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December 12, 2005

The Search for Delicious Bookmarking Revenue

The news on Friday about Yahoo acquiring del.icio.us is spreading throughout the Blogosphere. Of course, many congratulations go to Joshua, Union Sq. Ventures, Yahoo, and everyone involved. I am sure that many bloggers will have their own interpretations and analysis, so I won’t unload onto that pile of commentary.

Instead, I thought I would highlight the opportunity and challenge that this acquisition creates for the many “delicious permutations” out there. For a fairly exhaustive list of “bookmark managers,” this page summarizes them well. With the Yahoo Delicious acquisition, there is one less acquirer out there available to shop for a competitive service. This situation leaves the remainder of the field “validated” by the acquisition, but challenged to truly build a business model around their offering. With an early acquisition one degree less likely, it’s time for these players to start thinking about revenue generation. Unlike others who don’t see the value (if you don’t, then read this post) in the service or viable business models (Paul Kedrosky calls the product “largely unmonetizable”), I see both. Currently, I view four possible revenue streams for the category which I’d call “bookmarking services”:

Contextual Ads in a Social Search Engine. It wasn’t until Fred Wilson posted about “Delicious Search” in October did a little lightbulb go off in my head. Delicious and many of these other tagging services have the potential to either supplant, or more likely augment, algorithmic search. In the 90’s, Yahoo’s in-house editorial team originally decided what to include in its directory, until the limitations of scale hit. Algorithmic classification of sites succeeded this approach, but perhaps a decentralized editorial team of taggers could replace or supplement it? The contextual ads business model is well-demonstrated. The difficulty is, of course, gaining enough critical mass in any keyword, let alone large set of keywords, before the search results are meaningful or useful to any degree. But it makes sense to me to start with users tagging first and the social search second, as opposed to what others like Raw Sugar have done.

Selling “Tag-Stream Data.” A dirty little secret in the online marketing world is that many, many ISPs sell their click-stream data to data-mining companies like Compete. I am more than a little skeptical about companies who pitch the notion of “selling their data” as the main revenue stream. Yes, almost every web company generates buckets of “interesting” data – the difficulty is in harnessing the valuable sets, package it into a digestible format, and find customers willing to pay for it. That being said, perhaps a bookmarking company might be able to pull the above feat off.

Advertorial Tags. Bookmarking services with a social shopping spin, like Kaboodle and Wists, integrate a monetization component directly into the service through advertorial content (read my previous posts on the subject here, here, and here). A significant number of product links could be monetized through relationships with merchant advertisers who offer these items.

Other Contextual Advertising based on User Value. These services offer more than just social bookmark value, but also trend discovery and content organization. (Digg, Tailrank have geared their offering more to the former, while many others have shifted to the latter.) If users find these services valuable, but won’t pay for them outright, other marketing opportunities might fill that void. For example, knowing every users e-mail address and the fact that they’ve tagged many pages with the keyword “skiing” could give opt-in direct marketers with a rich list of users to target with advertisements, coupons, and other information. Once marketers know specific interests (and to a certain degree, their behavior), advertising can move beyond simple AdSense contextual ads on the side of a page.

The problem is that none of the services – including Delicious – are close to really capitalizing on any of the above models. At present, these are just concepts that would need full testing and experimentation to refine. I personally, was excited to see the Delicious acquisition announcement. My only disappointment, however, was that the Delicious team didn’t have a chance to fully experiment and discover a business model that worked and scale it. Granted that they’ve given the above (likely along with a few others) some serious thought – perhaps selling the company was a signal that the above ideas aren’t as fruitful as I conjecture? Regardless, I am looking forward to seeing similar offerings give it a shot to see if a profitable business can be built.

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