Why Verizon is paying $4.83 billion for Yahoo

The deal announced Monday closes a chapter for the web pioneer, Yahoo, and is part of Verizon's new push into online advertising and content.

Marcio Jose Sanchez/AP/File
A person walks in front of a Yahoo sign at the company's headquarters in Sunnyvale, Calif. in this November 2014 file photo. Verizon announced Monday that it would acquire Yahoo for $4.83 billion, ending a long-running search to sell the troubled internet company, while Verizon is seeking to increase its emphasis on digital advertising and online content.

Verizon announced it had agreed to buy Yahoo’s key internet businesses for $4.83 billion Monday, ending months of speculation about the future of the troubled search engine giant.

The sale appears to mark the demise of an online pioneer that was one of the most valuable companies during the dot-com boom, before struggling in recent years despite a series of turnaround efforts under chief executive Marissa Mayer.

But for Verizon, the largest phone carrier in the United States, acquiring Yahoo represents an opportunity to further its ambitions to become a key player in the lucrative world of digital advertising, a field now dominated by Google and Facebook.

This sale is not only an important step in our plan to unlock shareholder value for Yahoo, it is also a great opportunity for Yahoo to build further distribution and accelerate our work in mobile, video, native advertising, and social,” Ms. Mayer said in a Tumblr post addressed to Yahoo employees, adding that she intended to remain with the company “to see Yahoo into its next chapter.”

The deal joins together Yahoo and fellow online pioneer AOL, which Verizon acquired last year for $4.4 billion, gaining both online ad business and popular sites such as The Huffington Post.

It also illustrates where Yahoo may have gone astray, with a slew of online properties from news sites to Tumblr, a microblogging site, some analysts say.

"Yahoo has failed for the last 13 years to exploit as a unified whole what is actually an excellent set of parts,"  Shar VanBoskirk, an analyst at Forrester Research, told The Washington Post. "Yahoo hasn't been able to clearly define what it is and what value it provides."

But Verizon, which was considered one of the top suitors to acquire Yahoo amid speculation that it would be sold, could also face challenges as it seeks to increase its focus on online ads.

Combined, Yahoo and AOL's various sites attract 50 percent more unique visitors than Google, now considered the top digital media property in the US by the industry ranking ComScore, The Washington Post reports.

Yahoo’s online ad business, however, has declined in recent years. While Google and Facebook will count for more than 50 percent of the industry this year, according to the research firm eMarketer, Yahoo’s share is 3.4 percent, and AOL’s is 1.8 percent, the Wall Street Journal reports.

While Yahoo generated $2.54 billion in online ads in 2014, that number is expected to decline 8.7 percent this year, to $2.32 billion, according to eMarketer.

The Verizon deal does not include Yahoo’s 15 percent stake in Chinese e-commerce company Alibaba and a 35.5 percent interest in Yahoo Japan, according to Reuters. These interests are believed to constitute much of Yahoo’s stock market value, the Post reports.

Another concern for Verizon as it ramps up its focus on digital ads is an upcoming regulatory battle over increasing online privacy protections.

The Federal Communications Commission is proposing a plan that would require internet providers such as Verizon to get their customers’ permission before using data it collects from them – such as what sites they have visited – to use to sell to online, third-party ads.

Industry groups have been watching the federal regulator’s plan since March, arguing that it would unfairly penalize them when Google and other sites also use customer data to generate so-called targeted advertising.

But many privacy advocates say the rules are needed. Verizon’s purchase of Yahoo after buying AOL effectively makes the company a “data super-giant,” Jeff Chester, executive director of the nonprofit Center for Digital Democracy, told the Post.

“Yahoo is not a primary threat,” he added. “But when you merge Yahoo with the ability of an [internet service provider] to monitor everything someone does, that’s a threat.”

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