Announced today, Verizon is acquiring the operations business of Yahoo at a price tag of $4.83 billion. Yahoo's operations, or its Internet business, includes Yahoo Mail, Finance, Sports and News. One has to wonder how Yahoo feels about this deal, since they rejected Microsoft who offered $44.6 billion in 2008, and they've since had many years of declining growth. Current CEO Marissa Mayer noted in an interview with Bloomberg that Yahoo's "eight cornerstone apps need more distribution". In a growingly mobile world, this is exactly what Verizon provides. 

Regardless of the circumstances, this is an interesting day for the Internet community but, if we look more closely, we can see there is more to this story. When comparing Yahoo to other search engines like Google and Bing, the below report shows Yahoo taking third place with only 12.2% of the "explicit core search market". 

comScore Explicit Core Search Share Report* (Desktop Only)
 February 2016 vs. January 2016
Total U.S. – Desktop Home & Work Locations
 Source: comScore qSearch
Core Search EntityExplicit Core Search Share (%)
Jan-16Feb-16Point Change
Total Explicit Core Search100.0%100.0%N/A
Google Sites63.8%64.0%0.2
Microsoft Sites21.3%21.4%0.1
Yahoo Sites12.4%12.2%-0.2
Ask Network1.7%1.6%-0.1
AOL, Inc.0.9%0.9%0.0

For an acquisition of this magnitude, Verizon must be getting something more than just search and content. Even more importantly, Yahoo! search has been leveraging Microsoft search since 2009, at which time Yahoo! decided they could better improve their content services instead. This all means that there must be an 'X' factor in all of this, or else Verizon has a long road ahead of them to turn Yahoo around. So, what is it? 

Competitive advantages of this acquisition

The Yahoo App Publishing platform, which Yahoo launched last year, is already on a $200 million revenue run rate. Flurry, its mobile-app monetization and analytics platform, now has more than 800,000 apps working on top of it. To list other media-sharing sites, we have to mention Flickr, the photo sharing app, which has 112 million users and Tumblr, the blogging site, with 550 million monthly users. 

Looking deeper, we can see that AOL is also a large part of the turnaround plan for Verizon's acquisition of Yahoo. AOL's CEO Tim Armstrong is speaking out that integration plans have not yet begun but will very soon. Armstrong appears to have encouraged this deal with Verizon since Verizon bought all of AOL's shares off of the NYSE nearly 13 months ago.  Under Amstrong's leadership, the age-old Internet company Aol (no longer capitalized) was revitalized. Now, Verizon believes it can use them, and it makes sense because Aol does have strong programmatic ad technologies.


The elephant in the room is still that Microsoft has ownership through 2019 of Yahoo search. To what extent did this dilute the valuation of Yahoo, and how does it affect the value of the company for the duration of the contract with Microsoft? And as far as Verizon's go-to-market strategy, the bigger question is whether they can actually compete with Google and Facebook's mobile advertisement divisions without total control of its own search results, data, and reach?

posted Jul 25, 2016 in News by askit_qa (541 points) | 159 views