The 4 Reasons Verizon Should Buy Yahoo

The 4 Reasons Verizon Should Buy Yahoo

Verizon tipped its hand that it would be interested to buy Yahoo back in December.  In the last few days this possibility drew more attention as Verizon’s CFO confirmed interest on CNBC, and Bloomberg reported that AOL’s CEO Tim Armstrong is investigating a potential acquisition.  There are some very good reasons this deal makes sense:

AOLHooFirst, this acquisition has the opportunity to make Verizon distinctive.  Think about all those ads you see for mobile phone service.  Pretty much alike.  All of them  trying to say that their service is better than competitors, in a world where customers don’t see any real difference.  3G, 4G – pretty soon it feels like they’ll be talking about 10G – but users mostly don’t care.  The service is usually good enough, and all competitors seem the same.

So, that leads to the second element they advertise – price.  How many different price programs can anyone invent?  And how many phone or tablet give-aways.  What is clear is that the competition is about price.  And that means the product has become generic.  And when products are generic, and price is the #1 discussion, it leads to low margins and lousy investor returns.

But a Yahoo acquisition would make Verizon differentiated.  Verizon could offer its own unique programming, at a meaningful level, and make it available only on their network.  And this could offer price advantages.  Like with Go90 streaming, Verizon customers could have free downloads of Verizon content, while having to pay data fees for downloads from other sites like YouTube, Facebook, Vine, Instagram, Amazon Prime, etc.  The Verizon customer could have a unique experience, and this could allow Verizon to move away from generic selling and potentially capture higher margins as a differentiated competitor.

Second, Yahoo will never be a lead competitor and has more value as a supporting player.  Yahoo has lost its lead in every major competitive market, and it will never catch up.  Google is #1 in search, and always will be.  Google is #1 in video, with Facebook #2, and Yahoo will never catch either.  Ad sales are now dominated by adwords and social media ads – and Yahoo is increasingly an afterthought.  Yahoo’s relevance in digital advertising is at risk, and as a weak competitor it could easily disappear.

But, Verizon doesn’t need the #1 player to put together a bundled solution where the #2 is a big improvement from nothing.  By integrating Yahoo services and capabilities into its  unique platform Verizon could take something that will never be #1 and make it important as part of a new bundle to users and advertisers.  As supporting technology and products Yahoo is worth quite a bit more to Verizon than it will ever be as an independent competitor to investors – who likely cannot keep up the investment rates necessary to keep Yahoo alive.

Third, Yahoo is incredibly cheap.  For about a year Yahoo investors have put no value on the independent Yahoo.  The company’s value has been only its stake in Alibaba.  So investors inherently have said they would take nothing for the traditional “core” Yahoo assets.

Additionally, Yahoo investors are stuck trying to capture the Alibaba value currently locked-up in Yahoo.  If they try to spin out or sell the stake then a $10-12Billion tax bill likely kicks in.  By getting rid of Yahoo’s outdated business what’s left is “YaBaba” as a tracking stock on the NASDAQ for the Chinese Alibaba shares.  Or, possibly Alibaba buys the remaining “YaBaba” shares, putting cash into the shareholder pockets — or giving them Alibaba shares which they may  prefer.  Etiher way, the tax bill is avoided and the Alibaba value is unlocked.  And that is worth considerably more than Yahoo’s “core” business.

So it is highly unlikely a deal is made for free.  But lacking another likely buyer Verizon is in a good position to buy these assets for a pretty low value.  And that gives them the opportunity to turn those assets into something worth quite a lot more without the overhang of huge goodwill charges left over from buying an overpriced asset – as usually happens in tech.

Fourth, Yahoo finally gets rid of an ineffectual Board and leadership team.  The company’s Board has been trying to find a successful leader since the day it hired Carol Bartz.  A string of CEOs have been unable to define a competitive positioning that works for Yahoo, leading to the current lack of investor enthusiasm.

The current CEO Mayer and her team, after months of accomplishing nothing to improve Yahoo’s competitiveness and growth prospects, is now out of ideas.  Management consulting firm McKinsey & Company has been brought in to engineer yet another turnaround effort.  Last week we learned there will be more layoffs and business closings as Yahoo again cannot find any growth prospects.  This was the turnaround that didn’t, and now additional value destruction is brought on by weak leadership.

Most of the time when leaders fail the company fails.  Yahoo is interesting because there is a way to capture value from what is currently a failing situation.  Due to dramatic value declines over the last few years, most long-term investors have thrown in the towel.  Now the remaining owners are very short-term, oriented on capturing the most they can from the Alibaba holdings.  They are happy to be rid of what the company once was.  Additionally, there is a possible buyer who is uniquely positioned to actually take those second-tier assets and create value out of them, and has the resources to acquire the assets and make something of them.  A real “win/win” is now possible.

 

Why Twitter Won the SuperBowl While Traditional Ad Execs Don’t Get It

Reading reviews of Super Bowl ads I was struck by two observations:

  1. The reviewers got the value of most ads backwards
  2. They missed the most important ad of all – on Twitter

Super Bowl ads cost $1M+ to make.  Then they cost $2M+ to air.  So it is an expensive proposition.  This isn't fine art, like a Picasso, with a long shelf life to create a rate of return.  These ads need to pay off fast.  They need to build the brand with existing and/or new customers to drive sales and make back that money now.

So let's start with one of the best reviewed ads – Chrysler's "God Made a Farmer". Reviewers liked the home-spun approach of using a dead conservative radio commentator voicing over pictures of farmers in pick-ups.  Unfortunately, from a rate of return perspective my bet is this ad will end up near the very bottom.  

  • Firstly, the 50 year trend is to urbanization.  In 1900 9 out of 10 Americans had something to do with agriculture.  Now it is fewer than 1 in 20.  Trucks are used for lots of things, but farming makes up a small percentage.  It has been a full generation since most 2nd generation Americans had anything to do with a farm.  Showing people using a product in ways that almost nobody uses it, and with a message most of your target market doesn't even recognize, leaves most people confused rather than ready to buy.
  • Secondly, first generation Americans are changing the demographics of America quickly.  First generation Americans (can I say immigrant?) proved large enough, and powerful enough, to play a spoiler role in Mitt Romney's run for the Presidency.  To them, farming in America has no history, appeal or meaning to their lives. 
  • Thirdly, no one under the age of 35 has any idea who Paul Harvey is.  Perhaps Chrysler could have used Bill O'Reilly and achieved its message mission.  But as it was, there were two of us +50 people who spent 5 minutes trying to tell the group watching the game at my home who Paul Harvey even was – and why he was being quoted.

A 24 year old boy watching the game with me in suburban Chicago listened to my explanation about Paul Harvey and farming.  He drives a Ford F-250 4×4 pick-up.  After I finished he looked me square in the eyes and said "Swing, and a miss."  And that's what I'd say to Chrysler.  Whoever made this ad had more money than market research and common sense.

Simultaneously, reviewers hated GoDaddy.com's "Perfect Match, Bar Rafieli's Big Kiss." This portrayed a very stereotypical engineer enjoying a long kiss with a pretty girl – referring to how the company's products well serve client needs.  Reviewers found the ad in bad taste.  My bet is this ad will have immediate payback for GoDaddy.com

Have you ever heard of the monstrously successful situation comedy "The Big Bang Theory?"  At just about any time you can find this in reruns on at least one, if not more than one, cable channel.  The show is so successful that to pull people viewers to its Monday night schedule CBS actually chose to rerun "Big Bang" episodes amidst new episodes of its other programs in January.  The show thrives on the tension of male technical professionals seeking to solve the age old question of how a man can appeal to desirable ladies.  Politically correct or not, the show is successful because it is a timeless message.  Most boys want to be liked by girls.

Today the world of people who have technical, or quasi-technical jobs, is HUGE.   GoDaddy's target audience of people buying, and servicing, web domains just happens to be mostly male under-40 men with technical or quasi-technical backgrounds.  This little, tasteless demonstration may have upset the high ethics of ad execs (or has "Mad Men" unraveled that myth?) but to its target group this ad was pure gold.  And same for GoDaddy.com.

But most importantly, none of these ads will have the payback of 9 words a marketer tweeted when the lights went out at the game.  Because it had blown a huge wad of money on a traditional game ad the Oreo brand folks at Mondelez were watching the game with their media agency 360i.  Thinking quickly the creatives came up with an idea, and the brand guys approved it – so out went the tweet from Oreo Cookies "No problem.  You can still dunk in the dark."

"Booya" as my young friends say.  10,000 retweets and an entire Monday news cycle devoted to the quick thinking folks who posted this tweet.  ROI?  Given that the incremental cost was zero, pretty darn high. If I was investing, I'd take the tweet over the video.  The equivalent of a kick return for a TD.

The world has changed.  We now live in a 24×7, real-time, always-on world.  We no longer wait for the weekly magazine for analysis, or the daily newspaper for information.  Or even the 11:00 television daily recap.  We pick up alerts on our mobile devices constantly.  Receive highlights from friends on Facebook and Twitter.  We want our information NOW.  And those who connect to this new way of living for providing us information are not only accepted, but admired by those thriving on the social networks.

This year's Super Bowl social media postings were triple last year's; over 30million.  This is the world of immediate feedback.  Immediate discussion.  And the place were ads need to be immediate as well.  Those who understand this, and connect to it, will succeed.  Others, who spend too much to make and then distribute ads on traditional media, will not.  Just as newspaper ads have lost of their relevance – TV ads are destined for the same conclusion.

The good news is that Mondelez and its Oreos team was ready, and willing, to take advantage.  Where were most of the other advertisers?  Audi, VW and P&G's Tide also jumped in.  But of all those millions spent on once-run ads, these major corporate advertisers – and their extremely highly paid ad agencies – were absent.  When the easy money was to be made, they simply weren't there.  Off drinking beer and watching the game when they should have been working!

Today we learned Twitter is buying Bluefin to make its information on who is tweeting, about what, in real time even better.  This will be helpful for any smart advertiser.  And not just the multi-billion dollar giants.  The good news is anyone, anywhere in any size company can play in this real-time, on-line social media world.  You don't have to be huge, or rich. 

Where were you when the lights went out?  Were you taking advantage of what we may later call a "once in a lifetime" opportunity? 

Where will you be the next time?  Are you ready to invest in the new world of social media advertising?   Or are you stuck spending too much to come in too late?