Verizon has been under significant pressure to make some moves to deliver new sources of differentiation and revenue growth. The core wireless business, while it gives off significant cash, is maturing. And although the market opportunity for IoT is significant in the long-term, the space is still nascent and it's hard to know which segments will take off. To me, IoT looks like a series of base hits, spread across a larger number of industry players. In fixed broadband, Verizon has not been investing heavily in expanding FiOS, and its pay TV service has a limited footprint that is not expanding. And Verizon has had mixed success in growing its enterprise business. The customer base for Verizon's legacy business is not growing very quickly. So it needs more ways to monetize what it already has.
So, Verizon has made medium-sized bets (for its size) on digital advertising platforms and content. Over the past eighteen months, the company has acquired Intel's OnCue platform, AOL, Millennial Media, and, now, Yahoo. Verizon has also made a number of content deals for its go90 platform, and has the NFL relationship and other sports deals for mobile, plus some unique deals on the pay TV side as well. This all adds up to some $10 billion in deals.
Now, what does Verizon get with Yahoo? The third largest Web site in the U.S. after Google and Facebook, in terms of monthly visitors; important content portals, particularly in finance, news, and sports; popular but under invested in Yahoo Mail, with 225 MAUs; programmatic advertising with BrightRoll, to complement AOL One; and important but fading blogging/social media and photo sharing brands such as Tumblr and Flickr. Also, importantly, a larger audience for its content and advertising platforms.
The big question now is what is the potential for Yahoo, and can Verizon pull it off? We should look at Yahoo not in isolation but in the fairly impressive collection of assets and relationships that Verizon company has steadily assembled over the past two years.
I think whether this deal is ultimately a success will come down to two things: Narrative and Execution. Over the coming months, as the Yahoo deal winds its way toward closing, a key task is going to be developing a strategy, and then a compelling narrative, for how this all fits together. I don't think Verizon's strategy, particularly with regards to content, is fully formed yet. Three key questions need to be addressed, in my view:
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What is the ultimate content strategy? Verizon has an impressive, but fragmented web of unique content, and various deals and relationships. Does this all come together in some way? Is there bigger picture strategy on content that can be assembled here? What might be some of the gaps that need to be filled?
So far, in the year since Verizon acquired AOL, we haven't seen much in the way of synergy. If you are a Verizon customer, you'd hardly know the company owned those assets, save for some select Go90 content. Verizon will have some important decisions to make over the next year in terms of the extent it wants to be in the content business.
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Can AOL, Yahoo, and their content brands be elevated to mobile? AOL and Yahoo have not been particularly successful in mobile. Verizon now looks a little more like Comcast, with content assets and the means of distribution, plus solid digital advertising platforms. There are some very interesting opportunities to package and promote content on mobile. Right now, this is a very disparate set of content sites and apps. Put together right, there is some real potential to deliver unique, mobile optimized content in some important areas: finance, sports, entertainment, tech, and so on.
One outside the box thought: There has been a lot of reference to AOL and Yahoo being 'older internet brands,' that perhaps speak to a different audience than the Millennials most internet companies are so obsessed about. Verizon is also a legacy wireless brand that skews older and higher income. Might be an opportunity to focus on some other but under-addressed market segments, such as Boomers and maybe Gen Xers? They all have smartphones… and they pay for content.
- Is there room for another major competitor in digital advertising? In advertising, Google and Facebook dominate the digital advertising market, with more than 50% share. Advertisers and brands are looking for a third platform to provide some competition in the market. There is intriguing potential in the targeted/programmatic arena, given Verizon's 113 million wireless subscribers, 7 million FiOS internet, and 6 million pay TV customers. The question is whether this is sort of like the mobile OS wars, where BlackBerry and Windows could not ultimately compete with iOS and Android. Verizon, as a telco/wireless player, is also a little more under the regulatory microscope, and has to tread a little more carefully than an internet player, in the security/privacy related issues of targeted advertising.
The next challenge relates to execution. The track record in the year since the AOL deal has been mixed. We haven't seen much in the way of synergy or a cohesive narrative yet. Verizon customers would hardly know that the company owns AOL. This will all report to Marni Walden, who has grown up in telco land. She will hopefully give Tim Armstrong some rope, and perhaps also with some involvement from Marissa Mayer, assemble a team of the best and brightest from AOL and Yahoo, with the strategy and incentives for them to stay and also attract new talent. There will certainly be some culture adjustments between Basking Ridge and Silicon Valley. Already, I'd imagine Verizon execs are agog at some of the Valley's comp structures. And things will have to move faster than in the year since the AOL purchase. Verizon doesn't have to transform into an internet or advertising company, but it will have to think more like one.
Mark Lowenstein, a leading industry analyst, consultant, and commentator, is Managing Director of Mobile Ecosystem. Click here to subscribe to his free Lens on Wireless monthly newsletter, or follow him on Twitter at @marklowenstein.