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Mega Deal: Verizon-Yahoo merger to lead to stronger digital ad play

September 14, 2016
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After struggling to hold its own for over a decade, Yahoo Inc. has finally succumbed to competitive pressure from new-age internet giants like Google and Facebook. Known for popularising web search and email globally, the company recently announced the sale of its operating business to Verizon Wireless for $4.83 billion in an all-cash deal. The amount is a fraction of the once-popular search engine’s total worth in 2000. As per the deal, which is expected to conclude in 2017, several Yahoo properties will become a part of Verizon’s AOL business, which the latter acquired for $4.4 billion in 2015.

While the recent acquisition promises some value to Yahoo’s shareholders, the company has much to offer to Verizon, which is looking beyond its traditional telecom (voice and data) business to leverage opportunities in the digital space. According to Benoy C.S., director, digital transformation (ICT) practice, Frost & Sullivan – Middle East, North Africa and South Asia, “This is a classic deal that defines a paradigm shift in a telecom service provider’s business model and strategic focus. In the last decade, we have witnessed significant disruptions in the traditional businesses of telecom operators. They have been facing a lot of heat from new-age over-the-top players that have mastered the art of monetising data through the effective deployment of big data and analytics. With this deal, Verizon can leverage Yahoo’s platform and offer its customers a better value proposition.”

The deal will give Verizon access to Yahoo’s advertising technology tools BrightRoll and Flurry, as well as to applications such as search, mail and messenger.

Stronger digital ad play for Verizon

Valued at roughly $225 billion, Verizon is one of the leading wireless communication providers in the world. However, in recent years, stiff competition from AT&T, Sprint, and T-Mobile have limited Verizon’s pricing capabilities, thereby slowing down its revenue growth rate. Telecom markets worldwide too are showing a similar trend of stagnating sales and slumping profits from traditional voice/ data businesses. Thus, operators are exploring new growth avenues. In such a scenario, participation in the growing digital advertising market is likely to prove lucrative for Verizon. The acquisition of Yahoo will push Verizon ahead in its journey to make it big in the mobile advertising and marketing space.

Currently, the mobile advertising and marketing space is led by Facebook and Google. Microsoft, with its acquisition of LinkedIn, has also become an active participant. As per industry experts, a company’s success in the mobile marketing space is largely dependent on its performance in areas such as data and internet, content and advertisement and the back-end technology required to support it, as well as network outreach.

As for Verizon, it already has an up-and-running internet services and devices business. Further, its acquisition of AOL has strengthened its portfolio on the content and advertising front. In terms of network outreach, Verizon has a readymade base of internet users and this network can be further enhanced through Yahoo’s own content and advertising technology. The company also has a strong enterprise base, which is a big plus.

However, Verizon is unlikely to shake up Google and Facebook’s presence in the online advertising space at this point in time. Together, Facebook and Google control nearly 50 per cent of the global online ad market.

Union of AOL and Yahoo

An interesting facet of the deal is that it brings together AOL and Yahoo under the same umbrella. Verizon has, for less than $9 billion, managed to bring two heavyweights of yesteryears together and obtained about 1.2 billion active users. The number of users alone is enough to attract advertisers. Yahoo currently serves over 1 billion active users each month, including 600 million mobile users, and that scale is attractive when selling ad space.

Although it is too early to say whether, and if, Verizon will be able to join the same league as Google and Facebook, it has taken a step in the right direction. Foraying into the digital ad space will help the company improve its top line significantly.

Indian impact

While there will be no immediate impact specific to the Indian industry, the deal may result in the scaling up of resources and headcount at Yahoo’s research and development centre in Bengaluru. This facility started around 13 years ago and has become Yahoo’s second largest centre globally after the US. As Verizon is keen to strengthen its position in the internet space worldwide, the Bengaluru centre, which has been making important contributions to Yahoo’s global products, can provide the key support.

Going forward

As Verizon embarks on its journey in the digital space, Yahoo, along with AOL, will play a key role in defining its path to success. “However, it is not going to be easy as their outlook, mindset and wavelength are very different from one another’s. Hence, it needs to be seen how effectively the product line and services of Verizon, AOL and Yahoo are stitched together, to offer a future-ready business model,” says Benoy.

By Akanksha Mahajan Marwah

 
 
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