Just who will buy Yahoo, and what would the fallout be in the advertising game?
Yahoo’s actual financial results were announced last week with little acknowledgement. Much of the reporting centred on its impending sale. The Drum’s digital editor Ronan Shields asks who would want to buy, and why? And ultimately who will benefit?
Yahoo called its latest quarterly results yesterday demonstrating that revenue continued to contract, although the numbers beat expectations (arguably its stock price has been buoyed by recent fervent speculation as to the spin-off of its core business) chief executive Marissa Mayer saying that 2016 was off to a “solid start”.
The top line figures were that Yahoo posted a $99m loss on the back of an 11.6 per cent annual fall in revenues ($1.08bn) during the first quarter of the year. Further details can be read here.
However, as stated above, more people are interested in what the future holds for Yahoo than what went on in the previous quarter, given the (near certain) takeover. Multiple articles have been published citing ‘sources close to the negotiations’, but I’d argue that few outside of Yahoo’s C-suite are genuinely in the know.
The reported interest in Yahoo has come from many quarter, The Daily Mail General Trust, Verizon Wireless (which also owns AOL), YP Holdings and private equity firm TGP have all expressed interest in acquiring the outfit.
Will it be a telco?
I’ve already gone on record stating my belief that mobile operators are poised to play a huge role in the online advertising industry.
If you think of pairing Yahoo’s first party audience data (which although it is shrinking in number compared to its heyday) is still sizeable, along with the audience insights of a mobile operator (such as location data) this would prove attractive on any proposed media plan.
As mentioned, Verizon Wireless’s CEO has voiced an interest in such a purchase (interestingly enough it is now offering advertisers its location insights via its AOL ad tech stack). Although why would it add to its AOL purchase so quickly, and wouldn’t this pose a series of integration nightmares? The latter is not a reason to put off any such purchase, but the cynic in me thinks Verizon is only speculating on such a move to bump up the price tag for any potential competitor.
Japan-based SoftBank has also been associated with a potential bid. This would make sense given that it is a stakeholder in Yahoo Japan, and has invested in other ad tech outfits such as InMobi, and more recently Yieldify. It also owns US operator Sprint, plus SoftBank COO Nikesh Arora - who just like Mayer is an ex-Googler - joined the outfit last year and is widely understood to have been charged with diversifying its interests. A big ticket purchase such as Yahoo would put it firmly on the global stage. This is one I’d take seriously.
The Mail?
If you’ve read this far, I’d bet that you probably agree with me that the prospect of combining the editorial voice of The Daily Mail with the scale of The Daily Mail is an interesting one. But let’s just look at the prospect in purely objective terms.
Unquestionably, pairing the scale of MailOnline – the most widely read website in the world, according to its own statistics – with the data targeting, and media buying capabilities of the BrightRoll ad stack is a potentially formidable proposition. Again, I think such a pairing would look interesting on any media plan.
Separately, as noted in an opinion piece penned by Green Square partner Andrew Moss, such a move demonstrates the scale of the ambition DMGT has in the US.
He offers the following assessment: “As I write, there are two scenarios. One, the less likely, deal would see a private consortium buy the whole of Yahoo, then combine its media properties with the Mail’s online operations in a separate company in which DM> would have a large stake.”
Moss does go on to state how such a proposition makes for a leftfield offering. I would agree, but would classify this as an outside possibility.
Microsoft?
Microsoft has also been mooted as forming part of a consortium (along with private equity interests) to take over the assets of Yahoo. While Yahoo and Microsoft work closely together on the search front (albeit Yahoo also works with Google on that matter), I just can’t see this move making sense for Microsoft.
True, a tie-up with Yahoo would make a dent in Google’s dominance of the North American search market, but I just don’t see this one coming off, especially since Microsoft all but gave up on the online advertising game through its tie-up with AppNexus ad AOL.
Private equity?
As mentioned in Moss’ musings, there is value to be had in Yahoo’s assets, and private equity groups will surely be giving Yahoo’s books more than a passing glance. With a bit of cost-cutting here and there, and then striping out its multiple assets, Yahoo could surely turn a pretty profit for such a financially ruthless management team.
Who would benefit?
However, I think the above scenario would bring little value to the wider digital advertising market. In my opinion it would lead to an even more fragmented Lumascape (and that’s a canvass that needs no more complication).
This brings me to the question of who in the digital advertising industry would benefit from a Yahoo sale?
In my opinion, I think you’d have to say media buyers, especially those media agencies that take umbrige with Facebook and Google’s near stranglehold on the digital advertising market, especially when it comes to mobile.
I say this referring back to a Mobile World Congress panel I sat in on earlier this year where WPP chief Sir Martin Sorrell (who classifies Facebook and Google as ‘frenemies’) discussed his spending plans for the year ahead.
He forecast that WPP would spend $4bn with Google (the biggest media owner it invests with), $1bn with Facebook, and roughly $750m with AOL. Although on the AOL front he did note that fusion with Verizon’s targeting capabilities was in interesting development, and that in 12 month’s time, that $750m figure could be greatly enhanced.
Sir Martin greatly welcomed the prospect of a serious No.3 player, a fourth would (in the guise of a beefed up Yahoo) would also be meet a similar greeting by advertisers.
Like I said, a Yahoo/mobile operator pairing could seriously add to this mix, and help to address some of the skewed market supply and demand dynamics we are currently observing in the digital advertising industry.
This brings me to a conversation I had with AppNexus president Michael Rubenstein late last year (who calls the industry horse jockeying the ‘ad tech power game') when he said that 2016 would see some significant moves.
I tend to agree, and in the Yahoo sale, I think we’re in for seismic shift.