Verizon bosses “haven’t reached any final conclusions” on fate of the Yahoo! takeover

SUMMARY:

Marissa Mayer was missing in action earlier in the week, but Verizon bosses are happy to discuss the fate of the planned Yahoo! takeover – and it’s not good news for those who reckon it’s a done deal.

Decisions, decisions...
Decisions, decisions…

It’s going to be a long process…we haven’t reached any final conclusions.

Those words from Verizon Chief Financial Officer Fran Shammo provide some more detailed insight in what looks increasingly likely to be a protracted battle over whether its takeover of Yahoo! will proceed as planned or whether there’s going to be some demands for a new deal to be shaped in the wake of last month’s revelations about   a 2014 massive data breach at the target company.

Earlier this week Yahoo! CEO Marissa Mayer was conspicuously missing-in-action after the firm’s quarterly analyst call was cancelled. As we noted, this rather conveniently meant that a heap of difficult questions didn’t need to be addressed in public, although the official party line was the call was canned due to the planned Verizon takeover of the firm.

That didn’t stop Shammo talking with analysts yesterday however as Verizon announced its own quarterly figures – rather weak numbers with a headline-grabbing loss of 36,000 mobile customers – and inevitably the conversation turned to the status of the Yahoo! bid.

While Yahoo! insists that the data breach, which occurred before the Verizon bid, but only confirmed publicly afterwards, shouldn’t have a material impact on the takeover, it’s clear that Shammo isn’t quite so blase about that:

We are still evaluating what it means for this transaction. This was an extremely large breach that has received a lot of attention from a lot of different people. So we have to assume they will have a material impact on Yahoo!

What is also of note is how slow the process of getting information out of Yahoo! is proving to be, seemingly supporting scuttlebutt in Silicon Valley that management at Yahoo! has perhaps not been as co-operative up to now in terms of disclosure as it might have been.

Certainly Shammo hinted at some impatience on the part of the putative acquirer, informing analysts that his firm’s lawyers only had their first call on the subject with Yahoo! the day before!

This leads the conclusion that this is going to be a drawn-out process unless Yahoo! changes its ways, suggested Shammo:

Unless Yahoo! comes up with different process, it’s going to take some time to evaluate this. So until then we haven’t reached any final conclusions around this issue.

The security implications of the 2014 breach are evidently hugely important to Verizon, not least for the impact on its own brand in the online and comms space. Noting that regulators in the US are currently reviewing and revising data privacy obligations and standards, Shammo stated:

Obviously we take privacy and security of our customers extremely seriously. We live under the regulation of the SEC [Security and Exchange Commission], which has a very high standard for carriers around privacy. What we’re looking for is that the FTC [Federal Trade Commission] and the FCC [Federal Communication Commission] come out with a common rule that makes it competitive across the entire ecosystem and that the rules are more consistent and so that everyone can compete equally and there’s no winners and losers within the ecosystem.

Media moves

The intended acquisition of Yahoo! is part of Verizon’s push to move more heavily into online media and advertising, a strategy most apparent in its earlier purchase of AOL. Whatever happens with the Yahoo! deal, this is proceeding apace, said Shammo, noting that AOL’s third quarter net revenues were up 10% year-on-year. This increase was primarily driven by increased ad revenue from programmatic platforms, utilising AOL’s AdTech functionality to monetize digital impressions. Shammo said:

We are seeing strong demand from advertisers for AOL’s expanding programmatic capabilities and high quality data analytic tools. We expect that the pending acquisition of Yahoo! will further expand our scale in the digital media space. This would place us in a unique position to serve unmet customer needs, participate in digital publishing and video and to monetize the content.

Meanwhile on Verizon’s go90 video platform, the level of viewer engagement as measured by daily usage has topped more than 30 minutes per viewer. Interestingly that traffic is now coming 80% from non-Verizon networks. It’s testament to the ‘power of unique content’ mantra espoused by the likes of Netflix. Shammo pointed to some examples:

In July, we introduced an original streaming monthly reality series titled “The Runner.” Viewers can watch episodes aired three times daily via the go90 app, go90.com and AOL.com. The innovative game format with an emphasis on live user participation contributed to strong usage and engagement. During the quarter we expanded go90 participation in FreeBee Data 360, a sponsor data service which allows customers to screen live sports including NFL games and music without accounting against the Verizon data. We are seeing increased engagement in the application.

In September with our partner Hearst, we announced the formation of Complex Networks which brings together complex and digital video networks RatedRed.com and seriously.tv. In the United States Complex reaches more than half of the male 18 to 24 population and it is one of the largest properties for this population. The content produced in this partnership will be available on go90 which we expect will further increase user engagement and traffic growth.

All of this shift to the media and advertising worlds is essential, admitted Shammo, as Verizon’s ‘traditional’ markets are waning:

The wallet share of consumer for communications has been flat for relatively the last 15 to 20 years. So we have to think about a different way to monetize our network capability and that monetization will come through advertising.

And it’s real simple, I mean, the equation is, if you get more views, you get more advertisers, therefore you generate more revenue. We see that now with AOL…we’re starting to see that advertisers are coming to our platforms. So now we just have to integrate and execute on that model and we believe we have the right assets to do that.

We are headed in the right direction. The key learnings here have been, you need to have the right content that is appealing to the audience that you’re going after and you’ve seen us make moves.

My take

They are moves that need to be communicated carefully and coherently, of course. As Molly Gallaher Boddy, analyst with Technology Business Research, notes:

Verizon’s purchase of AOL, followed by the announcement it intends to buy Yahoo, suggests Verizon is most interested in increasing its digital advertising and website content presence. While content and video are cloud-delivered, these purchases will likely cause Verizon to further rationalize its portfolio, moving from cloud infrastructure to a future centered on digital advertising.

Boddy reckons that there is a chance Verizon will look for ways to more closely unite media and content-centric assets with its cloud business, citing cloud-based analytics as one option:

Should Verizon leverage any remaining storage capabilities and the new wealth of customer data gained from its recent purchases, the company may have more opportunity to eventually rival cloud analytics competitors such as Google and IBM.

Meanwhile it’s clear that Yahoo! had better buck up its ideas if it wants this acquisition to go through. If the firm’s management team really believes that it’s got such a super-great asset that Verizon will buy it regardless, it’s in for a rude awakening.

Yahoo! CEO Marissa Mayer was never thought to be up for the idea of a sale in the first place. She might get her own way yet. But to adapt a cliche – seller beware!

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