Winners and losers of the Verizon-Yahoo deal
It’s finally official: Verizon is buying Yahoo for about $5 billion in a long-expected deal that brings to a close Yahoo’s long-running drama. With Yahoo and AOL before it, Verizon is looking to grow beyond an access provider, to sell other media products and counter Google and Facebook’s ad dominance. Here’s a rundown of the deal’s winners and losers.
Telecoms and ISPs are trying to move beyond just selling access to consumers to other business lines. Hence Verizon’s purchase of AOL for $4.4 billion last year and now, Yahoo, for its data and advertising business. With AOL and now Yahoo, the wireless carrier will still be a distant No. 3 in online advertising behind Google and Facebook, but it will now have between $8 billion and $9 billion in online advertising to sell, estimated Brian Wieser, senior analyst at Pivotal Research. Yahoo also gives Verizon a boost in the declining but still important area of search advertising, where Yahoo does some $1.4 billion in revenue.
Verizon already has possession of a end-to-end ad tech stack through its purchase of AOL, but the acquisition will improve things for advertisers in a couple of ways. “To have known cross-device users and as broadly as they do is a really big win,” said Jay Friedman, COO at Goodway Group. “This puts significant extension into their known user reach.” The acquisition also will improve AOL’s first-party data offering because Yahoo’s made strides in making their data readily available within BrightRoll, said Andrew Sandoval, director of programmatic media at The Media Kitchen. “Coming from a search background, I’ve been encouraged by what I’ve seen regarding search data in BrightRoll,” he said. “Yahoo search share is low, but it’s still a powerful intent signal that other DSPs don’t have as a first-party source.”
AOL head Armstrong is expected to lead a combined AOL-Yahoo after the deal is done. A parade of leaders at Yahoo has failed to turn around the company, which keeps losing ground to Facebook and Google. But he has the chance to look like a hero if he can turn around Yahoo, and he’s proven his ability to cut his losses and move on, as he did with AOL’s struggling local news network Patch. He’ll also be operating Yahoo under very different circumstances, because it will be part of a bigger company without the glare of the investor spotlight that Yahoo was under as a standalone company. He’s also popular with ad buyers, whom he’s won over with AOL’s video and programmatic business. “Armstrong now has the ability past CEOs did not, which is to chop and not say sorry to Wall Street,” said Jay Friedman of Goodway Group. “Before, investors would have questioned.”
Other internet companies
Depending on how well Verizon executes the deal, others including Google, Facebook and Twitter could benefit. The deal isn’t expected to close until the first quarter of 2017 — that’s a long time for salespeople to lose focus and start looking for other jobs, and create a chance for others to step up their sales game and take advantage of the distraction. “Opportunity abounds for everybody unless Verizon manages those issues well,” Wieser said.
It’s hard to remember now, but Yahoo was long a bellwether for the health of the Internet industry. The Yahoo yodel was arguably iconic, and Yahoo itself was the main creator of the display advertising business. But Yahoo itself has become something of a relic: It was a portal when portals were overtaken by search and social platforms; it was a banner ad giant when native and video swept the digital ad industry. While Yahoo still has some interesting content assets, it is undeniably a vastly diminished brand that will be diminished even further as it becomes part of AOL, which is part of Verizon. Yahoo as the world has know it is, for all intents and purposes, dead.
The onetime internet darling has fallen in sales and position in the digital ad ecosystem behind Google and Facebook. As part of Verizon, it would be combined with AOL, and with that already established ad sales base, Verizon would look for efficiencies by cutting costs — which one analyst estimated could be as much as 40 percent of Yahoo’s 9,000 employees. “Returning Yahoo’s core business to growth and driving costs out of that business will be among the primary challenges Verizon will have to face in order to retain that position,” Wieser wrote in a research note. A big unknown is blogging platform Tumblr, whose value has plummeted under Yahoo, but which could now get the sales expertise it’s lacked under Marissa Mayer.
As Yahoo profiler Nicholas Carlson of Business Insider said on this week’s forthcoming Digiday Podcast, Yahoo is in that stage where it’s no longer in growth mode but there are still profits to be reaped by cutting costs. “He’s an optimizer,” he said of Armstrong. “I think he’ll lean into what Yahoo can do well and maybe just siphon the profits.”
Yahoo’s ad products
Yahoo’s portfolio includes its native ad product Gemini and video ad platform Brightroll, which have been criticized as offering low-quality inventory. “There’s going to be some redundancy in ad tech,” said Paul Verna, eMarketer analyst. “AOL struck me as a good fit with Verizon at the time because Verizon was getting some maybe unsexy but good ad tech technology and some content expertise. Now they’re getting a lot of the same. So it’s not clear there’s a tremendous amount of value for what they’re paying.”
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