How IT Insiders Are Projecting Future of Verizon-Yahoo

NEWS ANALYSIS: Industry analysts are generally positive about the long-term impact of the acquisition to compete with AT&T and Google.

Microsoft tried seriously to buy Yahoo in its entirety eight-and-a-half years ago for $47 billion. How history would have been changed had Yahoo co-founder and CEO Jerry Yang and his board listened to Carl Icahn, Eric Jackson, Daniel Loeb and other activist investors and consummated that deal.

Ostensibly, Microsoft would have moved into the Web services business a lot sooner and Yahoo would have been fortified to invest in innovation. Investors would have come out with a profit. Microsoft Yahoo would have been an entirely different entity, perhaps more successful as time went along.

On the other hand, the whole thing could have blown up in Microsoft's face because Yahoo was a bloated, under-performing company at the time that competitors, such as Google, Amazon and others, had bypassed.

Now Yahoo's core businesses are worth a mere 10.3 percent of that $47 billion at $4.83 billion. We know this because that's what Verizon and the pioneering search and Web services company agreed upon July 24 in a deal that will put an end to the years-long financial and product-creation quandary in which the Sunnyvale, Calif.-based Web pioneer was engulfed.

The transaction gives Verizon all of Yahoo's Internet businesses: the home page that has served as a personal desktop Internet lead-in to multiple millions of users for nearly two decades; its highly respected financial, sports and home goods-related pages; Yahoo email; its Tumblr blog sites; and a list of others. It does not, however, give Verizon ownership of its outside investments, such as its $30 billion stake in China's Alibaba e-commerce site, a separate $10 billion investment in the independent Yahoo Japan and its $8 billion in the bank.

CEO Mayer Says She Intends to Stay

Yahoo CEO Marissa Mayer said July 25 on a conference call to analysts and journalists that the sale is "an exceptional outcome for shareholders." Yahoo isn't going away just yet; it still has an investment business and patents to protect.

Mayer published an internal memo to Yahoo employees in her Tumblr blog, saying: "I'm planning to stay. I love Yahoo, and I believe in all of you. It's important to me to see Yahoo into its next chapter."

Mayer said on the call that she and the other management team members would focus on making sure there was a smooth transition. The deal is expected to close in early 2017. The CEO also said she and the board are reviewing the best options for the company's stakes in Alibaba, Yahoo Japan and some patents that it still owns.

Mayer said the deal shows the "immense value that Verizon sees in the company's core business. Verizon believes in our vision the most," Mayer said. "There was a high level of interest from multiple entities" in the company.

What Analysts Are Saying

"A combined Verizon/Yahoo makes a lot of sense," Forrester Vice President and Principal Analyst for Interactive Marketing Shar VanBoskirk said in a media advisory. "Verizon wants Yahoo to fill out its omni-channel content and advertising play."

If executed on in a customer-first manner, the deal will be valuable to consumers and to advertisers, VanBoskirk wrote in a blog post.

"For all the wobbliness of Yahoo's brand identity, the Yahoo brand still holds a lot of consumer-affinity. Consumers LIKE the Yahoo brand," VanBoskirk wrote. "Depending on how Verizon plans to leverage that, it could be a nice boost in an industry like telecom where most subscribers disdain even the providers they are quite loyal to."

Yahoo's most valuable parts are its data assets, VanBoskirk said, not its existing content as some other analysts have suggested. "The more access to customer data Verizon has—online through Yahoo and AOL, in home via cable boxes, on mobile via smart devices—the more targeted it can be with advertising and sponsored content or product placements across those same devices," VanBoskirk said.

"This allows Verizon to create better ad products which is competitive against primarily online giants such as Google, and creates a better user experience which is competitive against other cable and telecom providers."

Verizon needs to rethink Yahoo's place in its new businesses organization, Forrester Principal Analyst for Enterprise Telecoms Dan Bieler wrote.

"Yahoo and its sub-brands will not automatically slot into Verizon's digital life portfolio, which comprises AOL and its sub-brands. Apart from any cultural integration challenges, mobile must become an even greater focus area and product innovation cycles must speed up."

Verizon-Yahoo 'Makes Sense for Several Reasons'

"VZW would get a significant number of Yahoo users (yes, there still are many) that go to the site daily. Why this matters is not for the free emails. It's about faces that can look at ads, and the possibility of VZW selling them paid services (premium vs. freemium)," wrote Jack Gold, principal analyst at J.Gold Associates, in a media advisory.

"Over the past couple of years, Yahoo has been focused on becoming a producer of content. While some would argue whether or not it's good content, it nevertheless creates a number of online programs that VZW could leverage and deliver to existing customers (both wireless and FiOS).

"VZW is looking at ways to stay competitive primarily with AT&T. With DirecTV, AT&T has a platform for providing content, and often original content. Yahoo gives VZW the ability to expand into the online content arena. And it gives VZW an installed base of users to deploy/up-sell to," Gold said.

VZW is also looking over its shoulder at Google, which is trying to work its way into being a carrier/provider, especially in the wired home, Gold said. "Google offers a number of free services that they then leverage for revenues, and VZW is trying to make sure Google doesn't undercut them with customers (this is also an issue for AT&T)," he wrote

Finally, as the world moves to the Internet of things, especially in the connected home, it will be critical for service providers to have a variety of services to offer customers, Gold said.

"The more ways you can get customers into your network, the 'stickier' it will be and allow you to sell even more services (e.g., entertainment, safety, burglar/fire alarms, monitoring services, health-related services, etc.). This is also part of the equation of Yahoo being purchased by VZW," Gold said.

"Overall, I think VZW buying Yahoo makes sense. It gives them a way to compete better with AT&T (and Google)."

Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...