Why Verizon wants an ailing Yahoo

Yahoo, once the tech world's brightest star, is finished as an independent company

Verizon purchased Yahoo.
(Image credit: Justin Sullivan/Getty Images)

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Yahoo, "the front door to the web for an early generation of internet users," is finished as an independent company, said Vindu Goel and Michael de la Merced at The New York Times. The struggling Silicon Valley pioneer agreed this week to sell its core internet business to Verizon Communications for $4.8 billion. The sale punctuates a stunning fall from grace for Yahoo, which at its peak in January 2000 was valued at more than $125 billion. It's also the likely end of the road for CEO Marissa Mayer, who is widely expected to be shown the door when the deal is finalized in early 2017. The former Google wunderkind, who was brought on four years ago to revive Yahoo's fortunes, stands to receive about $57 million in severance for her failed turnaround efforts.

Founded in 1994, Yahoo was once the tech world's brightest star, but it "fell behind the fast-moving internet economy it helped create," said Jack Nicas at The Wall Street Journal. The onetime pacesetter found itself overtaken by nimbler competitors like Google and Facebook, as users moved away from web portals to apps and social networks. In its bid to adapt to the changing times, Yahoo developed a kind of split personality, said Timothy B. Lee at Vox. Mayer tried to reboot Yahoo as a tech innovator, spending more than $2 billion acquiring some 50 startups. But she also "doubled down" on efforts to build a top media company, hiring Katie Couric, for a reported $10 million a year, and other well-known journalists. This bifurcated strategy only amplified the confusion about the company's identity, and failed to staunch the bleeding of talent and revenue. Soon, the company was worth "less than the sum of its parts."

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So what could Verizon possibly want with this ailing dinosaur? asked Brian Barrett at Wired. Oddly enough, buying Yahoo is the telecom juggernaut's "best shot at staying relevant." Despite Yahoo's flagging fortunes, it is still "a surprisingly popular content company," drawing roughly 1 billion users every month to its search engine, email portal, news sites, and services like Flickr and Tumblr. Verizon, with its vast mobile network, already controls some of the "pipes" through which a great deal of online content flows; owning Yahoo will now give it control over what comes out of the faucet too.

Verizon plans to pair Yahoo's assets with those of another web trailblazer, AOL, which it bought last year for $4.4 billion, said Steve Mollman at Quartz. Verizon hopes to mesh Yahoo's content with AOL's ad technology to challenge Google's and Facebook's dominance in online advertising. But "Verizon has a long way to go." AOL holds just 1.8 percent of the $69 billion digital ad market, while Yahoo's share is about 3.4 percent. "Google and Facebook together claim about half of it." Color me skeptical, said Erin Griffith at Fortune. Both Google and Facebook are incredibly profitable because they've figured out how to make money on digital content "without actually getting into the messy, expensive business of producing it." Sorry, but "combining two internet has-beens doesn't make a Facebook-killer."

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