Verizon Buys the “Door to the Internet”

yv1Okay, it’s that old entrance that no one really uses anymore, but still, it’s news. I guess that’s not fair, apparently a billion people still go through that door every month including 600M on a mobile device. There was a time when…no, you don’t need another nostalgic post on Yahoo, it’s been done, and done, and done. It led, it followed, it desperately tried to catch up and it foundered…enter Verizon. There’s a good business lesson here, but not a new story. I could quote everything from the the ice factory to Kodak as examples of what happens when a company doesn’t understand a disruption when it happens and evolve. There will likely be a lot of new “has been” stories over the next few years as companies continue to ignore, struggle with or misunderstand the current shift from industrial to information driven business, but that’s another post for another time.

You went to bed with the rumor or woke up to the announcement that Verizon is buying Yahoo (well, most of Yahoo anyway, the so called “core” business) for $4.83 billion. Left behind will be, for now anyway, a nameless investment company with shares in Alibaba and Yahoo Japan, all Yahoo’s cash and convertible notes, some minority investments and the Excalibur patent portfolio which includes all non-core patents, about 2600 in total. The Excalibur portfolio is also for sale, with an estimated value somewhere over $1 billion. The Yahoo brand goes with the sale to Verizon, whether it will continue going forward is anyone’s guess, but there is precedent for keeping the acquired brand active as Verizon has done with AOL, acquired last year. The deal will likely close in Q1 2017.

If you’re scratching your head a bit on this match, there are a couple of reasons why this makes sense for Verizon beyond the purple logo and “!”. The addition of Yahoo is intended to bolster Verizon’s content creation and curation efforts and extend Verizon’s ad network (and of course there is the nostalgic component of bringing AOL and Yahoo together in one portfolio, sort of a trip back to the 1990’s. The funny aside of course is that AOL had tried and failed over 2 years ago to put the 2 companies together, prior to the Verizon AOL acquisition.). At the time of the AOL deal Verizon stated that it’s intent was to create a “cross-screen” experience for consumers, content creators and advertisers. That seems to be a pretty good summary of this deal as well.

Verizon, which has struggled on the content side as it’s cable / ISP business felt the pressure from content publishers like Netflix and Hulu, on mobile/digital advertising as it owned the infrastructure (the so called “dumb pipe”) but not the ad network with Google, Facebook and a host of emerging players from Pinterest to Instagram, has been on an acquisition spree for the past few years. It added several online video streaming properties lately in addition to AOL. While struggling along for the past 10+ years, Yahoo does bring an ad network with scale, and scale is essential for successfully competing with the momentum of Google and Facebook. For digital advertising revenues Yahoo was 5th worldwide in 2015 behind Google, Facebook, Baidu, and Alibaba; and 7th so far in 2016 with Tencent and Microsoft slipping ahead. Added to Verizon’s existing ad share the acquisition essentially doubles digital advertising share and in the US makes Verizon a (distant) third behind leader Google and at about half of Google’s share, Facebook.

Verizon gets more than the ad network of course, Yahoo still has search, mail (don’t laugh, a lot of people don’t know it’s not cool to have Yahoo or AOL mail addresses), and content including Yahoo News, Finance and Sports, and of course acquisitions like Tumblr and Flickr. The Yahoo content properties are added to The Huffington Post, AOL.com, MAKERS, Endgadget and TechCrunch, giving Verizon a fairly wide set of content channels.

In her letter to Yahoos, CEO Marissa Mayer said she would stay on through the transition, but there is no mention of her joining Verizon. There is some speculation that she would take the reins of the yet unnamed investment company that remains, but that’s definitely a unknown. Mayer, who joined Yahoo from Google on 2012 to turn the business around, will leave Yahoo with a (according to an SEC filing) severance package of ~$55M.

Like all acquisition announcements there is still a lot of unknowns, but those holes will get filled in over the next 2 quarters as the deal progresses through its approvals by Yahoo shareholders and a host of regulatory reviews.

 

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