Could Verizon be gunning for both Google and Facebook?

The US$4.8bn acquisition of Yahoo’s operating business by AOL’s owner Verizon sees two of the original “new media” giants of the 1990s joining forces. It is perhaps the last chance for both Yahoo and AOL to compete with Google and Facebook, the upstarts who dominate the current digital media market.

AOL and Yahoo have great assets, but face some big hurdles

The US$4.8bn acquisition of Yahoo’s operating business by AOL’s owner Verizon sees two of the original “new media” giants of the 1990s joining forces. It’s a big deal, make no mistake, but for those of us old enough to remember, it’s not as seismic as it might have been. After all, Yahoo turned down Microsoft’s bid of US$45bn in 2008, in the belief it could do better alone. Now in 2016 it is perhaps the last chance for both Yahoo and AOL to compete with Google and Facebook, the upstarts who dominate the current digital media market.

The new alliance has in its favour a scalable user base numbering in the hundreds of millions – very few entities can compete on that score – plus a portfolio of strong media brands, some cool bits of ad tech, and the support of a major US telco with mobile advertising ambitions and a customer base it can leverage.

Some big challenges lie ahead, though, and not just the usual (but very real) ones about the integration of different companies. Quite a few of the consumer brands within the new deal seem a bit unloved or lost, and will need nurturing and possibly further investment. There will be questions about focus, and what (and whom) the new company is for. And globally, the two most desirable parts of Yahoo’s business – its stake in Alibaba and Yahoo Japan – are not included in the deal.

And yet, for anyone wanting to see beyond the current duopoly in the digital media market, this alliance is one to watch. Did you see the 2013 movie Escape Plan, in which 1990s box-office giants Sylvester Stallone and Arnold Schwarzenegger team up to try and escape from an apparently unbreakable prison? Me neither, but AOL and Yahoo will be hoping their own match-up has a similarly successful outcome. (Spoiler alert: Despite the odds, Sly and Arnie make it out.)

Article by Nick Thomas, Ovum Analyst