Just about the only excitement contained in Verizon’s announcement Monday that it plans to buy Yahoo’s core business for $4.83 billion could be found in the exclamation point lodged in Yahoo!’s trademarked name.
“There was a collective yawn in the industry,” said Eric Goodness, lead Verizon analyst at Gartner.
Yahoo made its name 20 years ago as an online portal. Remember portals?
Now, Yahoo will be run by Verizon, the largest U.S. phone carrier.
And this comes a year after Verizon purchased AOL – remember, “You’ve got mail”?
Social media sites are hot these days. Snapchat. Instagram. Even if Verizon had bought Pokemon Go, the mobile augmented reality app that has been around only a couple weeks and yet has tens of millions of people chasing make-believe creatures down streets and through parks, there might be more tongues wagging among analysts.
In contrast, Yahoo and AOL remain very large, well-known global brands. Hundreds of millions of people use them. Yahoo was the No. 3 most popular U.S. web property in February, according to comScore. AOL was No. 6.
But they seem to belong to a bygone online era.
They have scale, but no buzz.
And buzz matters when it comes to advertising. Marketers do not only want to reach large audiences. They also want their ads to be on websites and print pages that are associated with hot brands — especially those popular among young adults who tend to spend more money than their elders.
Yahoo and AOL largely have been afterthoughts when companies consider how to allocate their advertising dollars. Yahoo, for example, was projected to earn just 1.5 percent of net digital ad revenues worldwide this year, down from 2.1 percent in 2015, according to eMarketer. Much of its money comes from selling the little rectangle ad spaces at the top or along the sides of its websites. And yet rates for those desktop computer display ads have been falling as consumers shift to smartphones and other mobile devices.
The majority of online ad dollars now go to Google or Facebook. Buzzy sites such as Snapchat are quickly growing their ad revenues as well.
Current Yahoo chief executive Marissa Mayer has spent the last four years trying to regain Yahoo’s mojo. Under her leadership, Yahoo bought the micro-blogging site Tumblr. It bought the photo site Flickr. She expanded Yahoo News, hiring staff and even Katie Couric. She grew mobile ad revenue to about $1 billion last year.
But nothing could change Yahoo’s direction. A fickle Wall Street lost patience.
Verizon’s acquisition of these two companies is still worthy of note.
On a conference call Monday, Mayer said that the deal would put Yahoo in “a new position for advertisers, the illustrious ‘must buy.’ ”
AOL chief executive Tim Armstrong, who will take over Yahoo’s websites, added that the newfound scale will be an attractive destination for advertisers.
“This transaction is about unleashing Yahoo’s full potential, building upon our collective synergies, and strengthening and accelerating that growth,” Armstrong said. “Combining Verizon, AOL and Yahoo will create a new powerful competitive rival in mobile media, and an open, scaled alternative offering for advertisers and publishers.”
As noted by Prof. Ben Gomes-Casseres at Brandeis International Business School: “There’s something quite historic here.”
But Verizon didn’t spend billions to open a museum. Tech companies don’t do “historic.” They do groundbreaking. Futuristic. Disruptive.
And that is where the future of Yahoo and AOL under Verizon starts to get cloudy.
What does Verizon see in these two properties?
“These are all bets on the future,” Gomes-Casseres said. “You don’t know if it’s going to be valuable until you try it out.”
The telecommunications giant’s buying spree indicates that it wants to move beyond its core business of providing Internet and wireless infrastructure and compete directly with Google for premium advertisers, said Rita McGrath, a professor at Columbia Business School.
Yahoo under AOL could actually look much the same as it does now, McGrath added. The media side, with notable journalists such as Couric, could complement the Huffington Post and other AOL media properties. Under the Verizon umbrella, Yahoo could focus on maintaining audiences under less pressure from Wall Street.
When Verizon bought AOL, the deal was sold as a way for Verizon to access AOL’s supposedly cracker-jack technology for delivering targeted ads. And Armstrong, the AOL chief executive, was a chief architect of AOL’s transition from portal to ad tech company.
Many analysts see the Verizon-Yahoo deal as a way to further leverage AOL’s ad tech.
But no one really knows.
“How do they make these two businesses perform differently?” said Goodness, the Gartner analyst. “I don’t think anyone knows except Verizon.”
AOL was in distress when Verizon came knocking.
So was Yahoo.
“They bought David Spade,” Goodness said of Verizon’s deal with Yahoo, referring to the comedian who rose to 1990s stardom on “Saturday Night Live” and “Just Shoot Me!”
The question is whether the David Spades of technology are ready to make a comeback.
Staff writer Hayley Tsukayama contributed to this report