TECHnalysis Research Blog Extra

July 29, 2016
Yahoo-Verizon Deal

By Bob O'Donnell

After months and months of speculation and, doubtless, hours and hours of negotiations, Verizon announced at the beginning of the week that they were purchasing the core internet content assets of Yahoo for $4.8 billion. Yahoo’s investments in Alibaba and Yahoo Japan are not part of the deal and will be spun off into a yet-to-be-named new entity.

The deal closes a major chapter in Internet history as Yahoo served as a key gateway to the web for 21 years and billions of users. Even the Yahoo brand is likely to take on a diminished role. While Verizon will likely keep using it for certain branded content properties, it will be just one of several content brands that Verizon will need to rationalize over time.

For Yahoo, the deal is likely about as good as they could get, but certainly a far cry from valuations it’s held in the recent past. Despite four years of efforts to turn it around by CEO Marissa Mayer, the company ultimately was never able to overcome its lack of focus. Numerous efforts at creating new types of content and services never gave the company the boosts it needed and it slowly lost share in both search and web-based advertising.

For Verizon, the purchase is clearly part of an effort to build up a growing portfolio of web-based content. The traditional carrier business continues to be challenged by lower prices per data bit, the ongoing decline of voice services, and the low-growth, utility-like nature of the business. Recognizing these challenges a while back, Verizon has been acquiring content, such as AOL, the Huffington Post and others, in order to create a potentially high-growth, advertising driven business. With Yahoo, they get an established name and, most importantly, a billion active users.

As has become clear with major web-based content properties, the only way to really succeed is with scale and Yahoo gives Verizon more of the scale it desperately wants. Having said that, there are many remaining questions about how the two companies’ cultures will blend (or not), whether or not key employees will want to stay and, as mentioned earlier, how all the various content properties will be organized.

History has shown us that these megadeals often don’t work out very well and, to be honest, the cards seemed to be somewhat stacked against this one as well. However, if Verizon can address these issues, they may be able to break the mold. If not, it really could be the end of Yahoo as we know it.

Here's a link to the column: https://techpinions.com/unpacked-for-friday-july-29-2016/46643

Bob O’Donnell is the president and chief analyst of TECHnalysis Research, LLC a market research firm that provides strategic consulting and market research services to the technology industry and professional financial community. You can follow him on Twitter @bobodtech.