After much speculation, Verizon has officially acquired Yahoo's core business to the tune of $4.83 billion. Yahoo will operate as an independent company until the deal's close, which is expected to happen in early 2017 pending shareholder and regulatory approvals.
This begs the question: Why would one of the country's largest telecom corporations invest billions of dollars in what is, by most accounts, a failing media company? The answers reveal a pivotal shift in the way Verizon intends to do business.
It could eliminate cost redundancies
Virtually every source on the subject is confident that Verizon's acquisition of Yahoo is meant to piggyback on its 2015 $4.4 billion buyout of AOL. By combining the user base, content, and tech offerings of AOL and Yahoo, Verizon hopes to develop a lean, mean, digital advertising machine.
And given that the corporation acquired both companies for a relative steal--after all, Yahoo was at one point valued at $125 billion--it stands to save a whole lot of money that would otherwise have been spent on sales, administration, product development, and building the equivalent of a merged AOL-Yahoo from the ground up.
It promises access to a massive audience
Yes, there are already plenty of thinkpieces predicting the crash of the "content bubble." But for now, Verizon's acquisition of Yahoo proves that media brands are still a dominant force on the digital scene thanks to their content and the audience it provides.
Between AOL and Yahoo, Verizon will suddenly own a number of heavily-trafficked content sites, including Huffington Post, Flickr, Tumblr, Yahoo Finance, Yahoo Sports, and TechCrunch. Yahoo alone boasts approximately 1 billion regular users, and together AOL and Yahoo account for 25 brands. And here's the kicker: Combined, the two company's unique visitors are 50% higher than Google's.
That's a pretty massive audience, and you can bet that Verizon is planning to convert that audience's eyeballs into dollar signs. Instead of merely serving as any entry point to content, the company is looking to own said content in order to gain more control over data and advertising revenues.
Owning content (and its means of production) also provides the company with an opportunity to differentiate itself from other wireless providers via unique programming and free content incentives for Verizon customers.
A treasure trove of data
In acquiring Yahoo's content, Verizon also acquires its user data. Combine data on a billion Yahoo users with Verizon's existing data re: its smartphone users and AOL's user base, and suddenly you're looking at a treasure trove of customer data. And because Verizon is capable of tracking its customers' web browsing and location history, it will now be able to combine that knowledge with Yahoo's and AOL's data to gain a level of insight into its consumer base that is almost frightening.
In turn, this will allow Verizon to compete with the digital advertising power of Google and Facebook, both of which thrive by promising highly targeted advertisements in exchange for dollars. In fact, the ability to speak to the specific needs, concerns, and linguistic preferences of a distinct audience is now a priority in virtually every industry, from fitness to nootropics, skin care, and pretty much anything else you can think of.
Thus, in order to convince advertisers that their dollars will be well spent, it's essential that advertising platforms be able to deliver highly refined user data. That's exactly what Verizon gets with this latest acquisition.
It's all about advertising revenue, advertising revenue, and more advertising revenue
In addition to providing a wealth of consumer data, Verizon's acquisition of Yahoo (and AOL) provides it with another element that's critical to cornering the digital advertising market: scale. Currently, Google and Facebook are basically the only two large-scale advertising platforms that promise the audience and customer targeting discussed above. But with its latest acquisition, Verizon will suddenly become a third major player on the digital advertising stage.
Verizon still won't be in the same league as Google and Facebook--Yahoo and AOL are expected to make a combined $3.62 billion in 2016, whereas Facebook is on track for $10.3 billion and Google is expected to reach over $24 billion--but it will emerge as a viable option for advertisers looking to expand their reach to new audiences without seriously compromising on scale.
Verizon's push into the digital advertising space emphasizes what industry specialists have long known: The wireless market is stagnating , and wireless providers will need to capitalize on new sources of revenue if they want to stay afloat in the new economy. Thanks in large part to the rise of mobile, digital advertising promises high margins and an increasingly large market.
Still, Verizon's game plan is not without risks. Is purchasing two ailing companies the best way to build a new media empire? Time will most assuredly tell.