Verizon-Yahoo Deal Is the Best Possible Outcome for the Industry
In the often unpredictable ad tech world that we live in today, sometimes the stars align and the best possible outcome realizes itself. This is the case with Verizon acquiring the core assets of Yahoo, a story now playing itself out for a second time since Verizon acquired AOL in May 2015.
While I am confident that this was the best outcome for the industry, for consumers and for marketers, nobody should be under the illusion that the road ahead will be easy. The landscape is littered with failed tech mergers and acquisitions over the past two decades, and perhaps none is more infamous than the AOL-Time Warner merger in 2000. This is widely believed to be the worst merger of all time, and Verizon will need to heed the lessons of that debacle to be sure that it doesn't meet the same fate.
Let's start with the glass half-full. The synergies between Verizon-AOL and Yahoo are obvious. Both come to the table with impressive tech stacks, DSPs, data solutions, cross-device expertise and significant original content. Both have extensive sales teams and industry-vertical expertise. Both have scaled audiences that when aggregated can give Google and Facebook a run for their money. In a vibrant marketplace, competition is a good thing, and while Google and Facebook are both innovating and printing money, the rest of the industry is fighting for the scraps. A strong No. 3 will be good for us all.
There is also the power of owning both the distribution and production sides of the ecosystem. Comcast-NBCU has already shown the benefit of that marriage (with much more to come), and I am hopeful the new Verizon will do the same. The combined Verizon-AOL-Yahoo entity would have over 6 million direct fiber-to-the-home customers, in addition to over 140 million mobile subscribers. Imagine the possibilities of aggregating and harnessing that intelligence to create the most engaging consumer experiences in the world. Powerful.
Then, of course, there are some very real challenges for the new organization. Verizon-AOL is still months away from getting its own house in order. It represents tremendous opportunity in its own right, but it has a lot of privacy, legal and technology hurdles to overcome. Leveraging Verizon's data for AOL's benefit has been discussed but not fully realized. As a brand, AOL has historically stood for the internet on-ramp and may carry with it too much baggage to be relevant in today's world. On top of this, there is the issue of absorbing and managing Microsoft's advertising sales business and digesting Millennial Media. A lot to do.
Finally, one point that is worth calling out. I think back to one of the times that I heard Steve Ballmer speak as he described Microsoft's challenge with Google. He stated that it is really difficult to compete with "free." Google's hugely profitable search business gives it a unique ability to subsidize lots of other businesses (like operating systems). In addition, it operates YouTube and spends very little money on creating original content. It operates a platform business that leverages the investment that others have made in content. Very similarly, Facebook has built a tremendously successful platform business without spending a dime on content.
Getting content right in today's environment is a particularly tricky business. Being able to make money at it is even trickier. The new Verizon-AOL-Yahoo has to figure that out as it represents a significant piece of its value proposition today. I wish them the very best of luck. I have known Tim Armstrong since the mid 90s, and while he didn't allow me to buy the homepage of Google (for Coca-Cola) way back then, he is an industry visionary and I'm betting on him to mold the new Verizon into a digital marketing powerhouse.