Web pioneers AOL and Yahoo have been sold. Verizon sold the two early Internet powerhouses to the private equity firm Apollo Global Management. For these once tech titans, the deal represents a failure to adapt and thrive as the internet evolved. A history of missteps and bad timing leads both AOL and Yahoo to be sold for 10% of their peak values
America Online
AOL, founded in 1991 as a BBS for Commodore 64 computers, went public in 1992. Estimates put AOL’s value at $226 billion by 2001. Over 35 million users accessed the Internet via AOL. The firm had a history of preventing users from canceling their subscriptions. In 2001 America Online bought Time Warner for $182 billion in cash and stock. The move buried the company in debt just before the dotcom bubble burst and the rise of broadband made AOL’s dial-up services virtually obsolete. AOL languished until Verizon bought the property in 2015
Yahoo
Yahoo (YHOO), founded in 1994 had 3 billion users at its peak. It had total revenue of over $1.8 billion at its peak in 2008. Yahoo has a history of misses as well. In 1999 it spent nearly $10 billion to buy GeoCities and Broadcast.com, both of which the company eventually shut down. It spent $1.1 billion on Tumblr in 2013 and sold it for less than $3 million in 2019. The Internet pioneer rejected a $44.6 billion takeover offer from Microsoft in 2008, only to sell to Verizon for 10% of that value less than ten years later. Yahoo has the dubious honor of enabling the largest know data breach – leaking all 3 billion accounts. Verizon bought Yahoo in 2017 for $4.5 billion.
Verizon (VZ) sold the Verizon Media group for $4.25 billion in cash and a 10% stake in the new company. The former internet empires will be rebranded “Yahoo,” according to the announcement. Verizon said they expect the sale to close in the second half of 2021. The sale includes online news outlets TechCrunch, Yahoo Finance, and Engadget.
Verizon is cutting its losses
The deal values the former powerhouse businesses at significantly lower prices than Verizon paid just a few years ago.
- Verizon bought AOL for $4.4 billion in 2015.
- Verizon bought Yahoo for $4.5 billion in 2017.
- The unit was renamed Oath, but Verizon admitted that its plans to take on Amazon (AMZN), Google (GOOG), and Facebook (FB) was essentially a waste when it took a $4.6 billion write down on Oath in 2018.
David Sambur, co-head of private equity at Apollo, said in a statement that touted the company’s strong recent recovery from last year’s lows in CEO-speak;
We are big believers in the growth prospects of Yahoo and the macro tailwinds driving growth in digital media, advertising technology, and consumer internet platforms.
The deal is Verizon’s latest step toward exiting the media market. Verizon sold HuffPost to BuzzFeed last year. it also shut down other popular properties including Yahoo Answers.
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Call me cynical, but what happens to the few remaining staff? The PE playbook says to remove assets and pump in debt to either spin out the remains in an IPO or go bankrupt and write off the debt in a fire sale. Meanwhile, Verizon Media CEO Guru Gowrappan gets to keep his CEO position at the new Yahoo.
Hopefully, Verizon will focus on its core wireless networks business and other internet provider businesses. Opensignal reports that 5G connections are still rare for U.S. consumers. They found that users connected to mmWave 5G less than 1% of the time. Verizon was the “best” for a time connected – a whopping 0.8%, compared to 0.5% for both AT&T and T-Mobile users.
Yahoo and AOL were early tech titans as the consumer internet formed, but have now fallen into the hands of private equity.
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Ralph Bach has been in IT long enough to know better and has blogged from his Bach Seat about IT, careers, and anything else that catches his attention since 2005. You can follow him on LinkedIn, Facebook, and Twitter. Email the Bach Seat here.