Verizon’s Acquisition of Yahoo Is a Watershed Moment for Procurement

On July 25th, 2016, Verizon officially announced the acquisition of Yahoo's core operating business – internet, advertising and media - for $4.83 billion (USD) in an all-cash deal. The deal, which is expected to close in early 2017, will integrate Yahoo into Verizon’s ‘Innovation and New Businesses’ division, the same division that acquired AOL in May 2015.

The deal represents a stunning decline for Yahoo, a company that was valued at more than $100 billion (USD) at its peak during the early 2000s. Yahoo’s different businesses excelled in silos, but the company failed to unify them.  This led to massive positioning error as users were confused about Yahoo’s real identity – Search Engine? Aggregator of photos? Social media community? Online video portal? Email platform? This confused branding from Yahoo accelerated its own downfall.

Verizon’s acquisition of Yahoo is interesting. Combine their latest acquisition of Yahoo, with the buyout of the AOL business for $4.4 billion a year ago, and it is not too difficult to see the premier communication services provider’s plan. While Verizon continues to possess control over mobile user connectivity (courtesy its wireless business), the acquisitions of AOL and Yahoo mean that Verizon has now extended its influence further towards the content that is consumed by the user on their device (through control of content hosting and distribution aspects).

The interest from both AT&T and Softbank as bidders for Yahoo signals a keen interest from some of the more prominent communication service providers to expand their business footprints to the advertising and media distribution businesses. This likely transformation in business positioning of communication service providers towards providing integrated omnichannel experiences for their user base has massive implications for sourcing and procurement executives.

Implications for Procurement:

While the deal doesn’t seem to have excited technology executives, there are good reasons why procurement executives should be interested. The deal marks a watershed moment for IT/Telecom and Marketing procurement professionals. Here’s why:

1) The enterprise buyer’s shopping basket of goods is about to be redefined:

Verizon’s latest buy of Yahoo means that it is about to become one of the largest audience reach platforms (combine Yahoo’s 1 billion plus monthly active users to the existing AOL Verizon’s core customers) and will emerge as a lucrative option for digital media buyers looking at digital advertising platform options beyond Google and Facebook (which currently have about 45 percent of the market share in the digital ad segment). Indications are that other communication service providers are likely to follow Verizon’s path and expand their footprints into the digital media domain.

The enterprise buyer who was previously shopping for communication services and digital media/advertising services separately, is likely to see newer suppliers who will offer a consolidated bundle of communication services plus digital media. This will call for greater collaboration between marketing and telecom procurement executives, and is likely to disrupt traditional siloed buying approaches. Can procurement expect to collaborate seamlessly between CMOs and CTOs who are likely to compete with one another for control over the consolidated spend portfolio? It is anybody’s guess, at this moment.

2) The opportunity to consolidate spending on two critical sub-categories – IT communication services and digital media – will create new savings opportunities:

The proposed change in the shopping ‘basket of goods’ for procurement, which is primarily led by the content consumption habits of the modern day mobile user, is likely to present an opportunity for procurement to consolidate its ‘communication services’ and ‘digital media’ spend with one supplier. This, in turn, will present the next big savings opportunity for procurement professionals who have typically generated 5-7 percent savings and 8-9 percent savings for their communication services and digital media portfolios, respectively. It won’t be too ambitious to quote savings opportunities in excess of 12 percent if the consolidation of the two separate spend pools were to happen.

Verizon’s initiative to self-disrupt its established business model is creditworthy. In fact, in this age of digital, the only constant is proactive disruption of set practices and models, and companies failing to do so are likely to become obsolete.

IT & Telecom

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