When Verizon agreed to purchase Yahoo for $4.8 billion, it was the right price. Not because Yahoo was worth $4.8 billion, simply because it was the price Verizon was willing to pay. Valuations are all smoke and mirrors until someone is willing to write you a check. That is the moment (the only moment) you know the true value of anything.
Then the thinkable happened. Yahoo disclosed that it had a years-old security breach that just happened to be the biggest in history. We found out that the company had set up special software to spy on all incoming emails "for national security reasons," and then, the cherry on the cake of Verizon's day, Marissa Mayer's alleged campaign to purge the company of its male employees (according to a lawsuit). Thinkable? Don't I mean "unthinkable?" Nope. Yahoo is run by a person who should have been kicked upstairs (where she could do no harm) years ago. But I digress.
In the wake of the continuing disaster that is Yahoo, Verizon is asking for a small discount (about a billion dollars) off the agreed-upon purchase price. Everyone understands why. Yahoo covered up a super-sized hack that exposed account information for over 500 million Yahoo users for over two years, then tried to act like it was impossible to defend against because it was perpetrated by state actors (which is questionable; most security experts think this was done by hackers-for-hire, not a nefarious nation-state). Considering Yahoo's mismanagement, Verizon should probably be asking for $2 billion off! But that's not the point.
Even with everything we've just listed. Even with Marissa Mayer on track to secure her place as one of the worst CEOs in CEO history, Yahoo still has a value to Verizon.
Successful Big Companies Know What They Can't Do
While there are reports that Tim Armstrong is privately very concerned about the Verizon/AOL/Yahoo integration and additional "off the record" sources are saying that Yahoo technology cannot be integrated with AOL technology in any meaningful way, publicly, Tim is quoted as saying, "I think people knew the businesses were similar, but I think it's more similar. I think what I mean by that is that Yahoo is going through a turnaround and a lot of that work and strategy is similar to what AOL did when we were turning around the company. So I think there's a lot of opportunity there for us to speed up on both sides."
There may be opportunity. But to realize the potential being publicly stated, a significant number of extremely difficult technical and cultural decisions are going to have to be made. That said, there is an overwhelming reason for Verizon to complete this acquisition: It could never build any of this itself. Never.
Verizon has an additional aspiration. It wants to "own" 2 billion uniques by 2020 (which would make it number three, behind Google and Facebook). To accomplish this, Verizon will need to acquire them. They cannot be organically generated.
Can Verizon craft a strategy that will properly position a combined Verizon/AOL/Yahoo to achieve its business goals? Are Yahoo's uniques worth owning? Is there a loyal core community of Yahoo users? If Verizon buys them, will they really belong to Verizon?
Since we're asking questions, "What exactly is Yahoo?" Well, if one can believe what one reads in the news, Verizon knows exactly what Yahoo is. They're just discussing price.