Ad industry execs cautiously optimistic Verizon-AOL-Yahoo can take on Google & Facebook
Experts weigh in on what the Verizon acquisition of Yahoo could mean for the balance of power in digital advertising, including search.
“This is the best outcome marketers could have hoped for in the industry. This acquisition puts AOL on solid ground as the third platform CMOs must take a meeting with behind Google and Facebook. Balance of power is good,” said Jay Friedman, COO of programmatic media agency Goodway Group, of the pending Verizon deal to buy Yahoo for $4.8 billion.
Whether a Yahoo acquisition can lead to even a modicum of “balance of power” in digital advertising is the big question. Yahoo plus AOL, which Verizon bought last May for $4.4 billion, would give Verizon, the largest wireless telecom provider in the US, a reported 5 percent share of digital ad revenues globally. (That estimate may be a bit generous: eMarketer expects Yahoo’s global market share to fall below 2 percent to 1.5 percent in 2016 and AOL’s global share was estimated at 0.74 percent in 2014.) That compares to Google’s more than 30 percent share of all worldwide digital ad revenues and Facebook’s 9.6 percent share last year, according to eMarketer.
Many argue, however, that buying a 5 percent share of a $542 billion market for less than $10 billion is a relatively cheap price of entry for Verizon. Friedman and other digital advertising executives Marketing Land spoke with are cautiously optimistic Verizon is on to something.
“With the content portfolio and ad technology solutions of a combined AOL and Yahoo, plus Verizon’s unique data set of households and mobile users, this combined entity definitely has the assets to be a major player in digital media and marketing,” said Adam Berke, president and CMO of AdRoll.
A grab at scale to take on Google & Facebook
“First, the driving force behind this is about consumer scale of getting over a billion users and we have a 2020 goal to get to two billion users overall,” AOL CEO Tim Armstrong told AdAge on Monday.
Yahoo’s reach has remained impressive even as it’s ability to monetize that user base has flagged over the years. With over 1 billion active monthly users, Jason Hartley, vice president and search marketing practice lead at 360i, agrees that Yahoo’s audience “will go a long way to solve [AOL’s] scaling problem”.
“Now they have the ad tech and a big cross-channel audience, which should mean big things in the programmatic space in the relatively short term,” said Hartley.
Friedman added that “AOL now has inventory and a user base across Yahoo!, AOL, and MSN – [making it] a very worthy player.” The MSN piece comes from AOL’s deal to manage Micrsoft’s display advertising business in most markets globally.
Advertisers want more than scale, they want targeting
With a billion users, Yahoo wasn’t left behind by Facebook and Google in display and video for lack of reach. It was that Yahoo never was never able to match the sophisticated ad targeting of its rivals.
Facebook has been able to take on Google due to its targeting capabilities. Yahoo meanwhile has been using Facebook Audience Network to sell ads on beleaguered Tumblr. The hope is AOL’s ad tech and Verizon’s pipes can change that to give advertisers powerful ways of activating large audiences across Yahoo and AOL properties.
“The logged-in user base and its associated data is a valuable component of this deal,” said Friedman. “Being able to tie Yahoo’s deterministic data set to Verizon’s and add all of AOL’s existing properties is a huge win and advantage”.
Under Tim Armstrong, AOL scooped up disparate pieces of ad technology to transform itself from an outdated portal and CD mass-mailer into a new paradigm in ad tech. That vision culminated in the launch last year of ONE by AOL, a programmatic trading and attribution platform that spans video, display, and mobile.
While AOL and Verizon have publicly set their sites on Google and Facebook in discussing the Yahoo acquisition, Dave McIninch, chief revenue officer of Acquisio, says Verizon needs to be looking at streaming competition as well. “Strategically it makes sense for Verizon, but without a clear offer for the programmatic TV market (aka a real contender to Netflix or Hulu),” McIninch said, “they will struggle to integrate the deal vertically into their native content offerings. It’s great for their online/mobile properties, and leveraging Verizon’s installed base there, but they need a lot of help on the digital content licensing/production front.” Verizon’s initial effort here is its ad-supported go90 mobile video app that features original content. AOL manages the go90 business while Verizon handles delivery.
AOL has continued to buy up ad tech companies since Verizon bought it. Yahoo has it’s own ad technology pieces, of course, including video platform BrightRoll and mobile ad network and analytics platform Flurry, both acquired during Marissa Mayer’s tenure as CEO.
“AOL’s tech stack is stronger than Yahoo’s and there are limited areas where Yahoo’s tech will be better and/or enhance what AOL already has. BrightRoll vs. Adap.TV may be an exception, where there are parts from each that can enhance each other,” said Friedman.
How and if the various pieces come together or get streamlined among the companies won’t be an easy puzzle to solve, but Armstrong has shown he can buy, cut and meld his way to creating a valuable ad tech stack with AOL.
What does Yahoo-AOL mean for search?
For one, the tangled web of partnerships in search gets even more convoluted with this acquisition. Yahoo already has a waning deal with Microsoft – Microsoft still serves at least 51 percent of Yahoo’s desktop search inventory – and a fledgling one with Google to serve its ads on some portion of Yahoo desktop and mobile searches. Early this year, Microsoft took over serving search ads and results on AOL from Google.
“The most interesting aspect of this deal to me is that it came at a time when Yahoo appeared to be increasingly distancing itself from Microsoft in the search space,” said Mark Ballard, senior director of research at Merkle. “yet Verizon’s previous large acquisition, AOL, just began a 10 year deal to have Bing power its search results.”
Yahoo has been trying to get back into the search game since Marissa Mayer first came in as CEO. In 2014, the company launched Gemini to serve and target search and native in-stream ads on Yahoo properties as part of its MAVENS strategy to focus on mobile, video, native and social.
“All search marketers would prefer to have more options to put our budgets,” acknowledged Hartley, “especially if we feel like we will be able to do better targeting beyond keywords. But unless this deal affects search volume for Yahoo, especially on mobile, improved targeting and other functionality that Google doesn’t provide won’t generate a big enough lift to make a significant difference in our approach or results.”
Gemini has struggled to gain traction. Ballard says Merkle’s data suggests search ad volume from Gemini has plateaued for nearly a year now, and he wonders if Verizon might opt to shut down the platform. “Some advertisers may see this as a positive as it would reduce the uncertainty around the future of Gemini and the need to build out search campaigns for the Gemini platform.”
Hartley is skeptical this deal will bring about a market share shift in search.
“Presumably there will be some of the overlapping AOL/Yahoo! properties, but Bing is already powering AOL searches, so those synergies probably won’t affect search mix. Verizon will have a bigger and direct piece of the search pie now, but I don’t see a reason why it would come from Google (which powers some of Yahoo! searches as well). So it will be interesting to see how it all plays out. I don’t think this deal was done for the search component, though it will drive substantial revenue, but I will be pleased to be proven wrong,” said Hartley.
Big challenges with the opportunity ahead
As the industry would welcome a formidable third player to challenge Google and Facebook, hopes that Verizon can now be that third player are high. However, the similar optimism was expressed with the news of Verizon’s AOL purchase. Facebook and Google’s combined market share has only grown in that time.
“While the strategic rationale of the deal makes sense, the big open question is in execution,” said Berke. “Yahoo and AOL both have sprawling portfolios of products, many of which compete in the same categories. Unifying all of these offerings into a clear and compelling story for marketers with cleanly organized sales, marketing, and account management teams is going to be a difficult task. One of the more underrated things that Facebook and Google both do really well is execute like a small company despite being very large. That’s the biggest risk area for Verizon-Yahoo-AOL that doesn’t have the same track record.”
The deal is expected to take 6 to 9 months to close, during which time AOL and Verizon will get to take a closer look at what they’re buying and start making decisions about how the companies will come together. “If AOL keeps an open ecosystem they stand a very good chance of taking budget from Facebook and Google. Verizon/AOL/Yahoo now boasts a stack with as much reach and more O&O inventory. The key will be whether Verizon/AOL/Yahoo will be hungry to do deals, or if red tape will stand in the way,” said Friedman.