AT&T's surprise re-entry into the bidding for Yahoo! is about gaining digital advertising assets. As a bonus, it could block the path of rival Verizon Communications.
AT&T emerged alongside Verizon and several other bidders interested in Yahoo, people familiar with the situation said Wednesday. The two largest U.S. wireless service providers are facing sluggish subscriber growth and stinging price competition from smaller carriers, and have targeted video as a source of new revenue. But video won't generate sales without advertising technology.
The phone giants have always had similar game plans -- entering mobile, combining services into bundles, and now offering mobile video. But while Verizon has been open about its desire to acquire Yahoo at the right price, AT&T has kept its interest close to the vest.
"It was always thought that Yahoo would be a natural fit with AOL at Verizon, so the level of interest from AT&T's decision to swoop in is surprising," said Amy Yong, an analyst at Macquarie Capital. "Much of this is competition to block Verizon."
Representatives for AT&T, Verizon and Yahoo declined to comment.
Yahoo could be a strategic fit for AT&T because the phone carrier has become much more ambitious about digital video. After acquiring DirecTV for almost $50 billion last year, AT&T plans to offer online streaming-video service this year, using the satellite-TV company's brand. Getting better technology from Yahoo would help AT&T provide businesses with ads delivered over the internet that are better tailored to suit individual viewers' interests.
In recent years, Yahoo Chief Executive Officer Marissa Mayer focused on what she saw as the future of digital advertising, including paid promotions tied to mobile, video and social-networking -- along with native advertising, or inserting marketing spots alongside news stories, blog posts and other content. That part of the business has grown quickly, even as desktop-related revenue has been under pressure.
While Yahoo has backed away from some of its premium content, it still sees video as a key source of user growth. The company spent millions of dollars to stream more live National Hockey League games and has deals with Major League Baseball and the Professional Golfers' Association.
One piece that could be particularly appealing to AT&T is Flurry, an analytics and advertising startup that Yahoo bought for about $300 million in 2014. Since the acquisition, the unit has been blended with other Yahoo services -- and spawned the Yahoo Mobile Developer Suite, a set of tools to help developers analyze, grow and make money from their apps. It supports more than 250,000 software developers and more than 800,000 apps and has had customers such as Snapchat, Angry Birds and Vine.
Yahoo purchased BrightRoll, a provider of tools for buying and selling video ads in more automated ways, for about $600 million in 2014. That's also been combined with other Yahoo services that broadly are helping companies with programmatic advertising in multiple formats.
Yahoo also has a massive advertising business tied to online search deals with Microsoft, and more recently Google. This has delivered about 40% of Yahoo's sales, nearly as much as the display ad side of the company.
"AT&T has to be nimble. Getting programmatic ad buying capabilities on mobile is probably one of the big reasons they are interested," Macquarie's Yong said.
Yahoo still boasts about 1 billion users, putting it among the largest online players in the world. Despite all those email users, sports fans, financial news enthusiasts, search customers and Flickr photo buffs, Yahoo has serious challenges. It has been losing ground in digital advertising to rivals such as Facebook, Google and Twitter. This year, the web portal will capture just 1.5% of the digital ad market, down from 2.1% in 2015, according to EMarketer.
Mayer has touted more than 600 million mobile users -- a valuable asset as consumers increasingly access digital services on smartphones and other portable devices, rather than desktop computers.
Still, Yahoo has struggled with the transition to mobile, held back by its legacy as a web portal built in the 1990s when PCs dominated. Among the top 100 free apps on the Apple's App Store, only one is a Yahoo property: Tumblr, a social-networking startup it bought for more than $1 billion in 2013.
-- Bloomberg News