- Oscar Siagan/Monica Schipper/Justin Sullivan/Justin Sullivan/Getty Images
It’s official: Verizon will buy Yahoo’s core business for $4.83 billion.
The deal, announced Monday morning, marks the end of an era for Yahoo and is another piece of what has been a multiyear, $10 billion plan from Verizon to take on Facebook and Google, the biggest names in digital advertising.
Verizon acquired AOL last year for over $4 billion. And given that AOL CEO Tim Armstrong and Yahoo CEO Marissa Mayer once worked together at Google, Verizon was long seen as the most natural acquirer for Yahoo’s core business.
But this deal, of course, is about more than a prior relationship between two executives. This deal is about Verizon making a push to compete with the digital ad businesses of Facebook and Google.
Back in April, Mathew Ingram at Fortune wrote a great overview of the basic strategic rationale behind a Verizon-Yahoo deal. The digital platform space – think of this as any place on the web where people go to get content and, in turn, be served ads – is dominated by Facebook and Google.
Most of the web’s referral traffic runs through these platforms, and a plurality of the ad dollars runs through these platforms. The only hope for a company to create a credible competitor is through scale.
This chart from eMarketer shows that excluding the Chinese companies Baidu, Alibaba, and Tencent, a combined Yahoo-Verizon would be the third-largest digital ad network in the US. (Of course, a quite distant third place.)
At the JPMorgan Technology, Media, and Telecom Conference in May, Verizon CEO Lowell McAdam discussed the company’s video content plans and aspirations, saying Yahoo would be “a possibility to gain greater scale.”
And here we are.
Verizon makes its money through operating the wireless and cable networks on which advertisers advertise and consumers consume. The company’s recent push into mobile video with its Go90 mobile video platform is an effort to make the company’s network more than just a “dumb pipe” through which users get to another outlet’s advertising and content.
A review of the company’s acquisitions over the past few years shows that Verizon has steadily brought on technology and content to help accelerate this strategic push.
The highest profile of Verizon’s acquisitions was it $4.4 billion purchase of AOL last year. Verizon has also made a series of deals clearly aimed at bolstering its web video presence, including a joint venture with Hearst to acquire Complex; a stake in AwesomenessTV; and the purchase of Intel’s internet TV service OnCue.
With an acquisition of Yahoo, Verizon will also be able to expand some content offerings, with the company lauding Yahoo’s 1 billion monthly active users (including 600 million monthly active mobile users).
But the strategic rationale for Verizon is probably something like four parts ad platform to one part content.
Ad networks need scale, and for all of its other flaws scale is the one thing Yahoo still has. And now Verizon has it, too.