Yahoo Calls On Outside Devs to Knock Down a Few Walls

Search engine giant Yahoo (Nasdaq: YHOO) is moving ahead with plans to open up its home page and e-mail services to third-party content.

The move comes at a difficult time for the beleaguered company -- earlier this year, Yahoo spurned an acquisition attempt by Internet rival Microsoft (Nasdaq: MSFT), triggering vitriolic infighting among its shareholders over the future of the company.

Yahoo is the second major Internet company this week to announce plans to open up its sites to content from other Web-based services, such as social networking site Facebook and Google (Nasdaq: GOOG). Time Warner's AOL announced similar moves on Thursday.

Long Time Coming

The company is adding new features to Yahoo.com that will allow users to search for content from other sites. For example, Yahoo Music users will be able to look for music downloads from Amazon.com (Nasdaq: AMZN). Also, Yahoo users will be able to add links to their Yahoo home pages to services such as Netflix (Nasdaq: NFLX), a site that allows consumers to rent DVDs and have them sent to their homes.

"This is a good move two years too late," Colin Gillis, an equity analyst with Canaccord Adams, told the E-Commerce Times. "Yahoo is a great asset that needs to be refreshed. You could call it a Web 1.0 leader that fell behind newer companies like Facebook."

Gillis credits Yahoo CTO Ari Balogh with pushing Yahoo in its new direction. Balogh started at Yahoo on Jan. 29.

"The story here is that there's a new CTO at Yahoo, and he's been hell-bent on opening up the platform," Gillis said. "Yahoo's been stuck as a declining asset with their current strategies while its user base fragments out to other sites like Facebook. It can continue that trend, or it can throw itself out to the world."

Calling On Outside Developers

On Friday, Yahoo hosted a "hack day," inviting Internet application developers to build new services that work off of the Yahoo platform.

The strategy is one that has made sites like Facebook and MySpace extremely popular, Gillis pointed out.

"Each Internet property has to make the decision," he said. "Facebook was the one that made everyone take notice."

The success of Facebook was largely due to third-party developers building services and games for the site. For example, one of the more popular Facebook features allows friends to send one another virtual cocktails. Facebook also offers trivia games and fantasy sports applications, and lets users form affinity groups and fan groups for specific pro and college teams.

"Those games engaged users and got them to get their friends to come onto Facebook," Gillis said. "Yahoo is letting the developer community innovate in ways Yahoo developers might never think to innovate."

Closing the Google Gap

The raison d'ętre behind all these moves is the desire to bring more traffic to Yahoo in the hope that a new influx of users will click on online advertisements, thus generating more revenue. Right now, Google is the undisputed leader in that sector.

"How is Yahoo going to catch up to Google? Build new algorithms? Come on," Gillis said. "They opened up their platform to a new search results technology called 'Build Your Own Search Service' (BOSS) this past summer."

Developers, startups and large Internet companies can use BOSS to build and launch Web-scale search products that utilize the entire Yahoo search index.

BOSS gives developers access to Yahoo's investments in crawling and indexing, as well as ranking and relevancy algorithms. By combining outside developers' ideas with its search technology assets, Yahoo hopes to bring users search results and features that make navigating the Web easier and more relevant.