Private equity firm Apollo believes it has finally provided a way to cash in on Yahoo’s promise.
But after the honorable but lost online pioneer has become a graveyard for the honor of a succession of media and technology industry leaders, it may not pay off to think of success right away.
The firm invested in New York agreed earlier this week to pay communications giant Verizon $ 5bn for Yahoo, along with AOL and a collection of other digital media assets it holds.
The deal was seen as a thief compared to the $ 44.6bn offer from Microsoft that Yahoo rejected 15 years ago. Microsoft hopes it will use the company’s internet portal to create an online platform as opposed to Google, which it sees as the primary threat to dominance in its software.
It was also a shadow of Yahoo’s stock market value in the following years, when it became the target of frequent overtaking by private equity firms seeking to buy and break up the company. Most have looked at Yahoo’s stake in Chinese ecommerce company Alibaba, which has grown to cover the devastating value of Yahoo’s own business.
And almost less than half of what Verizon paid for Yahoo in 2017, which mixed it with the AOL business it bought two years ago. Tim Armstrong, the former Google executive who backed the plan, believes he can create an advertising platform to rival Google and Facebook.
The sheer size of Yahoo’s online audience is behind most of these dreams. Outside of China, it still ranks as the fifth most popular website in the world, judged by the combination of visitor numbers and time spent on the site, according to web measurement firm Alexa.
In a sense, Apollo’s interest in the company is no different. Yahoo’s 900m monthly active user has reached a “huge audience” presenting “tons and tons of opportunities”, said David Sambur, co-head of private equity at Apollo. At a little over $ 5 per user, the purchase price is a bargain in terms of internet creation.
Compared to other preferred buyers, however, Yahoo’s newest owner is starting with a narrow focus: selecting a handful of committed assets from Yahoo’s portfolio, throw away the more weight behind them and move away from the heavy reliance on advertising that has failed to elevate its fortunes. Explained, but left unspoken, is a rejection of parts of Yahoo’s business that are no longer considered core, along with the people who employ them.
Two perennial problems weigh on Yahoo. One is the failure of successive leaders to soften their focus or invest enough behind the company’s best opportunities, according to Brian Wieser, who has covered Yahoo as an internet analyst for many years. . Combined with the loopholes in which the company operates, this is what makes it capable of so many different markets, he said. That criticism led an executive to warn, in a famous memo inside a decade and a half ago, that its approach spread thin like peanut butter.
Yahoo is still facing that legacy. For example, on Tuesday, it brought about the closure of Yahoo Answers, a question-and-answer service that has existed for many years, even as more new services have lost ground. Sites like these still attract millions of users and attract an enthusiastic community of users, meaning the company is slowly working to break them down, according to a Yahoo executive.
The second, related failure is the inability of the company to solve a key question: Whether it is a major media or technology company. That question first came during the time of Terry Semel, a former film executive who ran the company after the dotcom bust and pushed it into online media.
If that strategy failed, the company’s board tried to reverse course by hiring Marissa Mayer, a former top product manager at Google. Even if some of his initiatives have generated positive reviews, and he has taken Yahoo to social media over Tumblr, nothing has achieved the scale or momentum to match the company’s main rivals.
Armstrong’s own plan for Yahoo also left it in the uncomfortable position of straddling the worlds of technology and media, agreed by two people who observed his effort from close quarters.
His declared goal is to merge it with AOL to create an “adtech” platform that can compete with giants like Google. But his real interest lies in his broad portfolio of media assets, as one. Another said that after Yahoo was acquired by Verizon, the center of gravity for the company inevitably shifted to New York, shortening the influence of the company’s makers in its direction.
Apollo’s intentions for Yahoo suggest an irrelevant answer to some of the long -standing problems. Foremost among these is to strengthen the focus on markets where Yahoo already has a strong presence, and to develop new forms of revenue beyond advertising.
Sports betting is high on the list. Yahoo has been working for years to clear management hurdles to bet, according to the former official, and it is strengthening MGM’s alliance in 2019 to offer a service for millions of users. to participate in fantasy sports league.
Apollo now says its own placement in the gambling world puts it in a good position to make Yahoo Sports a powerful online gaming and sports betting platform. The company that invested the largest U.S. gaming empire, Harrah’s Entertainment, acquired in 2008 with rival buyout group TPG for $ 31bn, even if the company, which was later renamed Caesars, went bankrupt. It also captured Gala Coral in 2010 and later mixed it up with Ladbrokes to rival British competition maker William Hill.
Apollo recently acquired operations at Las Vegas Sands marquee resort and casino The Venetian for $ 2.25bn, Great Canada Gaming for $ 2.5bn and Italian sports-betting group Gamenet.
“Apollo has a lot of experience playing and betting sports. I think we are in a good position to maximize the value of the Yahoo Sports opportunity, ”Sambur said.
#techFT brings you news, comment and analysis on major companies, technologies and issues shaping the fastest moving sectors from specialists based around the world. Click here to get #techFT in your inbox.
Yahoo Finance, a tall jewel in the company’s crown, could provide an opportunity to move beyond advertising. Apollo is considering tapping into a wider audience, which now consists of investors who trade using free trading tools and news streams, by potentially building more businesses, including providing access to financial services products.
“I see a huge opportunity, using that brand, to pay for their many user base in other financial -related areas,” Sambur said. The private equity firm is examining whether it can make Yahoo Finance more profitable, like a stockbroker like Robinhood or whether it can investigate the cryptocurrency business.
Even if it uses openings like this to circumvent advertising, Apollo should still succeed where previous Yahoo owners failed: making the vocal audience a more attractive draw for those. advertiser competing with Google, Facebook and Amazon.
“There’s a lot of room between where we are and where the people are,” Sambur said. “This market is so large that closing the gap even a small amount can generate huge amounts.”
Further reporting by Anna Nicolaou