoo can do for publishers. The question is, what can publishers, and Buzz, do for Yahoo?

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