Verizon buys Yahoo. Did you get what’s happening?

verizon yahoo aol google

The Acquisition

Yahoo Inc’s core internet properties will be acquired by Verizon Communications Inc for $4.83 billion in cash, was said on Monday. That will mark the end of the line for a storied Web pioneer and setting the stage for a big new internet push by the telecom giant.

Yahoo was once Silicon Valley’s dominant player. In the 2000s, when it peaked, it was valued at $100 billion. However, as the years passed, its market share as an internet advertising and search tool faded in comparison to Google, Facebook and others. In 2008 Microsoft offered Yahoo the sum of $45 billion for its acquisition, but the once-dominating search company declined. As it turned out, Yahoo got sold. This time for a much lower price – $5 billion, but more on that later.

The Plans

On Monday, 25th July 2016, Verizon announced its acquisition of Yahoo. The plans are that Yahoo will merge with AOL, which was also bought by Verizon last year for $4.4 billion. Verizon has been trying to find new ways of generating revenue outside of the oversaturated wireless market.

Currently Verizon has the biggest market share in wireless operations in the U.S., which means that they can receive data from the 200 million Yahoo users with the 150 million users of AOL, and target those markets more precisely, providing a better service to marketers.

yahoo aol google

A merger of this scale will make Yahoo-AOL the largest digital media company in the U.S., surpassing Google. This gives Verizon chance to compete with Google and Facebook. What is crucial to the two companies is Verizon’s own assets. Google and Facebook’s ability to target users is what gave them competitive advantage. Verizon now has the same opportunity, if not bigger.

The company’s ability to target users’ online behavior based on the data they collect could turn out to be even better than its rivals’, even people’s location. It owns the internet infrastructure that hundreds of millions of people rely on. It’s tracking abilities combined with Yahoo and AOL’s audience and ad technology combined is a potential powerhouse. This, of course, won’t come immediately. Profit-wise Google and Facebook will generate $24.63 billion and $10.3 billion, respectively, by the end of 2016 (eMarketer).

Interestingly enough, the merger of AOL and Yahoo will finally happen. Some may recall that about two years ago there were discussions about merging the two companies. It didn’t happen back then, but we might see it now.

This also means that there will be investments in popular content sites, such as The Huffington Post owned by AOL and Yahoo Finance. Becoming a part of a much larger entity will, of course, drive more traffic for those networks.

Verizon is buying Yahoo’s

core business, which means

they won’t be getting Yahoo’s

stakes in Alibaba and Japan.

 

However, there is one interesting thing that is happening. Verizon is buying Yahoo’s core business, which means they won’t be getting Yahoo’s stakes in Alibaba and Yahoo Japan. Together they accounted for the majority of its value. Yahoo plans on a separate holding company spinoff, where they will be unaffected by the company’s overstretched declining business. The stakes they own are worth about $40 billion based on their market capitalization. Yahoo is said to continue as an independent company until the deal is approved by shareholders and by regulatory services. The expectation is that it will close in early 2017, followed by a name change and IPO. Yahoo plans on using the $7.7 billion cash in addition to the $4.8 billion it will receive to pay back shareholders.

 

The Problem (with Yahoo)

Yahoo’s business seems stretched and lacking focus, and the reason for that is due to the fact that it owns properties like Tumblr, Flick and a whole lot of services whose names start with “Yahoo:”, such as Mail, Search, News, Finance, etc. These companies aren’t worthless, as many have large, loyal audiences and which receive real value provided to them. At a point in time collectively they would have amounted to an organized internet company.

That was unfortunately back when people used to “browse the web” starting from a single, default home page, such as Yahoo.com. That was when people often expected to find most of their favorite online services, combined with all types of content like weather forecasts, sports scores, journalism and entertainment.

 

With our reality however, this is incompatible. In our world, a homepage of the type makes less sense. There are highly differentiated sites and services like Google search, Amazon and Facebook’s News Feed. It has virtually no use in a world where people spend most of their online time on the small screens and discrete apps of the mobile devices in our pockets.

Unfortunately, Yahoo has become a very different company. Not because they changed, but because they stayed the same while the world around them evolved. In the pursuit of market share Yahoo acquired Flick and Tumblr, meant to help it keep up with the times. But instead of pulling it forward, it seems like the services are deteriorating under the company’s ownership.

The bottom line

Multiple CEOs, most recently of which Marissa Mayer, tried under enormous shareholder pressure to swiftly turn the company around by focusing on one aspect or another, before getting dumped. But as we saw, it drifted from one objective to another, without ever having vision for the long term. This inability to choose is what caused Yahoo to fade away. It has now expired.

It is now up to Verizon to choose which parts of Yahoo to keep.

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