Another blockbuster tech deal was announced yesterday. Verizon will acquire Yahoo’s core business for $4.83 billion to boost its digital advertising capabilities. The deal includes Yahoo’s search, mail content and ad-tech business, but does not include Yahoo’s shares in Alibaba and Yahoo Japan. The combined company will reach over one billion users. Verizon plans to merge Yahoo with AOL, which was acquired last year for $4.4 billion, to create a larger advertising subsidiary.
Verizon’s Strategic Rationale
Verizon is building is digital advertising capabilities to compete with the top two players, Google and Facebook. With the deal, Verizon will double its digital advertising business to become the third largest US internet advertiser with 4.5% of the market share.
Lowell McAdam, Verizon Chairman and CEO, said in a press release: “Just over a year ago we acquired AOL to enhance our strategy of providing a cross-screen connection for consumers, creators and advertisers. 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.”
In building on its AOL deal, Verizon is doing what we call taking “frequent bites of the apple,” or using a series of deals to achieve its overall growth strategy. Using a multiple deals rather than a single transformational deal can have many benefits including focusing on a single reason for acquisition, adjusting to integration challenges more easily and minimizing the risk of acquisition failure. Fortunately, Verizon has already had some time to digest and integrate the AOL acquisition because integrating Yahoo’s massive workforce of 8,800 employees and 700 contractors will be no easy task.
Integrating Yahoo will be critical to growing Verizon’s digital ad business. In today’s marketplace, content is king and Verizon will need to produce and monetize exciting content in order to compete with Google and Facebook, who have users creating unique videos for free on YouTube and Facebook. Even with Yahoo, Verizon will still be far behind Google and Facebook who make up 36% and 17% of the market, respectively.