Yahoo! and Open Sourcing Innovation

Tim O’Reilly writes an interesting post about the latest Yahoo story in the NYTimes, about Yahoo as an increasingly big player in new media, taking on a similar role of a network, but grounding their strategy on the web, of course.

Yahoo is definitely different than the rest of the big Web 2.0 Companies. They’re a content creator, in addition to a service builder. Amazon distributes goods, Ebay holds auctions, Google helps us find stuff…these three companies don’t rely on content production in the same way that Yahoo does. Yahoo makes stuff, they don’t just allow people to distribute it better.

O’Reilly writes:

I was particularly heartened to see that Yahoo! is not abandoning user created content, just working to supplement it. However, the characterization of user-generated content as “community” has a 1990’s ring to it, and misses the insight that value added by users is the secret sauce of all successful Web 2.0 applications. Yahoo! also needs to understand that personalization doesn’t just mean narrowing down the broadcast stream so that it matches the user’s interests, but creating radically new mechanisms for harnessing the collective intelligence of users to provide better results.

Tim makes a great point, I think. In addition to personalization, Web 2.0 is about innovation. In addition to knowing a lot about people and giving them what they ask for or show us they want (personalization), Web 2.0 is about giving them tools to create new things…things they can’t tell us they want (innovation).

The new iPod Nano is an example of this type of innovation. Apple took what was the world’s number 1 selling MP3 player and discontinued it in favor of something that they though people would like more. For the vast majority of companies, this would be ludicrous. They would have instead turned to milking the Purple Cow for all it was worth. That said, hardware innovation is much more difficult to open source than software or services innovation. Most folks couldn’t design or build a working MP3 player, there are many more people who can build cool software that extends the basic platform offered by a company like Yahoo or Amazon.

Jeff Bezos pointed to this phenomenon back in 2003, referring to the great innovation they were seeing with their web services: “It’s like an ecosystem. People are doing things that surprise us”.

Surprise. That’s the essential part of Web 2.0 that Tim is suggesting for Yahoo. They’ve mostly been about providing services that are useful to folks, like Mail, Movies, Search, and myriad of others, but they have only recently started to open it up to outside innovation. See the Yahoo Developer Network for more.

Opening up is essential, though. Being able to predict exactly how people will use a service is not a sign of strength, but a sign of weakness.