Yahoo + AOL gives the scale of Verizon. Can it be a mobile media powerhouse?

Verizon, faced with the saturation of its wireless services business, wants to diversify its revenue mix and become a major player in mobile media and advertising. But it faces many obstacles on the way to realizing its vision of becoming a major player in the sector.

To get there, the phone company is looking to bring together more than a billion monthly users of Yahoo, which Verizon is acquiring for $ 4.8 billion, along with AOL, which it bought last year for 4.4 billion dollars. billions of dollars. Verizon sees a rich opportunity in delivering content and advertising from these and other properties to its 100 million wireless subscribers, and in the mobile advertising market dominated by Google and Facebook.

“We have a pretty clear set of goals for 2020, and the main one is to reach 2 billion users,” AOL CEO Tim Armstrong said in an interview. “Facebook and Google look like real behemoths, but that doesn’t mean we can’t be a serious third contender.”

On paper, the strategy makes sense, analysts say, even though Yahoo’s net revenue is on track to decline 14% in 2016. Verizon’s acquisition of Yahoo’s internet business is expected to close in the first quarter. 2017.

“Yahoo will provide an immediate boost to the nascent Verizon mobile platform with additional content and increased advertising scale,” Cowen & Co. analyst Colby Synesael wrote in a research note Monday. “Overall, the combined AOL / Yahoo platform is expected to provide a level of scale that makes it a more meaningful player than either company was on its own.”

Verizon is banking on increasing mobile advertising views with Yahoo’s primary focus on sports, news and financials, as well as its messaging service. Yahoo is also bringing additional ad technology tools to what’s already in AOL’s arsenal, including the BrightRoll ad serving platform, Flurry mobile apps and analytics, and native ad platforms and Gemini research.

But as Verizon places its bet on becoming a media giant, the challenge will be in execution, said Peter Csathy, founder and chairman of Creatv Media, a media investment and consulting firm. “If Verizon can tie AOL and Yahoo together, and allow AOL and Yahoo to truly be the engine of media strategy, then it has the potential to be successful,” he said. “But that’s the big thing.”

So far, consumer interest in Verizon’s mobile video service, Go90, launched last fall, “has been lukewarm,” according to a UBS analyst note led by John Hodulik.

Together, AOL and Go90 represent less than 3% of Verizon’s revenue; adding in Yahoo, it will still be less than 6%, according to the estimates of the firm. “While this deal barely changes Verizon’s growth or margin profile, the synergies over time could increase earnings,” UBS analysts said.

And the phone company faces a potentially important and thorny issue: Consumers have a more negative perception of how Verizon treats their privacy and data, compared to internet companies like Google and Netflix, according to Steve Beck, founder. and Managing Partner based in New York. board cg42. The company’s recent surveys of a panel of 18,000 U.S. consumers found that 35% of respondents said they trusted Verizon with their personal information, compared to 42% for Google and 43% for Netflix. (Facebook was not covered in the company’s latest wave of investigations.)

“Verizon is acquiring eyeballs at a relatively low price… bringing together the biggest hits of the 90s and early 2000s,” he said, “this is not a slam dunk.”

The survey results “paint a picture of the challenge Verizon faces as it really sinks into the ad-supported space with a free business model. The perception is that they don’t have the same confidence in privacy that companies like Google have, ”Beck said.

Meanwhile, another major job for Verizon – and for CEO Marissa Mayer, for now, as she continues in her role until the deal closes – will be to restore employee morale, said Csathy.

“The first tip will be to improve employee morale in the face of the inevitable job cuts” resulting from the combination of AOL and Yahoo, he said. Verizon “has the potential to change morale – Yahoo has been an unhappy place for a while. It is essential for them to retain the best people and to bring in the right talent to put all these parts together. “

Yahoo’s merger into the Verizon fold will be overseen by Marni Walden, executive vice president of the telecommunications company and president of product innovation and new businesses, with Armstrong leading the integration. Armstrong said he and Walden would meet with Mayer and other executives at Yahoo this week to begin determining strategic priorities and management roles going forward, a process he said would take between 3 and 6 months.

What’s also important to recognize is that Yahoo has actually lost a share of mobile ad spending to Google and Facebook. In 2016, Google will capture 31.7% of the US mobile advertising market, followed by Facebook at 19.2%, according to eMarketer estimates. Yahoo’s share of mobile ads is expected to decline to 2.5% (from 2.9% in 2015), while AOL’s Millennial Media is just 0.3%, per eMarketer.

On the business-to-business front, Verizon has the ability to market advertisers as an alternative to Google and Facebook, said Beck of cg42. But “they should dig deeper into the niches, business practices and policies where Google and Facebook are vulnerable to attack… and how can they create a viable alternative,” he said.

One of Verizon’s main differences is that it is a leader in the production and acquisition of content, such as its free MLB Game of the Week and a separate deal with the NHL. In contrast, Google and Facebook’s business relies on monetizing content created by others. The problem is, creating or licensing content is a low-margin, more capital-intensive game.

In addition to its acquisition of AOL, Verizon earlier this year formed a 50-50 digital video joint venture with Hearst, and the JV subsequently purchased Complex Media. Verizon also took a 24.5% stake in AwesomenessTV, majority owned by DreamWorks Animation and Hearst holding the remaining capital, and executives at the telecom company plan to roll out a premium subscription offering for Go90 with original series of games. ‘AwesomenessTV.

It remains to be seen how all of these pieces fit together to catalyze Verizon’s overall mobile media game – or not. As for how Yahoo’s traffic will fuel the equation, Armstrong noted that Yahoo Sports lags behind ESPN in terms of digital audience, with 7 million daily users, while 43 million visit the home page daily. from Yahoo. In total, Yahoo will bring 165 billion “daily data events” on all devices to the AOL-Verizon dataset, according to Armstrong.

Either way, RBC Capital Markets analyst Mark Mahaney sees the Verizon deal for Yahoo “to mean something of an ignominious end to Yahoo, which was ‘he Facebook’ or ‘the Google’ of the Internet. around 1999, “he wrote in a note. The exit from the old web powerhouse “speaks volumes about the key importance of robust, long-term investment ramps – a la Amazon and Google and Facebook, and arguably unlike Yahoo and eBay.”


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