Why Yahoo! Will Go For The Hat Trick & Acquire Digg In The Process!

Roney Smith: Why Yahoo! Will Go For The Hat Trick & Acquire Digg In The Process!: “Yahoo’s social networking activity is not so much about Yahoo! acquiring companies than it is Yahoo! becoming the platform for the merger of companies that serve both early adopters and social butterflies who extremely value social capital.” Thus Roney Smith of Mableton Georgia makes the call. Digg is next for Yahoo!

Roney makes a good point about the value of the users from the Digg, Flickr, Delicious social networks — but the real underlying value for Yahoo! in purchasing the various social networking companies is for them to get back into the search game. Google and their non human algorithm have significantly trounced Yahoo! at the core service that was at one time the central technology of Yahoo’s business, search. And up for grabs in the search game going forward are still billions and billions of dollars.

While Yahoo! has evolved and developed sticky portal like services (Yahoo! Finance, Yahoo! Shopping, Yahoo! Calendar, Yahoo! Chat, and soon Yahoo! VOIP, etc.) as well as built various new media properties to make up for what they have lost in search, deep down they want search back.

Human tagging, editing, ranking, commenting and rating, has enormous implications for search. Already, even though still not employed in Yahoo!’s image search technology, Flickr’s user based interestingness algorithm seriously trumps any other image search technology out there today for finding quality images of a specific subject. I suspect that using Digg’s user generated ranking structure for news can also produce seriously impressive search and ranking results.

Digg, Flickr and Delicious are still in their infancy. Their biggest limitations are their lack of breadth and still relatively small user bases. Where they do have subject and indexible search material, however, they will be extremely valuable. Kevin Rose said on DL.TV last night that he wants to expand Digg beyond just tech news, and for good reason. Perhaps the most valuable asset of all for Digg is the huge database of ranked archived stories that they are developing. Integrate these rankings into search and you have gold. Yahoo! understands this. Wanna see something cool? Just wait until you get the ability to search Digg and rank by digginterestingness.

In as much as Yahoo! needs the byproduct of the various social networks for search rank, Digg needs Yahoo! for expansion. Digg most recently received $2.8 million in venture money. They took this money, quite frankly, because they could not keep up with their growth. Their growth is fantastic but they need more speed, more servers, more scale. Yahoo! represents the deep pockets for scale and will help Kevin and the rest of the Digg team realize their goal of expanding Digg beyond tech and into other areas like business and entertainment. This will make Digg an even better and more enjoyable place for us, their users, and it will provide an even larger database for Yahoo! to mine in trying to reclaim a relevant role in search.

Tweaking the Yahoo! search algorithm with social input from Delicious, Flickr, and next Digg makes enormous sense.

There are also of course other ancillary benefits to these social networks for Yahoo! Smith correctly identifies the value of better ad placement and optimization that also may be realized through these relationships, “through social networking, Yahoo! will be able to balance the chemical equation to regain (some, not all) lost ground in terms of search engine submissions but more importantly earn greater revenue from better placement of advertising opportunities within its social networking communities.”

Smith goes on to speculate that after Digg, TiVo will be next, “the fourth social networking championship that needs to be completed within the short term is Yahoo’s acquisition of TiVo.

After acquiring Digg, Yahoo! is better positioned to capitalize on the recent announcements made by TiVo for its new online services.

Yahoo! is now so deeply engrained into TiVo that I unequivocally know that Yahoo! must have a first-right-of-refusal provision within its venture with TiVo before TiVo can be acquired by anyone else.”

Of course TiVo presently has a poison pill strategy in place and their acquisition could be a tad tougher (TiVo’s management team, directors and shareholders strongly think the company is worth more than it’s present valuation based on its market price today). I do believe, however, that Yahoo! management might still be able to make a compelling pitch to TiVo on why joining forces would make sense.

Although some might dismiss Smith’s predictions as pie in the sky speculation stuff, I too think that Yahoo! is aggressively developing the social network dream team line-up — and especially given the relatively low prices that these properties can be bought for will continue to do so and use these tools to forge their way back into search.