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Digital

Losing ground Yahoo joins AOL in the Verizon portfolio

So, Verizon has bought another ailing Internet giant. Following its acquisition of AOL for $4.4 billion, the communications company has bought Yahoo’s core operating business for about $4.8 billion. Yahoo’s demise as a separate company has been a long time coming and one could argue that its troubles began when it failed to leverage its widely appreciated content.

Back in 2006, Yahoo was ranked number 34 in the BrandZ Top 100 Most Valuable Brands Ranking with its brand contributing an estimated $14 billion to its overall business value. However, subsequent years saw a slow erosion of that value as it was surpassed by stronger and more purposeful brands. In 2009Yahoo had slipped to 81st with a valuation of just under $8 billion and the following year it did not make the ranking.

Surprisingly, however, Yahoo re-entered the ranking in 2013 and 2014. In retrospect this was less to do with the strength of the Yahoo brand and more to do with the repurchasing of Alibaba shares in 2012, which allowed the company to acquire several start-ups, and the better-known Tumblr, under Marissa Mayer’s leadership. The resurgence did not last and Yahoo disappeared off the BrandZ radar again in 2015. By early 2016 losses were growing and Verizon was already in the frame as a potential purchaser.

The reason for Verizon’s appetite for companies like AOL and Yahoo is not hard to fathom. With new demand for wireless likely to decline as the penetration of mobile devices tops out, Verizon needs to find a new income stream to keep investors happy. New wireless customers are going to be scarce and Verizon will likely find itself in a nasty share fight with AT&T and feisty T-Mobile, but content and the advertising services that good content enables are still very much in demand.

The good news for Verizon is that many people still have a positive view of Yahoo when considered in the context of news, information and search providers (although it is a complete also-ran when it comes to online sharing and networking). The foundation of any brand is that people believe it is meaningful – that is the brand meets their needs and is liked – and BrandZ finds that Yahoo, while taking second place to Google, is still more meaningful than the average and far more so than brands like Bing, AOL or The Huffington Post.

If people still value what Yahoo has to offer, then how come the brand could not figure out how to make more money from that demand? I believe the answer is that Yahoo failed to monetize its users effectively. In 2002 Yahoo tried to buy Google but the offer was refused. Rather than follow up on the offer, Yahoo chose to acquire smaller search engines and apply their technology to its own site. The end result has been that Yahoo lost ground on the hugely valuable SEO market. Moreover, as reported by The Economist , while investing in content, Yahoo failed to build the deep user profiles that now power online advertising on sites like Facebook and YouTube. As a result Yahoo’s share of global online advertising fell from around 20 percent back in 2004 to 2006 to 3 percent today.

So the interesting question then becomes will Verizon be able to make good where its new acquisition failed. What do you think? 

 

Written by Nigel Hollis,Executive Vice President and Chief Global Analyst at Millward Brown

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