Yahoo! plus Verizon equals...no-one's entirely sure just yet

Profile picture for user slauchlan By Stuart Lauchlan July 31, 2016
Summary:
Verizon's stumped up the cash to put Yahoo! shareholders out of their misery; now it needs to take a closer look at what exactly it has bought itself.

While overshadowed week’s end by Oracle’s $9.3 billion takeover for NetSuite, there was another big deal last week when Yahoo!’s fire sale ended with a successful bid by Verizon.

While it can be assumed that the Oracle/NetSuite buy out has been strategically thought through by both parties, the ‘come and make us an offer’ auction process for Yahoo! means that a lot of the hard thinking around what comes next has yet to take place.

Yahoo! CEO Marissa Mayer, who was no fan of selling off the core asserts in the first place, admits that the focus to date has just been on finding a buyer:

Because of our auction process, we haven’t done some of the pre-planning that often happens before a close in a typical acquisition.

So what comes next? Do the two firms see the future in the same way? And if not, is this going to be messy? For her part, Mayer, who says she wants to stay on at Yahoo!, says there are very obvious synergies already:

If I look at our portfolio, there’s four types of advertisements that we have - search, banner ads, native, mobile  and video.

That’s actually five, but apparently:

Native and mobile kind of go hand in hand. So, I really count those as one.

Er, OK. So swerving around the arithmetic, the point Mayer’s making is that Verizon already has skin in the game in these categories through its AOL acquisition, meaning that Yahoo! is building on an existing foundation:

What we really see here at the very first blush is a lot of scale, unprecedented scale, a lot of reach, a great alternative to advertisers with some of the other leading platforms to really be able to buy at scale and have incredible audience reach. When we look at some of the programmatic offerings, which is a big push across the board in terms of how all these different advertisements are sold, search has almost always been available through APIs and for programmatic purchase. But with banners, native and video, there’s now programmatic methods emerging across the industry. They’re bringing a lot of demand for those sources.

AOL has a great platform for that; we have some terrific assets there as well. And when you look at how those two come together, it’s really servicing the advertiser needs and helping them really recognize the opportunities around our targeting, our data and the ease of buying. There’s a lot of synergies there. And so overall, I think the amplification will really come from the fact together it really puts us into a position for advertisers where we’re the ‘illustrious must buy’.

The area in which Mayer sees Verizon helping Yahoo! is aorund mobile engagement:

We think we have beautiful products on mobile from Yahoo! mail, Yahoo! finance, our overall Yahoo! app, weather, sports, fantasy. We’ve got approximately eight really cornerstone applications on mobile that we are incredibly proud of; they’re award winning. For us, it’s really about how do we get more distribution because the people who see those products really do love those products and use them with great frequency. For us, it’s a question of how do we get those products in front of more users.

What about the buyer?

OK, so that’s the Yahoo! view; what about the buyer’s perspective? Verizon CEO Lowell McAdam also admits that the post-auction phase will be characterized by some of the due dilgence work that would have been conducted prior to a different type of acquistion. A lot of that will down to Tim Armstrong, former CEO of AOL, and Marni Walden, Verizon President of New Businesses, who will:

go in and talk to [Yahoo!] management and see a much greater depth of information. And we'll validate our plans and make our decisions.

But McAdam’s keen to dampen down hype that the combined Verizon/Yahoo! will somehow be taking on Google and Facebook in the short term:

I just say, ‘Look, we plan on being a significant player here’. The market is going to grow dramatically. We're a small player today relative to them. All we need to do is take more than our fair share of the growth of the market and this will be a success for us. And we certainly expect to do better than that.

McAdam does point to Yahoo! sports, finance, email and news properties as being of particular interest in terms of building on AOL’s own assets:

We've got relationships with a lot of the big leagues. Certainly NFL and NBA are the headliners for us…Some of other big names, I'm not going to tip our hand here just yet. but the networks and their sports channels see an opportunity to partner with us. They may already have NBA rights or NFL rights. We can work on streaming their games, not only through the traditional channels of Fios, either Custom TV or the full bundles, but over AOL and Yahoo and then finally over go90. So we view this as a waterfall of content moving down through our different properties.

All this will be built around Verizon’s own three-tier strategy, which McAdam articulates as:

First, sustaining quality and performance leadership in all of our networks; second, building new ecosystems around our broadband, video, and Internet of Things global platforms; and finally, monetizing our investments in networks and platform through applications and content.

An area of shared interest with Mayer is a recognition of the importance of video as a an advertising and sales platform and the emergence of the digital video customer:

At the heart of this video revolution are the changing ways in which younger consumers access their digital and mobile content. Over the past several years we have dramatically expanded the ways in which we can deliver content wherever and however the digital customer wants it, including large and small bundles of linear content through Fios TV, new and better customer experiences for Fios using IP-based technology; over-the-top delivery of content; purchasing of AOL with its publishing and advertising technology and content; further enhancing AOL with the Millennial Media acquisition, introducing go90 and its vast library of digital content, not only for our Verizon customers, but other carriers' customers as well; developing a global video distribution platform for media companies to efficiently deliver high quality digital content; and finally, establishing a content joint venture with Hearst, through which we have invested in two leading digital brands for female and male millennials, namely AwesomenessTV and Complex Media.

To this mix, add Yahoo!, he goes on:

We see tremendous opportunity in the digital video marketplace, which has an estimated addressable market of $180 billion by 2020. Today, that marketplace is dominated by two brands. Content creators and advertisers are hungry for alternatives as the market expands for both in-home and mobile consumption. Verizon intends to be a significant player in this space.

By acquiring Yahoo's operating business, we are scaling up to be a major competitor in mobile media. Yahoo's operations provide a valuable portfolio of online properties and mobile applications which attract over 1 billion monthly active consumer views. It also brings market-leading content, brands, and sports, finance, news, and e-mail into the portfolio. It expands our analytics and ad tech capabilities and enhances our competitive position and value proposition to advertisers.

My take

That last point from McAdam about the Verizon’s purchase of Yahoo! extending its reach to an estimated one billion consumers each month is probably the most pertinent point made to date. What shakes down as a result of the coming discussions between Verizon and Yahoo! management will become clearer as the transcation nears completion. I still can’t believe that Mayer will have a role once the due diligence is completed. What else survives - or doesn’t - remains to be seen.