Commentary

What Does Verizon/AOL's Acquisition Of Yahoo Really Mean?

After Verizon's $4.8 billion acquisition of Yahoo on Monday, speculation about what it all means is underway. Some industry executives have weighed in already, and RTBlog expects the speculation to continue.

Verizon CEO Lowell McAdam made no bones about it: He said the company wants to become a major player in digital media.

That suggests a combined Verizon/AOL/Yahoo has ambitions of taking on Google and Facebook, the only other players with the kind of scale, tech chops, and data that advertisers are looking for.  Alone, Verizon doesn’t really have global reach, but with AOL and Yahoo it will.

Some pundits have prognosticated that the acquisition will offer Verizon/AOL a rich cache of cross-device data. The deal essentially enlarges Verizon’s addressable audience by adding 600 million or so monthly active mobile users. These users will help support the company’s cross-device goals. Cross-device or not, the move is clearly about data and the insights the combined entities can offer advertisers using that data.

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Tim Armstrong, CEO of Verizon-owned AOL stated: "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.” Notice he said “open,” which is code for “our company won’t be a ‘walled garden’ like Facebook or Google.” That said, Google has been opening up, of late.

It would appear that Armstrong is putting a stake in the ground to say that a combined Verizon/AOL/Yahoo will try to challenge the hegemony of Facebook and Google.

Video and mobile are good places to start. Yahoo brings BrightRoll, its video exchange, to the deal; Flurry, for mobile analytics; and something it calls Gemini, for native advertising. All three will be incorporated into AOL’s already robust ad-tech stack. BrightRoll will likely be integrated into AOL’s ONE by AOL video-tech stack. That video offering already includes  Adap.tv and PrecisionDemand, the connected TV targeting company.

There’s going to be a lot of heavy lifting, since Verizon continues to integrate AOL divisions.  And how will all the duplicated functions and capabilities be sorted out? That remains to be seen, and it’s going to take some time.

Yahoo’s so-called MaVeNS business (mobile, video, native, and social) generated $1.6 billion in GAAP revenue in 2016 and has generated more than $1 billion in mobile advertising dollars in 2015.

Yahoo also has some decent content verticals—finance, sports, and news—which will bring some heft to Verizon/AOL’s existing content offerings.

Dan Salmon, analyst for BMO Capital Markets, noted: “We believe there are some nice opportunities to roll YHOO video assets into [Verizon’s] Go90 and lump the ad tech/offsite volume with AOL’s.” However, Salmon  doesn't think a combined Yahoo/AOL ad tech stack poses “a particularly new competitive challenge” to existing mega exchanges like Google’s DoubleClick, Facebook’s Audience Network, or AppNexus.

Look for the real value in the acquisition to come from what Verizon can do with all the data. How will it maximize the value of the consumer data? That’s the key. The value-add is likely to come not from all the combined technologies, but from the data.

The deal is expected to close by Q1 2017 pending regulatory and shareholder approval.

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