Here is why Verizon wanted to buy Yahoo so badly

Written by on July 29, 2016 in Guest Blog with 0 Comments

Verizon to buy Yahoo in a move that will put them a distant 3rd after Google and Facebook in the $187 BN market of digital advertising. Verizon to buy Yahoo core assets for a bit more than $4.8 billion. The deal includes Yahoo real estate assets, while some intellectual property is to be sold separately. Yahoo will be left with its stakes in Alibaba Group Holding Ltd. and Yahoo Japan Corp., with a combined market value of about $40 billion.

Verizon to buy Yahoo after months of speculation. The deal will add the company and its millions of daily users to Verizon’s growing stable of media properties and is also likely to end the reign of Yahoo Chief Executive Officer Marissa Mayer, who tried and failed to re-invent Internet Pioneer Yahoo as an independent company.

With its core wireless business maturing, Verizon to buy Yahoo and keep it mostly intact to compete with Alphabet Inc.’s Google and Facebook Inc. in digital ads by tapping into users on sites like Yahoo Finance. The takeover will double the size of Verizon’s digital advertising, placing it as a distant 3rd  Google and Facebook in the $187 billion market.

And why does a mobile telecom provider want to buy the core editorial business of a faded Internet portal? The short answer is advertising. In a nutshell, Verizon is interested in buying Yahoo’s ad and content businesses for the same reason it acquired AOL last year for $4.4 billion. And that is to build the kind of scale that’s necessary to make money from digital advertising on mobile devices, as growth in the traditional telecom business slows.

“The deal speaks to a clear strategy shift at Verizon,” Craig Moffett, an analyst with Moffett Nathanson, said. “They are trying to monetize wireless in an entirely new way. Instead of charging customers for traffic, they are turning to charging advertisers for eyeballs.”

 

Now AOL’s advertising technology, which has improved under CEO Tim Armstrong, can better leverage Yahoo’s “reasonably strong” content for mobile devices, Moffett said. “Verizon is hoping that combining Yahoo’s content with AOL’s ad technology platform and Verizon’s own insights into user data can make the advertising inventory much more valuable,” he said.

“Verizon is trying to pivot its business from analog to digital,” says Moffett, “Verizon believes that a combined AOL/Yahoo would provide the digital advertising platform they need to execute their video reinvention strategy.”

AOL has managed to put together what analysts say is a fairly impressive combination of programmatic ad-buying and targeting tools—especially for video. That’s primarily what Verizon was interested in when it acquired the company. Since the acquisition of AOL, Verizon has added a number of other advertising-related businesses, including most of Microsoft’s ad-technology operations and an ad-technology company called Millennial Media (bought for $250M). It has used some of that know-how to power Go90, the mobile streaming-video service it launched in October 2015

Much like AOL, Yahoo also has a suite of advertising technology that it has both built and acquired over the years that would fit pretty well with what Verizon and AOL already have. The combination would give Verizon a powerful collection of mobile ad-serving and targeting services, a lot of content, and a built-in audience. The combination would also give the company a substantial amount of user data with which to target both its own ads and those served by others. That’s the kind of thing advertisers increasingly want, and it’s something that Facebook and other platforms excel at.

Buying Yahoo’s operations will boost Verizon’s AOL internet business, which it bought last year for $4.4 billion, by giving it access to Yahoo’s advertising technology tools as well as other assets such as search, mail and messenger.

More on Bloomberg and Fortune

This article was first published on PricingDataPlans.

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About the Author

About the Author: Jonathon has been lurking around the Telecoms and Internet space for the last 20 years. He is now a man on a mission – that being the reformation of the Industry Analyst business. He is working with his co-conspirators on transforming the Industry Analyst world forever as an Expert with EMI. .

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