The acquisition is a win-win deal, but Yahoo stands to lose identity and legacy
American telecom giant Verizon this week paid an unexpected $4. 8 billion to buy ailing web services giant Yahoo. The transaction, expected to close in the first quarter of next year, surprised many. In fact, the sale does not include the stake Yahoo owns in Chinese e-tailer Alibaba. Still, analysts doubt whether Yahoo was worth the money it was bought for. Granted, the tech firm was valued more than $120 billion at some point in its zigzag history, and it even enjoyed a price tag of nearly $45 billion when Microsoft wanted to own it. But soon things went topsy-turvy. At one miserable juncture in its recent history, the valuation of Yahoo’s core business fell to a mighty negative $13 billion. Given these misfortunes, Yahoo’s incumbent CEO Marissa Mayer seems to have grabbed a fair deal from Verizon, which will merge the once-powerful search giant with AOL, a New York-based online services biggie it bought for $4.4 billion in May 2015. Many blame Mayer for pulling Yahoo down so fast, thanks to the misfired big-ticket acquisitions she anchored. Under Mayer, who left Google to join Yahoo in 2012, the confused behemoth shopped 53 companies, shelling out nearly $3 billion.
Now, obviously, Mayer will have to exit Yahoo, even though she has hinted she wanted to stay. That said, there is still no clarity on what Verizon will do with Yahoo. But it is likely to focus on three aspects. First, anchoring on Yahoo’s mettle, Verizon will enhance its efforts to become a full-blown communications giant. It has the hardware (telecom) and better software thanks to Yahoo. This places Verizon at the third position behind Google and Facebook, and even though it is distant third as things stand now, it can leapfrog and enhance its share in an ever-expanding market, recouping the money it spent on Yahoo. Verizon is eyeing another goldmine in Yahoo — data, which is the most important natural resource of the day. From Tumbler to Flickr to Yahoo Search to Yahoo Finance, Yahoo is home to zetabytes of data, which coupled with AOL’s technology prowess can become a formidable resource that Verizon can harness into a solid revenue stream.
The deal will help Verizon pump up its global audience numbers to 2 billion and revenues by $20 billion by 2020. This is done by blending Yahoo’s content and its one billion monthly active users with Verizon’s 110 million customers. That looks lucrative, at least on paper. Also, Verizon now can be a strong player in the burgeoning mobile media space. Mobile sees intense participation of young consumers and advertisers and brands are vying to gather there. AOL-Yahoo powered by Verizon’s hardware muscle can make a strong impact in this genre. Another interesting factor that might help Verizon is Yahoo’s 1 million sq ft campus in Sunnyvale, California, which most experts value at $500 million by today’s rates. Owning such a large swath of real estate in space-hungry Silicon Valley means solid business.
Also, Verizon will try to work on Yahoo’s successful streaming business. Yahoo first live-stream of National Football League events has turned out to be a money spinner globally. Verizon may expand and enhance this. Verizon also has some aspirations in the content business. It launched Go90, a video-streaming and -sharing service, in 2015. But the effort is yet to gather steam. To be fair, Yahoo nurtured wild ambitions in the media business, hiring top-notch journalists such as David Pogue to rev up Yahoo Tech. Verizon can work on this given the infrastructure and clout it commands. In sum, the telecom giant has many ways to justify its purchase of an ailing web services company. But chances are Yahoo as we have known it will be put to rest sooner or later. Rest in Peace, Yahoo!