Yahoo's troubles may soon be over: this weekend, Verizon CEO Lowell McAdam confirmed that the Tier 1 service provider, which launched a mobile-first streaming service Go90 last fall, is looking at buying all or part of the Internet search engine provider.
Verizon would roll Yahoo's video assets in with AOL, the unit that until its purchase last May was a direct competitor to Yahoo. But what benefits could Yahoo's assets provide to Verizon's video strategy? Which ones would be redundant?
In addition to its video content -- original series like Sin City Saints, a fourth season of Community, and other assets like music videos provided through a partnership with Vevo -- Yahoo has a fairly robust online video advertising unit thanks to its acquisition in 2014 of Brightroll. It also acquired Flurry in 2014, an analytics engine which has a mobile measurement component and has become a foundational piece of Yahoo's mobile strategy.
"We have to understand the trends that we're seeing in some of their results now, but then at the right price I think that marrying up some of their assets with AOL under Tim Armstrong's leadership would be a good thing," McAdam told Jim Cramer of Mad Money on Feb. 6.
Verizon would likely integrate those programmatic and mobile measurement assets into the portfolio of services its AOL unit currently offers. However, does it really need Brightroll and Flurry? A key component of Verizon's acquisition of AOL last year was its ONE by AOL platform, which integrated numerous programmatic advertising and measurement assets.
With a robust platform already in place and a reliable video delivery service managed through Verizon Digital Management Services, the carrier would only need to integrate those parts of Yahoo's assets that add value to its existing platform. Hence the long, thoughtful look from Verizon as it considers the purchase.
Furthermore, Verizon is still integrating ONE by AOL components, particularly measurement, into its Go90 online video service. Would adding Yahoo video assets complicate or delay this process? That's unknown, but it's not far-fetched to imagine that Verizon is considering this question. AOL is still somewhat of a test case for Verizon as it builds its video strategy, albeit an increasingly successful one.
"One of the things that we did was keep it separate from the core company… but we put this in an incubator almost, and we've been feeding the information from our mobile subscribers into the AOL engine, and as you saw in fourth quarter it's $300 million from quarter to quarter in incremental revenue," McAdam said in the interview.
What if Yahoo doesn't sell? In that case, Mayer's plan to make the company smaller could be a good thing for its online video component.
Yahoo is operating in a market that has seen vast change in just five years or so. Where online video was once limited by cost and infrastructure deficiencies -- most providers had to build their own platform and figure out delivery to users who were frequently constrained by low bandwidth -- video is now ubiquitous and comparatively easy to implement. That means more competition -- hence Yahoo's struggles with online video -- but with a platform and streaming experience already in place, the search engine giant still has a lot of opportunity in front of it.
Distributing its video out to its various websites could be a boon to Yahoo. Parks Associates' Brett Sappington predicted that traditional magazines may make a leap to presenting their content via online video platforms, going one step beyond the current trend of putting select videos onto their main websites. Yahoo is in a good position to present its own video magazines -- competing directly with stalwarts like Sports Illustrated, The New York Times, and Cosmopolitan, should they follow that strategy.
While selling off Yahoo to a keenly interested party like Verizon would make investors happy at this point, the possibility that it may not be sold is still present. And if so, Yahoo would do well to regain its focus, think smaller and smarter, and consider becoming a go-to service for niche video categories -- something Mayer may indeed be aiming for.--Sam