Verizon Strengthens 5 Major Areas Following Its Acquisition of Yahoo

Tumblr, mobile and video are key components

It's official—Verizon has officially acquired Yahoo for $4.8 billion in cash. The digital player's core business—namely its advertising business and content—will be integrated into Verizon-owned AOL as the telecom looks to compete with established digital players Google and Facebook.

After acquiring AOL for $4.4 billion last year, the deal is part of Verizon's goal to have a global audience of two billion users and $20 billion in revenue by 2020. But grabbing traffic and ad dollars from established competitors like Facebook and Google will be tough, said Craig Key, svp of media at Space150.

"What [Yahoo's] Tumblr alone could never tell us, potentially, Tumblr plus Verizon could, and opens a world of possibilities in targeting and attribution—both online and offline," he said.

"From a pricing perspective, I don't think this will do much to impact the marketplace. As big as Yahoo, AOL and Verizon are, their combined traffic would make up just 7 percent of the top 50 properties' traffic. The internet is just too big for an old-school monopoly-style squeeze play to drive up prices."

Here's a look at what Verizon (and subsequently, AOL) is getting out of the deal.

Mobile
Like all tech companies, mobile's been a major focus for Yahoo in recent years, and the company claims to have 600 million monthly users.

Combined with Verizon's 100 million wireless customers and a trove of data on consumers' whereabouts and habits, the Yahoo acquisition means that AOL can theoretically take on digital juggernauts Facebook and Google.

The shift to making money off of mobile traffic is tough though, and 360i chairman Bryan Wiener said that Verizon won't be able to take on Facebook or Google, but it could be a "potential leader of the second-tier of mass advertiser solutions."

"Using location and behavioral data to provide advertisers the ability to reach specific audiences at scale at a specific time and place is a compelling value proposition—jury will be out on whether they can make this a reality," he said. "The question is whether Verizon can thread the needle on using data from his mobile phone users to augment the Yahoo-AOL offering without setting off privacy alarm bells."

Native and search ads
Despite consistent negative chatter about Yahoo during the past year, the company still has more than one billion monthly users—a significant audience for AOL in terms of both content and advertising potential.

Yahoo's flagship search product is a self-served ad platform called Gemini that marketers can target with native and keyword-based promos. Brands including Jeep have bought the ads, claiming that Gemini boosts completed-view rates by 50 percent compared to industry averages.

While Yahoo's share of search is small compared to Google or even Microsoft's Bing, the company also has 225 million monthly active users through its email system Yahoo Mail.

Targeted video ads
As AOL looks to beef up its mobile video efforts through its Go90 streaming app with exclusive content from media brands and creators, BrightRoll—Yahoo's programmatic video platform—is potentially one of the most interesting assets Verizon is getting.

Go90 has struggled to gain initial traction though, which Yahoo's content and ad inventory may help with.

BrightRoll uses Yahoo's data to target and serve ads across phones, tablets and desktops and clients include Lexus, McDonald's and Kellogg's. When Yahoo purchased BrightRoll for $640 million in 2014, chief Marissa Mayer expected that the video platform would bring in $100 million that year.

Tumblr's millennial audience
Mayer paid a whopping $1.1 billion for Tumblr in 2013 to reach its rapid fan base of millennials who love its creative posts.

Three years later, Yahoo has been slow to roll out new features (the social network recently added live video, more than a year after Twitter-owned Periscope launched) and more sophisticated types of ad targeting. Yahoo and Tumblr have also mixed sales teams in the past few years, making it difficult to build out and sell distinctive ad products for each platform.

According to eMarketer, Yahoo will bring in $2.83 billion in digital ad revenue this year, equivalent to 1.5 percent of digital's expected $186.81 billion in ad revenue. This year's expected number is down from 2015 when Yahoo brought in $3.28 billion.

Under a new leadership team, Deep Focus founder and chairman Ian Schafer, believes Tumblr may get a second chance.

"This could be a breath of fresh air for Tumblr, as Verizon—in many ways, a media company—can help bring the platform back to its roots as a place for creative individuals to express themselves," Schafer said. "We don't often see platform second acts, but in 2016, I'll no longer rule anything out."

App analytics
Mobile app analytics company Flurry is another one of Yahoo's acquisitions under Mayer's tenure.

After buying the mobile player in 2014 for between $200 and $300 million, Yahoo began plugging Flurry into its ad network, letting advertisers measure how many people actually visited a store after seeing a video ad.

"This deal is something that has been a long time coming and something both companies needed," commented Jonathan Adams, chief digital officer at Maxus. "This merger won't be easy to execute from a tech standpoint, but it will easier in sales. From our perspective, a strong volume player resulting from this merger will be welcomed by our industry."