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Yahoo’s latest acquisition is all about digital content, according to analysts

Monday’s announcement that Verizon Communications Inc. would be purchasing Yahoo Inc. for $4.8 billion USD prompted a range of expert opinion, but most can agree on at least one thing: the American telecommunications giant is not interested in its new division’s iconic search engine.

Rather, Yahoo’s true value lies in its apps, mobile ad technology, patent library, and 1 billion-user subscriber base, R. “Ray” Wang, founder and principal analyst of Silicon Valley-based Constellation Research says.

“[Yahoo CEO] Marissa [Mayer]’s done a good job of stabilizing the company,” he says. “The problem is that she bet on all the wrong things… She kept trying to turn Yahoo into Google and that’s not what Yahoo is about.”

Instead, Wang expects Verizon to focus on Yahoo’s content channels and ad solutions business, which he calls “pretty good – not the best ad tech but better than what Verizon has today” – and with Yahoo’s sizable patent library Verizon has plenty of opportunity to develop the technology further, he says.

Also of probable interest to Verizon is Yahoo’s 43 million daily readers, Wang says, noting that while the company’s reputation in the tech industry might be declining, its sports and financial content, and substantial e-mail subscriber base, which he admits often skews older than the 18 – 45 demographic favoured by advertisers, remain assets.

“Look, anybody who has a Yahoo Mail account is probably over the age of 40,” he says with a laugh. “But they’re actually a pretty loyal group, and they also have more disposable income.”

Unfortunately for Yahoo’s employees, Wang notes that between Verizon’s acquisition of Yahoo and its $4.4 billion USD acquisition of AOL last year, the company is likely to trim up to 3,000 workers in the near future.

Nor does he expect Yahoo co-founder David Filo, currently “Chief Yahoo,” to remain with the company for much longer.

“They have a lot of redundant operations… finance, staffing, probably content,” Wang says. “They’re keeping the Yahoo name, which is good, but we don’t see Marissa or Filo lasting for more than a year.”

Like Wang, Gartner Inc. analyst Eric Goodness believes there is a good chance Verizon could benefit from the acquisition, noting that by combining Yahoo’s online content and advertising assets with its existing technical services, the telecom giant is making itself more appealing to potential enterprise clients.

“As they reach out to enterprises with their core mobility and networking businesses, they’re creating a more compelling continuum of value,” Goodness says, though he wonders how well Verizon will merge AOL and Yahoo’s distinctive editorial voices.

By contrast, CTV tech analyst Carmi Levy is more pessimistic, believing that while acquiring Yahoo will make Verizon a stronger player in the digital advertising space, it won’t be able to compete with the likes of Facebook or Google.

“Verizon hasn’t exactly lit the world on fire with its AOL acquisition,” he says.

“Even after the acquisition is completed, it will be a distant third behind Google and Facebook, which combined have close to half of the American digital advertising market locked up, whereas Verizon will barely have five per cent,” Levy says. “It’ll be playing catch-up against two far more capable, far more agile, far more digitally experienced competitors, and it’s difficult to see where the innovation they need is going to come from.”

Regardless of the acquisition’s outcome, it’s unlikely to affect Canada anytime soon, IDC Canada Ltd. telecom analyst Lawrence Surtees says.

Instead, it’s a rare example of an American telecom giant catching up to its northern counterpart.

“When I looked at the deal that Verizon did a year ago with AOL, and the executive rationale, I kind of smiled to myself and said, ‘it’s almost like Verizon is taking a page out of BCE’s playbook in Canada,'” Surtees says. “We’ve been doing this for two decades… and they’re just starting to go down this route now.”

Bell Canada owner BCE Inc. purchased CTV and the Globe and Mail in 2000, while competitor Rogers Communications Inc., whose founder Ted Rogers began his empire by acquiring a series of radio stations in 1962 and expanding into broadcasting in 1967, has included the Maclean-Hunter magazine empire since 1994.

“It’s the tail wagging the dog,” Surtees says. “I would argue that Verizon’s following us.”

Yahoo Canada did not respond to requests for comment by press time.

 

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