Verizon Acquires Yahoo, Aspires To Compete With Google & Facebook

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On 25 July 2016, Verizon Communications confirmed its plans of acquiring Yahoo’s operating business for USD 4.83 billion.

The sale includes Yahoo’s content offerings in News, Sports, Finance, Yahoo Mail, Brightroll (programmatic advertising technology), Flurry (mobile application analytics solution) and Gemini (search and native advertising solution) among others.

Yahoo will keep its shares in Alibaba Group Holdings, its shares in Yahoo Japan and Yahoo’s non-core patents (called the Excalibur portfolio) among others. The company plans to integrate Yahoo with AOL under Marni Walden, EVP and President of the Product Innovation and New Businesses organisation at Verizon.

Albeit some are touting the valuation of USD 4.83 billion as ‘despairingly low’ compared to Yahoo’s January 2000 peak valuation of over USD 100 billion and Microsoft’s 2008 bid for Yahoo of USD 44 billion, Sanchit Vir Gogia, Chief Analyst and CEO, Greyhound Research believes “it is important to remember that it is now 2016. Yahoo’s valuation is a reflection of current times and its recent performance. Critical to note that the Street and its beholders are an unforgiving lot and only sing to the tune of numbers.”

When we talk of the Mobile Marketing Ecosystem, there are 7 fundamental aspects to consider: Mobile Devices/Endpoints, Consumer Internet Services, Applications, Content Publishers, Advertising, Analytics/Technology Platform and Identities. Over recent years, Facebook and Google have emerged as the behemoths of this ecosystem with strong presence in Analytics/Technology Platform, Content Publishing Partnerships as well as Advertising. Now, both Facebook and Google are also trying to enter the Consumer Internet Services space with Google Fibre and Facebook Internet. On the other hand, Verizon is one of the largest telecommunications companies in the US and of the 7 aspects stated above, Consumer Internet Services has been Verizon’s strongest link.

As per Gogia, “with its AOL acquisition last year and the Yahoo acquisition this year, Verizon (in theory) is trying to plug its weak links of Analytics/Technology Platform and further solidify its Content Publishing ecosystem and Advertising revenues. They are aiming to rake in more advertising dollars on the back of user insights. Verizon’s strategy is not far from what Microsoft tried when it acquired LinkedIn earlier this year.”

With this acquisition, Verizon is aiming to move beyond Device and Consumer Internet Services. In addition to its existing offerings, the combined company (Verizon+AOL+Yahoo) can now potentially offer Devices, Consumer Internet Services, Utility Applications (Email, Search among others), Content from its Publisher ecosystem (Traditional, Video Content), Analytics / Technology Platform, and Advertising (Based on Insights) to both its enterprise customers and individual consumers.

“This acquisition will help Verizon Enterprise earn a seat in front of the Chief Marketing Officer (CMO)” said Anshoo Nandwaani, VP and Principal Analyst, Greyhound Research.

Verizon already sells technology solutions to enterprises and has existing deep relationships with Chief Information Officers (CIOs). Now, by having the potential to merge identities of users across the three company networks (Verizon, AOL, Yahoo), Verizon can look at collecting significant volumes of Network Insights. By mining these insights, Verizon can now potentially offer more personalised services to individual consumers and targeted advertising services to its existing enterprise customers.

With this acquisition, Verizon aims to compete with Google and Facebook in Mobile Marketing space. However, the ground reality is that Verizon has a long way to go before they reach this parallel ground. Greyhound Research believes for Verizon to be considered formidable competition to the likes of Google, Facebook among others, Verizon will first have to invest sizeable muscle in solidifying existing and forming new regional and local Content partnerships and improving recall for both AOL’s and Yahoo’s Search and Mail offerings (including Messaging platforms).

Nandwaani believes “there are overlaps in AOL and Yahoo services (such as Email, Search, Programmatic Advertising among others) which will need to be consolidated before Verizon can be termed as a true leader in the mobile marketing space. Else the company can well expect to waste expensive resources and time in managing complexities arising thereof.”

In 2014 Starboard Value LP (activist-investor in Yahoo) had also urged Yahoo to merge with AOL. The investor had suggested potential USD 1 billion in synergies by reduced overlaps in online display advertising among others. At Greyhound Research we believe such acquisitions by the likes of Microsoft and now Verizon make the CMO-CIO duo’s job tougher. The likes of Google, Facebook, Verizon, Microsoft among others will all be vying for the CMO’s and CIO’s attention, wanting to claim business basis the size of their network.

How Can IT Decision Makers Make The Right Choice For Their Organisations?

Greyhound Research advises CMOs and CIOs to look beyond the network size and consider aspects such as quality of the network and robustness of the technology platform among others.

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Greyhound Standpoint In Short

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