The Fascinating Story Of Yahoo | How Verizon Bought Yahoo For $4.8 Billion Instead Of $45 Billion United States Dollars

“POETIC” is how Marissa Mayer, the Chief Executive Officer of Yahoo, described the sale of Yahoo to Verizon. Others, remembering better times at Yahoo, see little that is artful about the decline and fall of the 22 year old Internet company. On July 25th 2016, Verizon, a telecommunications giant that is also America’s biggest mobile operator, announced it would buy Yahoo’s main Internet business for $4.8 billion United States Dollars (a price that does not include Yahoo’s properties in Asia or its portfolio of patents). The sum is paltry compared with Microsoft’s offer of $45 billion in 2008, which Yahoo’s management turned down, arguing that the firm was worth a lot more money.

In all fairness, Microsoft’s bid of $45 billion reflected the valuation of the entirety of Yahoo including Yahoo’s ownership in Alibaba (a Chinese e-commerce giant) as well as Yahoo Japan, but it is important to remember that Alibaba was not worth as much in 2008 and did not have the huge valuation that it has today. In addition, Yahoo also made huge mistakes during the 2000’s, including passing the opportunity to purchase Google for pocket change when they were just starting out (many would argue that was the opportunity of a lifetime). Yahoo also missed huge opportunities and came close to buying YouTube and Facebook back when they were just starting out their businesses, only to pass on those opportunities because of a lack of vision by management.

At the time, these acquisitions probably looked like risky, uneconomical moves that Yahoo investors would hate. But now it’s all ancient Internet history, to be analyzed for years by future business school students from around the world. It is time for us to mourn Yahoo. Sorry, we mean Yahoo!

The Fascinating Story Of Yahoo | David Filo And Jerry Yang – Jerry And David’s Guide To The World Wide Web And The Origin Of Yahoo

Once upon a time, Yahoo was considered one of Silicon Valley’s most successful stories. Now it stands as a warning to other technology companies. Yahoo began in the year 1994 as a project in Stanford’s dormitories, when two students, David Filo and Jerry Yang, assembled their favorite web links on a page called “Jerry and David’s Guide to the World Wide Web”. The website, which they renamed Yahoo in preparation for a public stock offering, quickly became the “portal” through which millions of people first encountered the Internet. At its peak in 2000, Yahoo had a market value of approximately $128 billion, a fortune compared to the $4.8 billion that Verizon recently offered to pay for Yahoo.

The Story Of Yahoo – Missed Opportunities

Yahoo’s history is filled with opportunities and acquisitions that should not have been passed up. For example, Yahoo did not buy Google for pocket change when it had the chance (this was the opportunity of a lifetime since Google is now worth over $500 billion). Later on, Yahoo agreed to buy Facebook for $1 billion (now worth over $300 billion), but the deal fell through when Yahoo tried to negotiate down the price. It missed the chance to buy YouTube (subsequently bought by Google), and Yahoo’s purchase of eBay fell through for several different reasons which could have been avoided.

In 2012, when Marissa Mayer, an early Google executive and an engineer, arrived to try to reverse the fortunes of Yahoo, the firm’s Silicon Valley headquarters was filled with optimism. For more than two decades, Yahoo had been torn between its identity as a media company that made content and a technology company that provided tools for people to use online. It seemed that Marissa Mayer could be the leader to settle on a single identity and direction.

Instead, Marissa Mayer spent on everything and hoped something would work. Early on came the purchase of Tumblr in 2013, a social network and blogging platform, for $1.1 billion United States Dollars (Yahoo has since written down most of the purchase price). To beat out Google Marissa Mayer did a pricey, five year deal with Mozilla, the owner of the famous browser known around the world as Firefox (Yahoo became Firefox’s default search engine at an annual cost of more than $375 million United States Dollars). As for Yahoo’s own core business, revenues are falling each year as consumers and advertisers migrate from desktop computers and away from Yahoo’s products.

Verizon makes no claim to be able to restore Yahoo to its former glory. Rather, it believes that Yahoo could help its main business of selling mobile phone subscriptions since this has slowed now that most people have smartphones, which are falling in price. Yahoo would bring viewers, viewers would bring advertising dollars, and advertising dollars would bring top line growth (this is one of the reasons why Verizon decided to purchase Yahoo).

Last year Verizon spent $4.4 billion United States Dollars on AOL (America Online), another former darling from the 1990’s dotcom bubble era. Thus, with both Yahoo and AOL Verizon will achieve much needed scale: in the United States of America it will command the second most visited set of web properties after Google (Facebook would be in third place). Thus, Verizon is now betting that it will be able to use data from all of its approximately 113 million retail phone and Internet subscribers and bombard them with targeted ads as they browse apps or websites owned by Yahoo and AOL (America Online), making a fortune from new advertising revenue.

Verizon’s purchase of Yahoo does have one thing on its side: low expectations. Any success Verizon has with its purchase of Yahoo is all upside. By contrast, during her reign at Yahoo, Marissa Mayer was given unreasonably high expectations, along with constant scrutiny. Verizon has the freedom to say next to nothing about how Yahoo and its advertising business does in the near term since Yahoo will no longer be a publicly traded company. However, you will still be able to invest in Yahoo indirectly by buying shares in Verizon (ticker symbol: VZ) through a regular stock broker. Such relative invisibility may allow Verizon to press on with the radical surgery, such as reducing headcount, that Yahoo has needed for years but never actually received.