- Increase of acquisitions under Marissa Mayer.
- Big ticket acquisitions and their impact on Yahoo.
- Reasons behind this strategy and how will it pan out in the future.
Yahoo’s acquisitions under Marissa Mayer have taken place in wide array of industries increasing from 65 to 112 in less than 3 years. The exact amount spent by the company since she took over is difficult to gauge as many of these acquisitions did not reveal the purchasing bill publicly. Yahoo benefited from its Alibaba stake, and hopes to gain from other recent acquisitions too which it is mostly doing for new talent and products. Let us take a look at the Yahoo acquisition strategy to understand how they bring value to the company and the Yahoo stock.
In July 2013, Yahoo acquired Tumblr at an astonishing $1.1 billion giving Yahoo an opportunity to target younger demographics which make up the majority of the blogging site's user base. The site now hosts over 200 million blogs and over 88 million posts are created on the site every day.
In Yahoo's earnings report for Q3, CEO Marissa Mayer stated that the Tumblr platform will generate over $100 million in revenue in 2015 on back of successful deployment of sponsored advertising. She remarked that Tumblr’s audience has grown by 40% in the past 15 months to over 420 million users and more importantly the average time spent on Tumblr has risen from 22 minutes to 28 minutes which is a very important metric within the social media world. The Tumblr acquisition could provide Yahoo with the solution it was looking for to make inroads in the social networking world and build a sustainable revenue stream from it. Many analysts have even compared this acquisition to Yahoo’s acquisition of Alibaba stake which provided it with huge returns.
The BrightRoll acquisition at $640 million was used to address one of the weakest spots of Yahoo, its programmatic sales and premium advertising segment. This segment hasn’t shown any growth since 2012 and according to Scott Burke, Yahoo’s senior VP-advertising technology, BrightRoll advertising will kick start the much needed growth in this segment.
Unlike most other buys, BrightRoll has a stable and well-functioning business in place which generated over $100 million in revenue in 2014. Using Yahoo’s assets it should be able to show a much higher revenue in the display business. Yahoo’s ad network business has generated a minuscule 10% to 12% of total display revenue. Its owned- and-operated ad display business is also struggling with 9% fall in the second quarter and 6% fall in the third quarter year-over-year. This makes BrightRoll one of the ideal purchases for Yahoo.
Yahoo brought Flurry, the data analytics powerhouse for $240 million in July 2014. Flurry was among the first pioneers in the field of mobile analytics. Yahoo is trying to make a shift to “mobile first” and by getting access to Flurry’s analytic prowess and the consumer data stored in their servers, Yahoo will only stand to benefit. Monetization of mobile services is going to improve with this acquisition. Also, Yahoo revenue will only increase from selling of mobile ads in other apps inside Flurry’s network.
MessageMe is a messaging application similar to WhatsApp. The company reached 5 million users in May 2013 soon after it debuted but this growth was not sustainable. Yahoo acquired MessageMe for $11.9 million and the small eight member team joined Yahoo to work on its mobile products. Yahoo Messenger isn't popular in the US and the new team aims to build a great product for the mobile messaging market.
Lexity is an ecommerce analytics firm founded by a former employee of Yahoo. The deal took place in July 2013 and values the firm at $35-40 million. Although there were many acquisitions which were done solely to gain talent, this particular platform has been kept within Yahoo and continues to provide customer insights for stores running on shopify, Magento, BigCommerce and other platforms. Yahoo should gain from increased e-commerce traffic and data which should also help in its display ads.
Yahoo Acquisitions: Reasons Behind This Strategy
Gain Talent: Marissa Mayer outlined the major reasons why acquisitions have been a cornerstone of her strategy in Yahoo. The first was to gain talent where the product would be purchased and soon be ‘killed’ to allow the development team to work on other tools within Yahoo. This approach has its pros and cons. The advantage is that the new guys would bring their hard earned experiences. The biggest negative is that working within an organization as huge as Yahoo could stifle their creative energy.
Gain Talent and Technology: The next reason for these acquisitions was to acquire both the talent and the technology. This has been the case in Aviate, RavY and Summly where the platform was later incorporated within Yahoo to build better products. These types of acquisitions can be much more beneficial as the earlier development team works on similar products and tries to increase the performance matrix.
Strategic Acquisitions: Strategic acquisitions like Tumblr, Flurry and BrightRoll will help Yahoo gain a distinctive advantage in a particular segment. It would be difficult for Yahoo to reach a similar customer acceptance if it started from ground up. Marissa Mayer has come from Google where this strategy is a centerpiece for the organization. Google has made acquisition of over 170 firms since 2001 in diverse sectors.
Only time will tell if these acquisitions will add to Yahoo valuation. Yahoo will definitely benefit from the experience of these startups, but building a sustainable business model around them would be the real test for Marissa Mayer. As the saying goes; “Buying a company is easy, integrating it is the tricky part”.