BY BRIAN DEAGON
INVESTOR’S BUSINESS DAILY
Posted 1/25/2007
One company is having problems, and it’s identified the main one. Its rival seems to be problem-free, but lately has acknowledged having one.
The troubled company is Yahoo. () The other is Google. ()
But the problem is the same for both: product sprawl. And their fortunes might well be tied to how well each handles the matter.
“These companies are good at throwing out Version 1.0, but they aren’t disciplined about having a product road map,” said Bill Whyman, an analyst at International Strategy & Investment. “It’s easy to throw lots of stuff up on the Web, throw it out there and see what works. But the risk is that you can get very unfocused.”
Both Internet companies acknowledge they’ve strayed too far from their core strengths and need to refocus. The rise of broadband has greatly amplified the way people use the Web. That’s fueled an explosion in new applications and paved the way for companies such as social networking leader MySpace and video sharing leader YouTube.
Even the largest Internet companies have struggled in fields such as video sharing, social networking, classified ads and auctions.
The companies in these Web sectors tend to function like shopping malls, says LeeAnn Prescott, an analyst at research firm Hitwise.
“You have the big department stores at each end of the mall and a lot of little shops in between,” she said.
‘I Hate Peanut Butter’
The impact of product sprawl on Yahoo dramatically surfaced in an internal memo by Senior Vice President Brad Garlinghouse, leaked to the Wall Street Journal in November. In what has since been immortalized by tech watchers as “the peanut butter manifesto,” Garlinghouse wrote: “We lacked a focused, cohesive vision for our company. We want to do everything and be everything to everyone.”
The result, he wrote, was “a thin layer of investment spread across everything we do and thus we focus on nothing in particular.”
Like peanut butter on toast, wrote Garlinghouse, Yahoo was spreading itself too thin. He added, “I hate peanut butter.”
Last month, Yahoo Chief Executive Terry Semel seemed to agree. In announcing a reorganization, he said Yahoo would become “more customer-centric, not more product-centric.”
At Google, meanwhile, as far back as October co-founder Sergey Brin was quoted in the New York Times as saying the fast-rising array of Google products was confusing users. “One of the things that is going to have to happen is simplicity,” Brin said.
Later that month, in a quarterly earnings conference call with analysts, Google CEO Eric Schmidt spoke of “the blizzard of new product launches, unprecedented for our scale and confusing to almost everyone.”
When an analyst asked about that confusion, Brin replied: “What we are concerned about is that if we continue to develop so many new individual products that are all their assorted silos, you will have to essentially search for our products before you can ever use them.”
Google’s main search page remains the epitome of simplicity. But behind its main page, Google now offers more than 80 products that can be downloaded, including software tools and stand-alone services.
Along the way Google has had some big flops. For example, it has struggled to succeed with its online shopping site, Froogle, and with its social networking site, Orkut.
Both have very small market shares in those fields, according to Hitwise. The same is true with Yahoo Auctions in its field. This is so despite much effort.
Playing Catch-Up
“The farther behind you get over time, the harder it is to catch up,” said Eric Janszen, who chronicled the rise and fall of the dot-coms during the Internet bubble on his Web site iTulip.com. “It’s like being the most out-of-shape guy in the race. You don’t get better if you’ve been racing for three hours. It gets worse.”
Google and Yahoo, as well as their biggest rivals, Time Warner’s () AOL and Microsoft’s () MSN, all tried to make it big in video sharing. But video sharing didn’t become a phenomenon until YouTube hit the market in 2005.
That company, which Google bought in November for stock then valued at $1.65 billion, was Time magazine’s Invention of the Year in 2006.
“It’s a lottery, and YouTube won. End of story,” Janszen said. “There is no other winning ticket.”
YouTube did so well that Google will continue to run it and its own Google video site as separate units.
“YouTube will continue to operate independently to preserve its successful brand and passionate community,” said Gabriel Stricker, a Google spokeswoman. “We’ll be exploring various ways to associate YouTube and Google Video in the future.”
The product sprawl challenges being thrown at the Internet giants are getting even more intense. Last year through Sept. 30, venture investments in Web 2.0 startups had more than doubled from the year-earlier period to $455 million, says Dow Jones VentureOne.
“We believe plenty of opportunity remains,” said Spencer Neumann, a principal at Summit Partners, a venture capital investment firm. “This is a marathon, not a sprint.”
