In one swoop, Facebook has become the king of identity on the web. The company today signed an agreement that would integrate Facebook Connect across Yahoo!. In early 2010, people using both Yahoo! and Facebook will be able to share updates across both networks.

Here are some relevant bits from a Yahoo press release:

With roughly 300M monthly users, Yahoo Mail is equivalent in size to Facebook. Long before the rise of Facebook did Yahoo have the makings of the world’s largest social network – one based on email addresses. Unable to capitalize on this vast network to deliver a better advertising platform, they have signed an agreement to outsource this lucrative opportunity to Facebook.

Ceding identity to Facebook accelerates Yahoo’s demise. Yahoo’s perennial core competency is selling branding advertising to a massive, unique audience viewing high quality content. By correlating a Yahoo ID to a Facebook ID, Yahoo more than cedes identity: they cede exclusive knowledge and access to hundreds of millions of users, billions of impressions and tens of billions of dollars in revenue to Facebook.

Facebook will know all that Yahoo knows about their users. Facebook will have a larger audience, a better ad targeting platform and eventually more advertising market share than Yahoo.

In short, this move is disastrous for Yahoo and a coup for Facebook.

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