AT&T’s unexpected return to the bidding for Yahoo (NASDAQ:YHOO) is about obtaining digital advertising assets. Furthermore, it could hinder the path of its adversary Verizon Communications (NYSE:VZ) Incorporation. The two largest US telecom providers are fighting to gain ownership of Yahoo.
Both AT&T (NYSE:T) and Verizon are facing slow subscriber growth and painful price competition from smaller carriers, and have aimed at video as a source of fresh revenue. However, video won’t boosts sales without advertising technology.
According to reports, AT&T has proposed an offer to acquire Yahoo’s Internet business, after initially remaining on the sidelines.
On the other hand, Verizon has been widely considered by analysts as the top candidate to acquire Yahoo. Verizon officials have expressed their enthusiasm in merging Yahoo’s massive online audience with AOL, which it purchased a year ago for $4.4 billion. “We can’t talk about Yahoo… but that’s a possibility to gain greater scale,” Verizon CEO Lowell McAdam said Tuesday.
However, Verizon did not submit the highest bid in the first round of bidding, which included offers ranging between $4 billion and $8 billion.
AT&T’s plan to acquire Yahoo is probably triggered by a desire to keep it out of the hands of its main rival. Yahoo could also act as an anchor for the company’s aspirations to build up a bigger push into digital media and video streaming. The telecom provider is aiming to launch three new Direct TV exaggerated video services in the United States later this year. Moreover, the company is making an effort to reach millennial video viewers through Otter Media, a joint deal with Chernin Group whose holdings include Fullscreen.
The Telecom giants have always had similar strategies such as entering mobile, mixing services into bundles, and now offering mobile video. However, while Verizon has been vocal about its desire to obtain Yahoo at the right price, AT&T has kept its interest hidden.
“It was always thought that Yahoo would be a natural fit with AOL at Verizon, so the level of interest from AT&T’s decision to swoop in is surprising,” a market analyst stated. “Much of this is competition to block Verizon.”
Why Are AT&T and Verizon So Eager to Acquire Yahoo?
AT&T and Verizon are currently battling it off to own Yahoo. As of now, the telecom giants make the most sense as bidders for Yahoo and can likely pay the highest to the California-based company’s shareholders.
Yahoo could be a vital fit for AT&T as the phone carrier has become much more aggressive about digital video. Securing better technology from Yahoo would help AT&T provide businesses with advertisements delivered over the internet that are customized to satisfy individual viewers’ interests.
Another particular factor that could be appealing to AT&T is Flurry, an analytics and advertising startup that Yahoo purchased for nearly $300 million in 2014. The unit has complemented other Yahoo services and boosted the Yahoo Mobile Developer Suite, which supports over 250,000 software developers and more than 800,000 apps.
Yahoo also acquired BrightRoll, a provider of tools for buying an selling video advertisement in more automated ways. In addition, Yahoo has a huge advertising business linked to online search deals with Microsoft (NASDAQ:MSFT), and more recently Google (NASDAQ:GOOGL). This has generated roughly 40 percent of Yahoo’s sales.
“AT&T has to be nimble. Getting programmatic ad buying capabilities on mobile is probably one of the big reasons they are interested,” an analyst commented.
The telecom giants are also aiming to benefit from Yahoo’s broad audience, as the company still brags about 1 billion users, placing it among the largest online players worldwide.
“This is about getting an audience. And for as much as Yahoo has messed up over the years, they are still the third-largest in terms of users,” an analyst explains. “If AT&T can pick up advertising technology and thwart Verizon in the process, then that’s just an added bonus.”