Yelp, Yahoo, and the importance of Paranoia

I love Yelp. So do a lot of people. It’s the quickest way I know of to find a good local business.

But I also find it kind of amazing that Yelp exists in the first place. After all, Yahoo Local has been around forever. They had a huge lead in this local directories business. They have hundreds of millions of users to write reviews. They should own the local search category just like Google owns web search.

Put it this way, if you were a VC in the early part of this decade, would you have funded Yelp? I wouldn’t have — which goes to show why I stick to enterprise markets that I can grasp.

So, what happened? How did Yelp thrive in the shadow of a web powerhouse?

I don’t work at either Yelp or Yahoo, nor do I follow the local search market, so I can’t know for sure.

What I do know, is that as a user of the two services, Yelp’s functionality just works better. It’s the combination of many little things. Number and quality of ratings is one key factor, but there are many others. Enumerating those is beyond the scope of this post.

That said, I think a key "root cause" of Yahoo’s slip-up is that they weren’t paranoid about losing the lead in local search. They updated their service, but not quickly enough to keep pace with Yelp. In my mind, this is a classic case of losing the "paranoia" that Andy Grove wrote about years ago. A great quote from "Only the Paranoid Survive" describes this dynamic:

"Success breeds complacency. Complacency breeds failure. Only the paranoid survive."

What other successful giants are there that have grown complacent and are vulnerable to younger, hungrier competitors?

What early adopters really do at their computers

TechCrunch has a great post on how early adopters spend their time on their computers. What’s fascinating about this is the time usage stats are based on actual behavioral data, so it’s very accurate, relatively speaking.

No doubt people are drawing all kinds of conclusions from this. I thought I’d share mine, which revolve around how this data affects market share, revenue, and valuations:

• Gmail is used 3x more than Google.com. Not surprising when one considers their own workday activities. But, assuming clickthroughs are more or less equal for both (valid assumption?) — that means Gmail generates the bulk of Google’s Adwords revenue. Pretty amazing considering that Gmail originally came out of a developers "20% time" project. This supports the notion that sometimes the best projects come out of skunkworks.
• Facebook is accessed 50% more than Google.com. Maybe that $15 Bn valuation is justified after all!
• Outlook is, unsurprisingly, the most used app. Now, think about Xobni. If you got it installed, whenever you use Outlook, you’re using Xobni. That means Xobni could soon become one of the most widely used apps around. That presents some interesting monetization opportunities when you have that many user attention minutes. It will be interesting to see what the future holds for those guys.
• It’s surprising that Yahoo Messenger has such low usage. Last time I’d looked, a few years ago, Yahoo had many instant messenging users. One more thing for Jerry Yang to worry about. I’m also surprised that Meebo is at the bottom of the list.
• OpenOffice and Google Apps have very low usage. For instance, Google Docs has 3% the usage of Word. If even the early adopters aren’t using them, I guess it will be some time before they start to challenge Microsoft in terms of market share. And it will be some time before Microsoft profitability, largely driven by the Office suite, starts to suffer and drag down Microsoft’s valuation.

A note on accuracy: I’m sure some will quibble about the accuracy of the numbers given that
the sample was self-selected, But market research is an inexact science.
Not to go all Rumsfeld, but you need to use the data you have, not the
data you wish you had. This, as far as I know, is the best data we have on what people actually do on their computers. (If you know of a better data source, please let me know.)