A Blog by Jonathan Low

 

Jul 25, 2016

Why Verizon Is Paying $4.8 Billion For Yahoo, A Business Many Thought 'Worthless'

One person's deficit is another one's profit. As former GE CEO Jack Welch liked to say, 'if you don't like your market share, redefine your market.'

Verizon is in the process of executing a sharp, fundamental pivot away from its highly regulated telecom business towards what it perceives to be the greater potential offered by the internet.

The US Federal Communications Commission has strongly supported net neutrality, eliminating what Verizon thought was its best chance of cranking up revenues via increased fees.

With its purchase of a dog's breakfast of tech cast-offs like AOL, Radio Shack and now Yahoo, Verizon is adding not just millions, but hundreds of millions of new customers whose economic impact on the company's future growth prospects is, quite literally, infinite. The concept seems sound. The challenge, as with any such strategic repositioning is not the plan, but the execution. JL 

Steve Mollman reports in Quartz:

Verizon faces market saturation and limited growth prospects in its traditional business. Its purchase of Yahoo, which follows its acquisition of AOL in May 2015, provides more evidence that it sees online content and advertising as a primary way to increase growth. Yahoo will bring in hundreds of millions more viewers to complement Verizon’s popular properties like TechCrunch and Huffington Post. comScore puts Yahoo at No. 3 among digital properties.
Verizon Communications is expected to announce it is buying Yahoo for about $4.8 billion before the start of trading in the US today (July 25)—a steep price to pay for a company that’s core internet business is considered “worthless” by Wall Street.
The deal makes sense for Verizon, though.
As one of the largest US carriers, Verizon faces market saturation and limited growth prospects in its traditional business. Its purchase of Yahoo, which follows its acquisition of AOL in May 2015, provides more evidence that it sees online content and advertising as a primary way to increase growth.
Under the deal Verizon will get Yahoo’s online assets including search, mail and instant messaging, along with its ad technology. Various real estate holdings will also be included.
In the online advertising business Verizon faces two dominant competitors: Google and Facebook. By meshing together various tools from AOL, Yahoo, and its own operations, Verizon might be able to mount a credible challenge to those two giants. Verizon already has AOL’s advertising technology—and Yahoo’s has been criticized—but Yahoo’s prowess in native advertising could prove useful, especially in the mobile space. Yahoo could also help Verizon improve in the search arena, where it lags.
Yahoo will bring in hundreds of millions more viewers from sites like News, Sports, and Finance to complement Verizon’s popular properties like TechCrunch and Huffington Post. In the US, comScore puts Yahoo at No. 3 among digital properties.
Of course, even with AOL and Yahoo assets, Verizon has a long way to go (paywall) to catch up with the online advertising leaders. Verizon with AOL currently holds a mere 1.8% of the $69 billion digital ad market in the US. Yahoo has about 3.4%. Google and Facebook together claim about half of it. Looked at another way, though, there’s plenty of market share to steal, which can’t be said of its traditional business.

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