Verizon / AOL + Yahoo! Merger

You all are probably aware of the big, but not actually that big, news that Verizon/AOL is buying Yahoo!'s operating assets. Y! is comprised of three main assets, a big stake in Alibaba, a big stake in Yahoo! Japan (primarily owned by Softbank), and then the operating business that you all think of as Yahoo!, which is actually the least valuable of the lot.

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The transaction itself involves the entity Yahoo! selling the operating assets (yahoo.com, tumblr, brightroll, flurry, etc) to VZ. The remaining entity will become a holding company for the other assets. This whole thing was a tax gambit for Y! shareholders. Y! wanted to divest the other assets (Alibaba, Y! Japan) in a tax-free spinoff for its shareholders, but the IRS said no - it wouldn't be tax free. The tax burden would be 35%-ish of the value of those assets - 0.35 * $30B or so. Instead, Y! sold itself and has a tax of only $5B * .35, and the shareholders effectively have a tax-free-ish spinoff of the remaining assets, since now they're all that remains. This paragraph itself speaks mainly to the idea that running a public company is often quite divorced from optimizing the operations of the operating company itself, and also is quite boring.

There's a lot written about why AOL would buy Y!'s assets, and a lot of it is more thoroughly considered than what I will bring to the table. Quick summary, Y! struggled in a new world of mobile and social, and struggled to bring its assets and strategy into a cohesive package that grew in the new ecosystem. From a media perspective, Y! has a number of interesting, but declining, assets, including Y! Finance, News, Mail, their Homepage, and Tumblr. From an ad tech perspective, Y! has bought and developed a lot of tech, ranging from failures, like Right Media (disbanded) and Blue Lithium (https://en.wikipedia.org/wiki/Gurbaksh_Chahal), to varying degrees of successes, like BrightRoll (video ad exchange / platform), Gemini (native ad platform), Flurry (mobile ads & analytics), and Interclick (behavioral ad tech).

Verizon is a massive cell company. They own AOL, which has its own network of declining media properties (AOL.com, AOL Mail, MapQuest, Moviefone) and ad tech plays (Millenial Media, Convertro, Vidible, Gravity, Adap.tv, Quigo, AdTech, Tacoda, etc). Facebook and Google each have an incredible amount of data, reach, and targetable inventory. As a result, they've been able to capture a significant percent of digital ad spend. The bet is, simply, that Y! + AOL (possibly + VZ data and distribution) can create a bona fide third player at the same scale as Facebook and Y!. 

Whether that outcome happens depends. Both Y! and AOL have done mediocre jobs integrating their breadth of ad tech into a single platform as independent entities. There will assuredly be challenges integrating technologies, systems and egos across a much larger ecosystem. Verizon itself has incredible data - they can see all their subscriber's data on both cell and cable systems. Currently the FCC imposes limits on the degree to which this can be used, but it's not impossible to see that changing. It's also not impossible to see VZ creating cable and cell content channels exclusive to VZ subscribers based on AOL on Y! media and other value-add.

Neither AOL nor Y! are platforms designed for the next generation of content consumption. So the biggest question is whether they can move from the large websites that they represent today to meaningful players in the media world of tomorrow. They certainly represent large audiences, so can the combined weight of VZ + Y! + AOL create a platform and advertising ecosystem that rivals the attractiveness of Google and FB over the years to come? It remains to be seen. But for Verizon, the upside is potentially huge and the cost to its business was relatively small, so it's an interesting bet to make. For TripleLift, it means that potential competition in Y! and AOL will likely be distracted in lengthy merger and integration challenges while we continue on our mission.