Here’s Why Verizon Wants to Buy Yahoo So Badly

Yahoo reported its quarterly earnings on Tuesday, but the results were more or less drowned out by the steady drumbeat of rumors about who might acquire the company’s core content businesses, which are on the block. At this point, Verizon (VZ) is either at or near the top of most lists, if only because the telecom company seems to want a deal so badly.

And why does a mobile telecom provider want to buy the core editorial business of a faded Internet portal? The short answer is advertising.

In a nutshell, Verizon is interested in buying Yahoo’s ad and content businesses for the same reason it acquired AOL last year for $4.4 billion. And that is to build the kind of scale that’s necessary to make money from digital advertising on mobile devices, as growth in the traditional telecom business slows.

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“Verizon is trying to pivot its business from analog to digital,” analyst Craig Moffett of MoffettNathanson told the Wall Street Journal. “Verizon believes that a combined AOL/Yahoo would provide the digital advertising platform they need to execute their video reinvention strategy.”

Although it has failed to make much headway as a traditional digital-content company, AOL has managed to put together what analysts say is a fairly impressive combination of programmatic ad-buying and targeting tools—especially for video. That’s primarily what Verizon was interested in when it acquired the company.

Since the acquisition, Verizon has added a number of other advertising-related businesses, including most of Microsoft’s ad-technology operations and an ad-technology company called Millennial Media that the telecom provider bought for $250 million. It has used some of that know-how to power Go90, the mobile streaming-video service it launched in October 2015.

Watch: Microsoft really wants to help Yahoo get sold

According to a number of reports, AOL’s chief executive Tim Armstrong has been the architect behind many of Verizon’s advertising acquisitions, and he has been pushing the company to make a strong bid for Yahoo’s core editorial and advertising businesses. On Tuesdat evening, Reuters said that Verizon was set to advanced to the second stage of the bidding process.

Yahoo has put those assets on the block in the hopes that it will allow the company to capitalize on the things it owns that are of even greater value: a stake in Chinese Internet giant Alibaba that is worth an estimated $30 billion, and a smaller stake in Yahoo Japan. It tried to spin those assets off into a holding company but balked after the U.S. government refused to guarantee that it could do so on a tax-free basis.

Although the company hasn’t been able to generate much in the way of growth or profits from its content-portal operations since former Google executive Marissa Mayer took over in 2014, Yahoo still has a fairly massive audience. An estimated 1 billion users either visit regularly for things like sports scores and financial news or use one of Yahoo’s email, photo-sharing, and other services.

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Much like AOL, Yahoo also has a suite of advertising technology that it has both built and acquired over the years that would fit pretty well with what Verizon and AOL already have. The combination would give Verizon a powerful collection of mobile ad-serving and targeting services, a lot of content, and a built-in audience.

The combination would not only give Verizon content and revenue from advertising related to that content (some of which it could theoretically incorporate into Go90), but it would also give the company a substantial amount of user data with which to target both its own ads and those served by others. That’s the kind of thing advertisers increasingly want, and it’s something that Facebook and other platforms excel at.

Update (April 19, 8:20 pm): This story was updated with additional information from Reuters.

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