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Verizon's Yahoo Acquisition Might Not Be a Smart Move

July 24, 2016 00:00 AM UTC
- Updated September 02, 2020 11:36 AM UTC

It bought Yahoo's core Internet business for $4.8 billion.

Transcript
ANDREW NUSCA: Verizon will buy Yahoo for $4.8 billion dollars. Erin, is it a smart move? ERIN GRIFFITH: All right, I think it's too early to say whether or not it's a smart move, but I'm going to take the negative argument here. I don't think it's a great move for Verizon. What they're trying to do is get into the mobile advertising market. It's $100 billion market. ANDREW NUSCA: Huge. ERIN GRIFFITH: But It's completely dominated by Facebook and Google. And so the question is, if you're going to try to take on Facebook and Google, two of the most valuable, innovative companies in the world, is Yahoo really going to be the weapon that you bring to the situation? It's a shrinking, declining asset. And it's been struggling to turn itself around for almost a decade now. I don't see it. ANDREW NUSCA: I do agree with you that Yahoo's turnaround has left a lot to be desired. I'm not the only one who thinks that. I think users would agree that it hasn't really moved the needle. But at the same time, you have to take Verizon's CEO Lowell McAdam's view. You run a $230 billion dollar telecommunications company. That's good. You're the tops in the United States. But at the same time, this is tough. It's a really saturated market. It's viciously competitive. It's really capital intensive. So why not use the pipes that you've already spent all that money for and just make more money from them? That's where Yahoo comes in. ERIN GRIFFITH: But you know what other market is extremely saturated, extremely competitive, and very capital intensive? Creating content. ANDREW NUSCA: Yeah, all right. All right. ERIN GRIFFITH: And that's what Yahoo has been doing. In fact, that's the difference between Yahoo and Facebook and Google. If you look at, Facebook and Google are making tons of money. They're not producing any of the content. They're simply facilitating the way we find it, and they're making a ton of money advertising against it. They don't have to hire content creators or journalists that are very expensive. Yahoo is doing that, and that is a really tough business. ANDREW NUSCA: But isn't content supposed to be the hot new thing in 2016? Come on, you got Google investing in YouTube talent. You've got Apple starting radio stations. You've even got Amazon building a whole movie studio inside the company. So why not Yahoo and Verizon? ERIN GRIFFITH: Well, that's true. And it's very fun when tech companies decide to dabble-- sprinkle some of their profits out into the media and content world. ANDREW NUSCA: [LAUGHS] ERIN GRIFFITH: But it's not their core business. And often what they do-- and this happens every few years. There's a cycle of media companies or tech companies investing in media. And what usually happens is that they realize it's so expensive, it's really hard to know-- you can't A/B test something like content. It's really hard to really have consistent hits. And I think Yahoo has struggled with that. They hired Katie Couric. They were very criticized for how much they're paying her. They bought some TV shows including Community, which they eventually ended up writing down. They're realizing that it's expensive and really tough to do. And so I think Verizon has to be prepared for the struggle. ANDREW NUSCA: That's a fair point. For one show that's big on the internet, come the fortune.com for more Tech Debate.