In paying approximately $4.83 billion in cash for Yahoo Inc., Verizon Communications Inc. is acquiring a digital pioneer with a declining digital advertising market share in a push to make itself a viable contender for online retailers’ digital ad dollars.
Yahoo’s influence has waned in recent years. In the crucial fourth quarter, for example, the combined Yahoo and Bing share of search spend fell to 28% from 32% a year earlier, according to Adobe Systems Inc.’s Adobe Digital Insights. And while Google’s click-through rates rose 15% year over year in the fourth quarter, the combined Yahoo and Bing click-through rates were flat (following second and third quarter declines).
Among smartphone paid search clicks, Yahoo’s positioning is weaker, as it accounted for just 4% of smartphone paid search clicks in the fourth quarter, according to performance marketing agency Merkle.
Yahoo has struggled to compete with Google and Facebook Inc., but Verizon isn’t acquiring Yahoo’s assets in isolation. Verizon is in the midst of reinventing itself from a utility to a media company. The first major step in that plan was its $4.4 billion acquisition last year of AOL, which it pitched as step to gain access to exclusive video and that would allow it toautomatically send targeted ads to mobile devices. Verizon says buying Yahoo adds even more mobile, video, native advertising and social media expertise to its arsenal.
“Just over a year ago we acquired AOL to enhance our strategy of providing a cross-screen connection for consumers, creators and advertisers,” says Lowell McAdam, Verizon chairman and CEO. “The acquisition of Yahoo will put Verizon in a highly competitive position as a top global mobile media company and help accelerate our revenue stream in digital advertising.”
That’s an enticing proposition, says Juan Margenat, chief operating officer of mobile advertising technology provider Marfeel. “Merging telecom data with digital advertising technology can be a very powerful thing,” he says.
But getting its disparate elements to work together won’t be easy, says Rebecca Lieb, an independent media analyst. “Verizon’s shift is an enormously large transition to make,” she says. “What Verizon is trying to cobble together is a ‘Franken-media’ company. Both companies have ad technology. It will be interesting to see what stays and what goes.”
Among the assets Verizon will acquire are programmatic demand-side platform Brightroll, mobile apps analytics service Flurry, its Gemini native and search ad platform, as well as a slew of media insights, including blogging platform Tumblr, and an email service that has roughly 225 million monthly active users.
While Google and Facebook Inc. are the clear leaders in the digital advertising market, Yahoo is a distant, though still sizable third. Verizon’s pitch is that the more access to consumer data it has online via Yahoo and AOL and from its cable boxes and smart devices, the more it can help online retailers and other marketers target consumers via digital ads, sponsored content and product placements, writes Shar VanBoskirk, a Forrester Research Inc. analyst, in a blog post.
“This allows Verizon to create better ad products which is competitive against primarily online giants (Google) and creates a better user experience which is competitive against other cable and telecom providers,” VanBoskirk writes.
But creating a better user experience will require the corporate cultures to mesh, Lieb says, and with any acquisition there’s at least some friction. “Integration is hard,” she says.
Verizon’s acquisition of AOL is a prime example. Roughly a year after the deal closed there are few, if any, tangible results.
“Verizon’s reinvention will take a good long time to come together,” Lieb says.