Yahoo and AOL, kings of the early Internet, saw their fortunes plummet as Silicon Valley raced forward to create new digital platforms. Google has replaced Yahoo. AOL has been replaced by cable giants.
Now they are owned by private equity. Verizon, its current owner, agreed to sell it to Apollo Global Management for $ 5 billion, the companies said on Monday.
The two-branded business, Verizon Media, is set to be renamed Yahoo (again) (without the brand’s stylized exclamation mark), and the sale will also include the advertising technology business. Verizon will retain a 10 percent stake in the newly formed media group, the company said in a statement.
Guru Gowrappan, Verizon’s media director who will continue to run the new Yahoo, was optimistic about employees on Monday morning. “This next Yahoo development will be the most exciting yet,” he said in the memo received by the New York Times.
He added that Apollo would enable the company’s growth, a more difficult prospect if it operated within Verizon, which wanted to spend even more money building its next-generation 5G cellular network.
“Yahoo will now have the investment and resources needed to take our business to the next level,” said Gowrappan, suggesting the company will be able to add new revenue streams like subscriptions and e-commerce open up. The company is not currently planning any layoffs.
The deal signals the reversal of a strategy Verizon announced in 2015 and marks the latest turning point in the winding history of two internet pioneers.
Yahoo used to be the front page of the internet, cataloging the rapid pace of new websites that emerged in the late 1990s. AOL was once the service that got millions of people online.
But both were eventually replaced by more nimble startups. Google and Facebook became the dominant forces of the web, and Yahoo and AOL became giant publishers instead. Yahoo Sports is a popular destination with sports fans, and Yahoo Finance has a wealth of information for retailers. AOL acquired a number of early media brands including the Huffington Post (now HuffPost), TechCrunch and Engadget, as well as several digital ad tech companies, to create a huge advertising platform.
When Verizon bought AOL for $ 4.4 billion in 2015, the company called AOL “a digital pioneer.” Lowell C. McAdam, then CEO of Verizon, endorsed the deal as part of its “strategy of providing consumers, developers and advertisers with a cross-screen connection to deliver this premium experience”.
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Tim Armstrong, the head of AOL, was part of the package and soon convinced Verizon executives to expand their media holdings. Mr Armstrong orchestrated the purchase of Yahoo in 2017 for $ 4.5 billion – a price he had pursued for years.
In the statement announcing the deal at the time, Mr. Armstrong said, “We are building the future of brands.”
It was all in search of the almighty “yardstick”, a business term in art that has almost become a religious mantra in Silicon Valley. The goal was to build a bigger audience to sell more advertising. However, the economics of the Internet had changed years earlier, and content that users made available for free, whether in the form of Facebook posts or YouTube videos, led to a lot of online activity. Despite their large audiences, AOL and Yahoo had become distant comrades-in-arms.
Verizon still saw value in Yahoo and AOL. The idea was to offer Verizon customers content they couldn’t get anywhere else at a time when all cell phone service offerings were essentially the same. And AOL’s huge ad tech business could give Verizon a better way to sell ads on their phones.
However, that strategy fell out of favor when Verizon’s current CEO, Hans Vestberg, was appointed in 2018. At the time, he praised the media department’s work, but high-speed internet via phones was key to the company’s health, and he redoubled his efforts building Verizon’s new 5G network.
In 2018, Verizon announced the resignation of Mr. Armstrong and began restructuring the media unit. Around 800 employees were laid off at the beginning of 2019, around 7 percent of the workforce. Last year, with the sale of HuffPost to BuzzFeed, Verizon began winding down the media group.
Mr. Vestberg called the Apollo deal “a bittersweet moment” in a company-wide memo on Monday morning, but added that the sale was “a big step forward” for the media group.
“I believe this move is right for all of our stakeholders, including media workers,” he said. “Our goal is to create networks that move the world forward. This will help us to better concentrate all of our energy and resources on our core competencies.”
Verizon had to spend a lot of money to improve its wireless business. In March it was agreed to pay nearly $ 53 billion in wireless radio wave licensing to help the company expand its 5G infrastructure. It also plans to spend $ 10 billion on cabling more cell towers and upgrading its systems over the next few years.
For Apollo, the purchase is an opportunity to continue investing in digital media – an industry the company is already in with deals for photo printing company Shutterfly, web hosting company Rackspace and Cox Media Group, which owns TV and radio. has invested stations across the country. Apollo also has extensive experience with the complex process of buying companies that have emerged from larger corporations, which generally requires the separation of interwoven financial data, systems, and often key executives.
And Yahoo and AOL are still generating a lot of revenue. Verizon’s media division had sales of $ 1.9 billion in the first three months of 2021, up 10 percent year over year.
Apollo hopes that increased focus on the individual brands he believes will be lost in a large corporate empire can accelerate this growth. One strategy could be to add more subscription offers. Yahoo Finance is already selling a premium service through the free website. Apollo also sees an opportunity for Yahoo Sports to take over more of the online betting and fantasy sports industries, which have seen explosive growth, two Apollo executives said in an interview with The Times.
Apollo is particularly optimistic about digital advertising given government scrutiny from some of the biggest players like Google. And as digital ads rebound after the pandemic, Apollo expects the entire industry to grow.
“Is most of it going to Google and Facebook and Snap and Twitter? Of course, ”said Reed Rayman, partner at Apollo. “But is there a role for others in digital media to benefit from the rising tide, like Yahoo and the other real estate? Absolutely.”
Apollo has been on a shopping spree for the past few months, announcing deals to acquire Michaels, the artisan chain, and the Venetian Resort in Las Vegas. It also saw a shake in its leadership roles when its co-founder, Leon Black, stepped down as chairman in March after it was revealed he paid more than $ 150 million to convicted sex offender Jeffrey Epstein.