Verizon purchase of Yahoo a risky bid for digital content

With the Verizon purchase of Yahoo, the telecommunications company hopes to break into the cutthroat business of digital content, but challenges await. Also: Oracle invests in cloud; more Microsoft layoffs.

Digital content and marketing is Verizon's next frontier, but does it have the bandwidth to come out ahead?

The telecommunications company is shelling out $4.83 billion to acquire Yahoo's struggling core internet business in an effort to compete with the likes of Google and Facebook for users and advertising domain in the digital content industry.

"Combining Verizon, AOL and Yahoo will create a new powerful competitive rival in mobile media, and an open, scaled alternative offering for advertisers and publishers," Tim Armstrong, CEO at AOL, said in a statement. Verizon purchased AOL last year.

Along with bringing together AOL and Yahoo -- two well-known internet brands -- the deal will unite Yahoo with Verizon's other online properties, which include Engadget, TechCrunch and Huffington Post. (The Verizon purchase excludes Chinese commerce site Alibaba and Yahoo Japan.) The acquisition also gets Verizon considerably closer to its quest for 2 billion users -- and more advertisers. Still, many industry analysts held off on a full-throated endorsement of the Verizon deal, citing a litany of challenges amid potential benefits.

Verizon's aim is to merge Yahoo's and AOL's consumer-focused businesses to build an attractive platform for advertising and marketing campaigns, said Dan Bieler, principal analyst at Forrester Research. But the question is whether a phone and internet provider with little experience in the digital content industry can successfully compete.

"The answer will depend on Verizon's ability to a) merge and integrate AOL and Yahoo, b) map customer journeys through their portals effectively, and c) develop a credible multichannel approach for customer engagement," Bieler said. "Only if Verizon succeeds on all three levels will enterprises benefit from the deal."

IT exec and Verizon customer Niel Nickolaisen, CTO at O.C. Tanner Co., agreed there's a lot riding on the telecommunication company's foray into the digital content domain business, including holding on to its existing enterprise customers.

"For this move to be successful, it means that Verizon remains a viable provider of the communication services I use -- even if I don't do much at all with their content," Nickolaisen said. "If this is not successful, it could mean that I need to find another provider of those communication services. Or it could be that, at a minimum, it distracts Verizon from a solid focus on the communication services that need ongoing upgrades, enhancements and innovation."

Other key challenges that the new Verizon will face, according to Forrester's Bieler, involve the company's mobile strategy and organizational culture. Lagging behind in the former could undermine the overall objective of the Verizon purchase, but things can really fall apart when it comes to both companies adjusting to a new organizational culture.

"This seemingly soft issue has derailed many M&A deals in recent years. Verizon should not expect the cultural transformation to be a minor aspect of the deal," he said.

Calling Marissa Mayer

Meanwhile, advocacy groups are already raising the issue of user privacy. Verizon's content and advertising-driven strategy -- further enabled by Yahoo -- is dependent on its ability to tap into and share a plethora of behavioral data that it collects on its users, including things like web browsing and location history.

But, as a Forrester Research blog post points out, under a proposed privacy regulation being weighed by the U.S. Federal Communications Commission, internet providers would be required to get their customers' explicit permission before using that data for any third-party advertising. Should the regulation pass, it could impede the telecommunications company's -- and its competitors' -- ability to exploit user data.

Amid the uncertainties surrounding the Verizon purchase and the company's path to success is another bit of intrigue, R "Ray" Wang, principal analyst, founder and chairman at Constellation Research, pointed out.

"I think the issue really is what the new Yahoo holding company will do with the patents and the Alibaba stake," he said. "Where will [Yahoo CEO] Marissa Mayer and [Yahoo co-founder] Dave Filo end up?"

CIO news roundup for week of July 25

The Verizon purchase of Yahoo wasn't the only big story. Here's what else grabbed headlines:

  • Oracle boosts its cloud offerings. The tech giant said Thursday that it is buying California-based cloud software provider NetSuite for $9.3 billion in cash. "Oracle and NetSuite cloud applications are complementary and will coexist in the marketplace forever. We intend to invest heavily in both products -- engineering and distribution," Oracle CEO Mark Hurd said in a statement. The deal is Oracle's biggest since buying PeopleSoft for $10.3 billion in 2005. It is expected to close this year subject to regulatory approvals and meeting share-related closing conditions. Oracle's executive chairman Larry Ellison, whose entities own 40% of NetSuite's stock, stands to make personal profit of $3.5 billion from the deal.
  • Microsoft to shed more jobs. The company said Thursday that it will lay off approximately 2,850 employees by the end of 2017. "In the fourth quarter of 2016, management approved restructuring plans that would result in job eliminations, primarily across our smartphone hardware business and global sales," the company said in a filing with the U.S. Securities and Exchange Commission. Nine hundred layoffs in the global sales unit, as part of a restructuring plan after the departure of former COO Kevin Turner, have already been completed, The Wall Street Journal reported. The additional layoffs follow 1,850  job cuts in May and the company's decision to write off most of its Nokia deal and eliminate 7,800 jobs last July, mostly in its smartphone unit.
  • Apple biting into augmented reality. CEO Tim Cook confirmed Tuesday that the company is deep into augmented reality. "We are high on AR in the long run; we think there are great things for customers and a great commercial opportunity," Cook said, responding to a question about the Pokémon Go craze and the future of AR during a quarterly earnings call, The Verge reported. Apple acquired AR startups Metaio and Flyby Media and real-time motion capture company Faceshift, and hired lead Microsoft HoloLens audio engineer Nick Thompson, all signaling Apple's interest in AR, an area which Cook said "will be huge." Meanwhile, Apple could generate revenue of $3 billion from Pokémon Go in the next two years, VentureBeat reported.
  • Latest in the Tesla saga. Israel-based self-driving car technology company Mobileye is ending its partnership with Tesla on developing the car's Autopilot technology, MarketWatch reported Tuesday. Mobileye will continue to provide technical assistance for its EyeQ3, the processor currently used in Tesla vehicles for image analysis, which controls the car's automatic emergency braking and also helps the vehicles steer and stay in lanes. The split comes after a fatal crash involving a Tesla S Model operating on Autopilot mode. "They'll go their path and we'll go ours. Us parting ways was somewhat inevitable. So there was nothing surprising from our standpoint," Tesla CEO Elon Musk was quoted as saying in a Fortune article. Meanwhile, Mobileye is partnering with BMW and Intel on developing fully autonomous cars, according to a press release.

Check out our previous Searchlight roundups on the EU-U.S. Privacy Shield and what Pokémon Go says about AR in the enterprise.

Assistant editor Mekhala Roy contributed to this week's news roundup.

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