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May 3, 2021, 1:54 p.m.

Someone new thinks they can make Yahoo and AOL good businesses in 2021

And, as usual for this glum moment in media, it’s a private equity firm that wants a crack at finding new places to cut.

Yahoo and AOL have been boring for so long that it can be hard to remember why (if?) they were ever interesting. But there was a time when they were truly the kings of the web — one connecting people to the internet, the other taking up a shocking percentage of their time once they got there.

On December 13, 1999, with visions of Y2K dancing in traders’ heads, AOL’s stock price peaked at $94, giving it a market cap of a whopping $224 billion. Less than three weeks later, on the very first trading day of the 2000s, Yahoo hit $118.75 a share, marking its peak at $127 billion. They were worth more than a third of a trillion dollars between them.

But they call them peaks for a reason. A week later, AOL announced its flawed merger with media giant Time Warner, a moment now generally considered the start of the dot-com crash. (Huh, merging a pipes company and a media company didn’t work out so well. Interesting.)

The dot-com crash eliminated 98.3% of Yahoo’s value in less than two years. People increasingly found they had better options than dialup. It’s been a looooooong 20-plus years since then, but Yahoo and AOL have chugged along — in systemic decline, profoundly unsexy, but still attracting a surprisingly large audience of grandparents who don’t know how to change their browser’s default homepage. (Yahoo is still the 11th most popular website in the world — today, in 2021! — right between Amazon and Wikipedia!)

Most recent in the long line of companies who thought they could fix these decayed icons was Verizon, another pipes company that had the bright idea of buying into media. It spent $4.4 billion on AOL in 2015 and $4.48 billion for Yahoo two years later. The idea was all about advertising. We’ll sell video ads! We’ll sell ads at scale — a scale that’ll rival Google and Facebook!

It didn’t work. Its content stable didn’t grow at the pace Verizon wanted; its adtech dreams remained unfulfilled. Barely a year after buying Yahoo, it declared half of what it paid for the two companies a writeoff, value that’d never return.

Today, Verizon gave up, and someone else got in line to fix Yahoo and AOL — if by “fix” you mean “squeeze and extract in classic private-equity style”:

Verizon Communications, signaling that it has given up on its media business, said on Monday that it had agreed to sell Yahoo and AOL to the private equity firm Apollo Global Management for $5 billion.

The sale also includes Verizon’s advertising technology business. Verizon will retain a 10 percent stake in the overall business, it said in a statement.

“This next evolution of Yahoo will be the most thrilling yet,” Guru Gowrappan, Verizon Media’s chief executive, said in a memo to employees Monday, which was obtained by The New York Times.

Apollo Global Management “has a powerful vision,” Verizon CEO Hans Vestberg wrote, “that includes aggressively pursuing growth areas in commerce, content and betting.” I’m guessing the growth targets that count are more in 1 and 3 than in 2.

Verizon had already sold off some of its media parts, handing HuffPost to BuzzFeed and Tumblr to Automattic. Just last month, it announced it was burning down Yahoo Answers, creating the very real risk we may never learn how babby is formed.

You want some takeaways? I got some takeaways for you:

Leadership is important! Duh, right? But a sale like this was fated as soon as Vestberg — who had no media experience and no particular interest in running a media business he had no hand in building — was named Verizon CEO.

Media scale ≠ platform scale. “Let’s get bigger!” has been the most popular corporate media strategy for the past decade or so, increasingly so in the past few years. Scale is fine, but it’s often an indication that your vision for growth is more about cutting duplicate costs than building anything new. And no matter how much scale you have, media companies can’t get anywhere near the scale of Google, Facebook, or, increasingly, Amazon. You can try to match them on size of audience, but you’ll never match them on user data or consumer intent (e.g., knowing what product someone is searching for). Trying to play their game guarantees you’ll lose.

Synergies between pipes and content are always overrated. Any company that owns the AOL trademark should already know this, from that 2000 debacle. Companies that control the pipes — telcos, cable providers, broadband companies — love the idea of controlling some of the content that flows through them, thinking some mixture of exclusivity, adtech, and ~~scale~~ will give them an edge together they lacked apart.

That may have made sense in the era of three TV networks, studio theater chains, or radios the size of a mini-fridge. But the sea of digital content is just too wide and too deep for a company to make major headway by controlling a portion of it. Sites like HuffPost, TechCrunch, and Yahoo News may all have their strengths, but add 100 of them together and you’ll still only capture a tiny fraction of Americans’ time online.

Private equity and hedge funds appear to be the only ones with the stomach to be investing in media. It was Apollo Global Management that provided the $1.792 billion loan (at loan-shark rates) that let Gannett and GateHouse merge. It’s Alden Global Capital that has gobbled up newspapers coast-to-coast (and looks increasingly set to gobble up more). It was Chatham Asset Management that took the last major family-controlled newspaper chain, McClatchy, private.

It used to be that consolidation in the news business meant media companies buying other media companies. For a while there, the hope was that tech companies (or at least tech zillionaires) would be the ones snapping up media companies.

(2008: “Will Google Buy the New York Times?” 2009: “Should Yahoo Buy The New York Times?” 2009: “Any chance Microsoft might buy the NYT?“)

But now it’s pretty much the pure money guys, the ones who approach the news business with the same dispassionate set of knives they do the widget business. They see cash flow, they see potential cuts, and they see ways to ride the industry’s plane slowly into the ground. Makes you nostalgic for the days when the boundless egos of media barons were what we had to worry about.

Photo of an old AOL disc repurposed as a bird scarer by Gilgongo used under a Creative Commons license.

POSTED     May 3, 2021, 1:54 p.m.
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