Today's announcement that Yahoo is integrating into Facebook Connect must have been accompanied with the sound of champagne bottles popping over at Facebook's headquarters.  It's a big victory for Facebook as it advances towards ownership of the identity layer of the internet.

To be honest, I am a bit puzzled at the early concession by Yahoo.  I am fuly convinced that by now Yahoo sees itself as a media company.  It's obvious with its concentration on content.  But, it also has an enormous amount of data on users and, through Yahoo Mail and Yahoo Groups, a nice chunk of the social graph.  And I would have expected Yahoo to try to extract some value out of that.

What's weird is that Mashable is calling this:

"…a no-brainer for Yahoo, who has been trying for years to make its services more social on its own. Now, they’ll start to see some of the benefits that smaller publishers have seen from Facebook Connect (more comments, extra traffic from Facebook, etc.) on a massive scale."

That is ridiculous.  Yahoo is not a small publisher.  It's one of the first and greatest destinations on the internet.  It's got as much traffic as Facebook and more members (500m vs Facebook's 350m).  Why is Yahoo doing this?  And isn't it ironic that the announcement is coming from Jim Stoneham, who's responsible for Yahoo communities?

Om agrees with me and sees Facebook as the big winner and Yahoo as the big loser here, and compares this move to Yahoo's deal with Google in terms of magnitude.  I think this is actually a bigger deal. In search, Yahoo lost to Google's technology.  It did not have much chance against Google.  Whereas in this case, Yahoo's still got a ton of data (groups data, mail-related social graph, hotjobs-driven professional information, flickr's social graph, etc.) to be a contender in the identity layer game.

I expect the next move from Google.  Facebook's got a lot of momentum and Google can not watch this passively. I'd predicted Twitter being bought in 2009.  It was not.  2010 maybe?