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October 16, 2017
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Why Verizon wants to buy Yahoo
Posted On: Apr 08, 2016

Yahoo's business has been doing so poorly that if you take the company's overall market value and subtract the value of stock Yahoo owns in two Asian internet companies — Alibaba and the independent company Yahoo Japan — you get a negative number.

In other words, Yahoo is less valuable than the sum of its parts. And for tax reasons, it doesn't make sense for Yahoo to sell off its Alibaba and Yahoo Japan shares. Instead, Wall Street has been pressuring Yahoo to sell the actual company — the business that operates the Yahoo website and services like Flickr and Tumblr, but not the shares — to a third party.

That plan looks like it's getting closer to fruition. Today, Bloomberg reported that telecommunications giant Verizon is planning to make a bid for Yahoo — in effect combining it with AOL, which Verizon purchased last year. Google is also weighing a bid, according to Bloomberg, while AT&T and Comcast have decided not to make an offer.

Verizon buying Yahoo would look a lot like Verizon buying AOL

AOL has a lot in common with Yahoo. Both companies are well-known internet brands whose best days are a decade or more in the past. Like AOL, Yahoo makes a lot of its money by creating internet content and selling ads against it.

When Verizon purchased AOL, it emphasized the company's portfolio of media brands, including TechCrunch and the Huffington Post. But as Matt Yglesias wrote for Vox last year, Verizon may have also been interested in AOL's ad technology business — and in particular how Verizon could use data gathered from its vast broadband and mobile networks to help AOL content companies target ads more effectively.

Either way, if Verizon was happy with its AOL acquisition, buying Yahoo, a company with a similar portfolio of technology, media, and advertising products, seems like a logical next step.

In recent years, scale has become increasingly important in the online advertising business. Advertisers prefer to make a few big ad deals rather than many small ones, so larger media companies are often able to command premium prices. With Yahoo and AOL under one roof, Verizon would be able to integrate their ad sales teams and offer advertisers packages that include media brands from both companies.

Yahoo would make Google stronger where it's already strong

The big downside to a Verizon acquisition is that Verizon is not known for nurturing software innovation. And while conventional media properties like Yahoo Sports, Yahoo News, and Yahoo Finance are important parts of Yahoo's portfolio, the company also has popular software products like Yahoo Mail, the Yahoo search engine, and Tumblr. These parts of Yahoo would be an awkward fit at Verizon, and they might have trouble recruiting and retaining the top-tier engineers they need to keep them on the cutting edge.

The other rumored bidder, Google, has essentially the opposite strengths and weaknesses. The tech behemoth knows all about managing software products and ad networks. Being acquired by Google would provide an immediate morale boost for Yahoo's technical talent, and might help Yahoo recruit and retain good programmers in the future.

That said, Yahoo's content business would be an awkward fit at Google, which prefers to act as a platform for other people's content rather than a creator of content in its own right.

Acquiring Yahoo would allow Google to bolster its position in markets — search, email, ad networks — where Google is already a leading player. Indeed, that might be a good reason for Google not to acquire Yahoo: Making its already dominant search and advertising divisions even more dominant might invite unwanted attention from antitrust regulators.

And with Yahoo's software products in an apparent death spiral, it may be only a matter of time before Google is able to attract many of Yahoo's users to Google's own platforms anyway.

by


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