Verizon Gobbles Up Yahoo, Will Group It With AOL—But What About Tumblr?

Xconomy New York — 

A huge question has finally been answered about Yahoo’s future. Verizon sealed a deal over the weekend to acquire the company’s core business for more than $4.8 billion in cash, and will put Yahoo on the same shelf it keeps AOL.

That is but a sliver of the valuation Yahoo tasted in its heyday, including a $44.6 billion buyout offer from Microsoft in 2008.

What remains unknown from the deal announced Monday is what will ultimately become of the Yahoo brand or the companies it acquired over the years, such as Tumblr. A Verizon spokesperson told me it is too early to answer those kinds of questions now. Yahoo will operate as a separate company until the deal gets shareholder and regulatory approval—the expectation is for the transaction to close in the first quarter of 2017.

For now, the plan is to integrate Yahoo with AOL under Verizon executive vice president Marni Walden. In late spring 2015, New York-based Verizon acquired AOL and its media assets, including The Huffington Post and TechCrunch, for $4.4 billion. Adding Yahoo to the mix gives Verizon more weight it can throw around in digital media and advertising. But this might not be the outcome Yahoo had hoped for after a protracted effort to regain its footing as an independent player in the online scene.

During an investor conference call Monday morning, Yahoo CEO Marissa Mayer said her company received numerous offers after it went on the market—Dan Gilbert, chairman of Quicken Loans, put in a bid as well. Ultimately, Mayer said, Verizon “offered the most compelling transaction” and believed in the company’s vision the most.

The acquisition does not include Yahoo’s shares in Alibaba, Yahoo Japan, and certain other assets. “These will continue to be held by Yahoo,” Mayer said, which will change its name and become an investment company.

What will become of Tumblr in Yahoo's acquisition by Verizon? (photo by Joao-Pierre S. Ruth)

What will become of Tumblr in Yahoo’s acquisition by Verizon? (photo by Joao-Pierre S. Ruth)

She went on to praise some of the changes that came under her watch, particularly the moves to make Yahoo more of a mobile company. “We tripled our mobile base to over 600 million monthly active users and generated over $1 billion in mobile advertising revenue last year,” Mayer said.

What Verizon gets in the deal are assets including Yahoo Mail, media content, and a suite of advertising technology from BrightRoll, Flurry, and Gemini. Combining resources with Verizon and AOL, Mayer said, should accelerate the companies’ digital advertising revenue stream. “Together, we can realize our growth goals much faster,” she said.

This deal brings to an end the turnaround campaign Mayer led at Sunnyvale, CA-based Yahoo that might have kept the company independent—though there has been no official indication of what will come next for her after the acquisition is complete.

Mayer took over as CEO in 2012, drafted from Google where she had worked since 1999. Under her tenure, Yahoo tried numerous strategies to regain some of its former luster. There were acquisitions such as Tumblr, the New York-based social media network and microblogging site, for $1.1 billion; mobile analytics company Flurry; Stamped; and news app Summly. The latter two were shut down, though Yahoo kept their technology.

The Tumblr deal in particular turned heads but also led to some head-scratching. On the one hand, it was a huge exit for a New York startup, and for a time it quieted a few naysayers about the innovation ecosystem in this city. But then there came questions about what Yahoo would actually do with Tumblr. Despite promises to “not screw it up,” last week Yahoo reported in its latest quarterly earnings it wrote down $482 million on Tumblr, almost half of what it spent acquiring the company.

The series of acquisitions by Yahoo was part of a larger plan to make it much more mobile-facing, an effort which also sought to entice more app developers to work with the company.

Katie Couric (l) and Marissa Mayer (r) at CES 2014 (photo by Joao-Pierre S. Ruth)

Katie Couric (l) and Marissa Mayer (r) at CES 2014 (photo by Joao-Pierre S. Ruth)

Yahoo also tried to become more of a platform for media, putting together deals for video from the likes of Katie Couric, “Saturday Night Live,” and some original content. Last October, an NFL game streamed live for free on Yahoo in a onetime experiment.

Some of the other plans at Yahoo included talk of separately divesting its holdings in Alibaba, but that idea was eventually shelved.

Yahoo did have chances to “cash out” years prior for more money—but those bids were spurned by previous management. Microsoft had wanted to pair up with Yahoo as a way to push back on the dominance of Google in search and online ad revenue. Yahoo rejected that offer in 2008, which co-founder and then-CEO Jerry Yang said undervalued the company. Yahoo’s place in the online world continued to wither, though, leading to a game of musical chairs with the CEO role that eventually resulted in the hiring of Mayer to lead a turnaround.

More details of the deal with Verizon will eventually come to light, and perhaps then the fate of Tumblr and the rest of Yahoo’s acquisitions will be made clear.