Yahoo’s missing $120bn search engine
Yahoo, once a business with a $125bn valuation at the height of the dotcom boom, has agreed to sell its core internet business to Verizon for just $4.8bn.
Since Yahoo agreed to let Microsoft serve most of its search queries from 2009 this felt inevitable. This was a search company outsourcing its search engine, freeing it to acquire tech businesses seemingly at random without considering how each would fit into the company’s M/O.
Google, in contrast, only makes acquisitions that will support its core purpose: to sell more search advertising organise the world’s information and make it universally accessible and useful.
The value of the deal reflects this. Yahoo’s core business isn’t Yahoo's core business anymore. 51 per cent of it is Microsoft’s and at least some of the other 49 per cent belongs to Google.
This partially explains why Microsoft – which made an offer for Yahoo 10 times the sale price in 2008 – explored a bid this year and thought better of it. Microsoft already owns the part of Yahoo that it considered valuable.
While Yahoo did make some interesting acquisitions since the Microsoft deal, the lack of purpose meant there was no core function to integrate businesses such as Tumblr into and for the last half-decade Yahoo has transitioned from advertising giant to media holding company.
…and with no real raison d’être even Tumblr has begun to slow down.
Several poor decisions – from both Yahoo! and Microsoft – all but handed Google the search market:
Firstly, Yahoo bet big on Microsoft in the 2009 search deal and it has taken seven years for Microsoft to be deliver a truly competitive search product.
Secondly, despite powering 51 per cent of Yahoo’s desktop search results, Microsoft let Yahoo retain 100 per cent of its mobile search offering because in 2009 mobile search wasn’t considered important. Also in 2009: Google acquired mobile advertiser AdMob – which it’s now using to monetise mobile apps among other things – and celebrated owning Android for the last four years.
Yahoo clearly knew it was onto a good thing with mobile because even when the deal was updated in 2015 it retained mobile search. Perhaps the move to buy Tumblr was considered part of Yahoo’s transition into the mobile era but even the acquisition of mobile analytics business Flurry in 2014 was too little too late: Google shipped 1 billion Android smartphones the same year.
But this is where the deal takes an interesting turn:
A business that has been irrelevant since the smartphone revolution began has been purchased by a company that sells mobile devices and provides the network for a third of the United States' mobile customers.
As Verizon already bought AOL last year the move to swallow Yahoo has been much easier: the company already knows how to approach a fallen search giant.
In many ways AOL and Yahoo are very similar businesses: they made a lot of money connecting people to information on the internet and now make less money selling advertising (if anything it’s ironic that Yahoo’s search deal with Mozilla has been considered a potential deal-breaker for many suitors over the past few months after CEO Marissa Mayer swooped in with a barely profitable deal in late 2014).
With Yahoo – as with AOL – Verizon knows exactly what it’s getting. And it knows it isn’t getting a search engine.
Stephen Kenwright is director of search at Branded3. You can follow him on Twitter at @stekenwright