Update: Yahoo buys social bookmarking firm Del.icio.us

Del.icio.us team will work "in close proximity" with Flickr, Yahoo's photo-sharing service

Yahoo Inc. has acquired Del.icio.us, a New York-based startup that is considered a pioneer in social bookmarking, a type of online service that lets users save, annotate and tag their favorite Web pages and share their lists with other users.

Both Yahoo and Del.icio.us separately announced the deal on Friday afternoon (U.S. eastern time) via postings on official blogs. Financial terms were not disclosed.

"Together we'll continue to improve how people discover, remember and share on the Internet, with a big emphasis on the power of community," Del.icio.us founder and Chief Executive Officer Joshua Schachter wrote in his company's official blog.

In the official blog from the search engine unit at Yahoo, Jeremy Zawodny wrote that the Del.icio.us team will be working "in close proximity" to Flickr, a photo-sharing service that Yahoo bought in March of this year.

"Just like we've done with Flickr, we plan to give del.icio.us the resources, support, and room it needs to continue growing the service and community," Zawodny wrote.

Flickr works in a very similar way to Del.icio.us by letting users not only create online photo albums but also tag and share their pictures with other users.

Zawodny also alluded to a likely collaboration of Schachter's group with the Yahoo team developing My Web, a service that is in beta, or test mode, and which is conceptually identical to Del.icio.us.

Flickr and Del.icio.us are considered good examples of what some call the Web 2.0 era of Internet services. Web 2.0 is a much-debated term used to describe Internet companies born after the dot-com bust of 2000 and 2001.

Web 2.0 companies are said to share some key principles, such as their emphasis on making end users a central part of their services and giving them the ability to contribute and participate in the creation, sharing and management of content. These companies also tend to be big believers in open platforms that allow and foster development of Web services that build on top of existing applications and Web sites run by third parties.

In an interview Friday, Schachter said he's convinced that Del.icio.us will thrive as a result of the acquisition because Yahoo truly comprehends the concept of social bookmarking.

"It just made sense in terms of vision, direction, technology, you name it. It's a good fit in every dimension," Schachter said.

Del.icio.us currently has nine employees. Some work in the company's main office in New York and others elsewhere. Schachter said he will move to California, but that the New York staffers will remain there.

"We'll continue to grow and build the product I always wanted to build, just faster," Schachter said.

For now, Del.icio.us users will not see any immediate changes to the service. It will remain at its current Web site (http://del.icio.us) and will continue to operate in its usual manner, Schachter said.

He will continue at Del.icio.us' helm, although his new title within Yahoo hasn't yet been determined. It's also not clear exactly how the Del.icio.us team will collaborate with the Flickr and My Web groups, he said. At the moment, there are no concrete plans to monetize Del.icio.us, which is free to use and carries no ads.

Asked what he thinks is the key to making sure the acquisition is a success and Del.icio.us meshes properly with the Yahoo culture, Schachter said: "That's a good question. I don't know. We'll do what it takes to make it work."

The acquisition makes sense for Yahoo, as it tries to round out its "ecosystem" of Web 2.0 online services, of which tagging and social bookmarking are an important part, said Allen Weiner, a Gartner Inc. analyst.

For startups in the Web 2.0 space, what awaits them is to either get bought by a larger player or to fall by the wayside, because the space is getting too crowded and too splintered, Weiner said.

There is a very good probability that the acquisition will be successful and yield the desired results both for Yahoo and for Del.icio.us, Weiner said. Much of Yahoo's growth has been though acquisitions, and the company has a good track record of letting the smaller companies it buys maintain their individuality, he said.

"Yahoo has done a spectacularly good job of buying these small companies and letting them retain the entrepreneurial drive that got them where they are, while also taking the intellectual property developed and using effectively across Yahoo properties," Weiner said.

Del.icio.us first saw the light in September 2003. Schachter wrote most of the code himself. He ran the site on his spare time until earlier this year, seeing its user base balloon to over 200,000 registered users along the way.

In April, Schachter announced that he had accepted outside investment, making it possible for him to quit his job and devote himself completely to this project, as well as hire developers to further improve and develop the service.

Del.icio.us investors at the time were led by Union Square Ventures and included Amazon.com Inc., as well as industry luminaries such as Netscape co-founder Marc Andreessen, investor and Internet pundit Esther Dyson, and Tim O'Reilly, chief executive and founder of the O'Reilly Media Inc. computer book publishing house.

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