The other day became known that the telecommunications company Verizon is selling both of its assets – both Yahoo and AOL. The amount of the deal is only $ 5 billion. “Total” – because the company itself bought them much more expensive, and even earlier, both Yahoo and AOL were worth much more. Verizon is selling both assets for $ 4.1 billion less than it acquired a few years ago.
Nothing good came of this purchase – Verizon was never able to grow the business through acquisitions. That is, everything is going well for the operator itself, but not very well for these assets. After the sale, Yahoo will be merged with AOL, forming a new company, the name of which is not even known.
The buyer is known – it was the investment company Apollo Global Management. The terms of the deal are also known: the seller receives $ 4.25 billion in money, and the remainder of $ 750 million is transferred as 10% of the new company. So far, all these are just plans, the deal will be closed (subject to regulatory approval) in the second half of 2021.
For Verizon, the sale of its assets is not a very profitable deal, since, as mentioned above, the company loses a lot of money on it. Only AOL cost the American operator $ 4.4 in 2015. Roughly the same amount, $ 4.7 billion, was spent on the Yahoo acquisition. The result was $ 9.1, which means $ 4.1 in net loss during the closing of the deal.
Why Verizon bought the companies is not entirely clear, because they did not actively develop after the transition to a new owner. By the way, if anyone remembers the Tumblr service, then it also belonged to Verizon, since the company got it together with Yahoo.
After acquiring this asset, Verizon decided to ban adult content on Tumblr, which triggered a massive churn of users – about 30% within a couple of months. In 2019, there were very few users compared to the peak popularity of the service, so Verizon sold it to Automatic, the developer of the WordPress engine. In 2013, Tumblr was worth about $ 1.1 billion, but in 2019 it was sold for only … $ 10 million.
What happened to Yahoo, is it the pioneer of the Internet?
Indeed, the company appeared 2 years earlier than Google. Its success was largely due to the lack of competitors. In just a few years, the company’s services have received about 1 billion users. And by the beginning of the new millennium, Yahoo’s capitalization reached $ 130 billion.
Everything went well for another 10 years, after which the company began to have problems – its profitability began to decline very quickly, so much so that in 2015 Forbes estimated the company at “less than zero”.
The problem with Yahoo is that initially the company had no competitors from the word at all. She created one of the first Internet portals, which attracted a huge number of users. As it turned out, the management has no clear vision of the future of the company. As long as everything was going well, nothing more was needed. But then there were competitors, so a clear plan of action was required. And he was not, neither at first nor later. The company missed many opportunities and began to lose to competitors.
Yahoo’s services have competitors that the company has lost:
- Gmail quickly became more popular than Yahoo Mail (except, perhaps, in the United States, here Yahoo Mail is still a popular service).
- Yahoo Answers lost to Quora with a crushing score. Recently, there was news that Yahoo Answers is closing down. But it was an extremely popular service.
- Flickr lost out to Instagram, although the service was the first and only one of its kind. Only poor leadership led to the current situation.
- Yahoo Search lost out to Google Search.
The company and its divisions had money, they had users. It was possible to improve services, experiment with technologies, create something new.
This was accompanied by poor investment decisions by Yahoo. So, the company invested $ 1 billion in the Chinese service Alibaba, but literally a year later it sells its share and buys Flickr, which was almost at the peak of its popularity. The sale of Alibaba shares was a lucrative business, but the company earned several billion instead of several tens of billions. She would have received about $ 80 billion for her share closer to 2020.
Investment mistakes were interspersed with management problems. Top management chaotically hired all sorts of executives who were constantly trying to change something within the company. Yahoo was hit very hard by the complete rejection of remote work, which led to a colossal drain of staff, including employees who worked for the company almost from the start, along with Jeffrey Young, the founder. Neither Marissa Mayer nor Scott Thompson, who, as it turned out, had a degree in computer science, saved the company, he just lied.
But the worst executive in Yahoo’s 25-year history is considered to be Terry Semel, who was the one who allowed the service to be defeated by competitors, including Google. At one time, he had the opportunity to even buy Google, but he did not. Likewise, Semel missed the opportunity to acquire Facebook and DoubleClick. Plus, when Microsoft was offering a whopping $ 40 billion for Yahoo, Semel turned down the deal.
In general, each of the problems mentioned could somehow be dealt with. But there were a lot of them, and all of them were large, so Yahoo came to its decline quite naturally.
What about AOL?
This company can be considered a veteran of the global network even compared to Yahoo. It was founded in 1985. Gaining momentum quickly, the company became the largest Internet service provider in the United States. In the late 1990s, about half of American households had access to the Internet through AOL. In 1998, the company acquired Netscape for $ 4.2 billion.
In 2001, AOL merged with Time Warner Inc. In 2009 she separated, becoming independent. Earlier, AOL started having problems – both with the management and with its services and services. By 2008, the company had shut down a number of services that were once popular. These included Xdrive, AOL Pictures and BlueString.
By the way, since 1998 the company bought the well-known messenger ICQ to all of us, and in April 2010 sold it to the Digital Sky Technologies (DST) fund of Yuri Milner.
The company had problems, but overall, it held up well. In 2010, Tim Armstrong became its CEO, and the company decided to head for the premium advertising segment. The company also announced its intention to focus on the publishing business, film and television.
In 2013, for the first time in 8 years, the company reported revenue growth as a result of the implementation of a new work strategy. But in the same year, mass layoffs began. In general, everything was fine for several more years – the company was successfully operating in the advertising segment, and in 2015 it was bought by the operator Verizon to expand its scope of activities. After the purchase, AOL shares rose 17% immediately.
The company continued to operate for several years, but apparently not very successfully, since its value was gradually decreasing. Well, now everything has come to its logical conclusion.
It is not yet clear if this deal has too many unknown factors. Before its closure – about six months, during this time anything can happen. The buyer may end up abandoning the deal, regulators may not approve it, plus the global economy is not in the best condition, so conditions may change at any time.
But no matter what happens, one thing is clear – companies that can be called the founders of the Internet industry have left the market, their influence on the industry is minimal and they have long lost their own significance. It is a pity, but there is nothing to be done – their time is over, now completely different companies play the main violin.