"Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Ben Kartzman, CEO at Spongecell.
Yahoo’s share of Alibaba has been something of a life preserver for the company. With Alibaba’s recent IPO, Yahoo now has a giant piggy bank on its hands. Even after selling about $9.5 billion worth of Alibaba shares in the IPO, Yahoo’s remaining stake in the Chinese company, along with its stake in Yahoo Japan, is worth an estimated $45 billion – more than Yahoo’s entire market capitalization.
To put that into perspective, a company could buy Yahoo, sell its Asian assets and essentially walk away with the company’s core business for free. Clearly, investors don’t think Yahoo’s core business is working, so what’s next? How can it use its stock holdings to become an advertising powerhouse?
Key In On Video
Video is what brand advertisers want. While display remains a potent tool for mid- and lower-funnel campaigns, video is unparalleled for upper-funnel initiatives. Yahoo’s competitors have taken notice. Witness AOL’s purchase of video ad server Adap.tv for $405 million. That company has been a revenue boon, allowing AOL to capitalize on the shift of budgets from display, and increasingly from television, to online video advertising, especially programmatic online video advertising. Yahoo could go a similar route, but it would be more prudent for the company to focus on growing its audience, because with eyes come dollars.
Enter Netflix. With a valuation at about $27 billion, it might make a lofty and interesting acquisition target. The acquisition of Netflix would give a halo effect to the rest of Yahoo’s video properties, the premium paid content drawing eyes and, therefore, brand dollars to Yahoo’s advertiser-supported video content.
Moreover, Yahoo CEO Marissa Mayer has made her interest in original content well known. From hiring news vets Katie Couric and David Pogue to scooping up the rights to TV’s cult hit “Community” and its announced partnership with Live Nation, Yahoo clearly wants to own more destination viewing. With breakout hits, including “Orange Is the New Black” and “House of Cards,” Netflix is the undisputed leader of online original content.
Yahoo could mine untapped secondary market opportunities with Netflix’s stable of original shows. This mixing of paid content with advertiser-supported content is nothing new. Look at Time Warner’s stable of TV properties, ranging from HBO on the subscription side to TBS on the ad-supported side. They even have Warner Brothers as their content studio.
With Netflix integrated in a plethora of electronic devices, it gives Yahoo a place on the set-top box, an increasingly important asset with connected TVs becoming more of a reality. And last but not least, Netflix CEO Reed Hastings is the kind of energetic dynamo that Yahoo needs if it wants to be a real player in the content game. Bringing him onto their team could be a game changer.
Yahoo Could Buy Pinterest
In addition to video, Yahoo has made a clear push for more and better mobile content, particularly with the launch of its News Digest application. Mobile advertising was on the upswing, according to its second-quarter report, and as we know, increased mobile content also means increased opportunity for even more mobile advertising. With its acquisition of mobile messaging app Blink earlier this year, Yahoo has a cadre of young entrepreneurial talent – the kind of foundation it needs to make a successful push into the mobile space. We are already seeing fruits of the labor: News Digest has gained traction and earned plaudits from critics, but it needs a supporting product to jump-start growth and provide the behavioral data Yahoo needs to be successful.
Pinterest, with a valuation north of $5 billion, might be the product that can provide access to that data. The popular visual bookmark tool folds nicely into Mayer’s strategy of building out Yahoo’s stable of digital magazines and offers interesting synergies with many of Yahoo’s current properties. Of course, that was the thinking behind Tumblr, but after paying $1.1 billion to acquire the company, Yahoo hasn’t seemed to have done much with the property.
There’s a difference here, however, since with Pinterest comes data, including user data and data from Pinterest’s brand advertisers. Layer in some ad tech to combine all of that data and the ad targeting would be unparalleled in power and profitability. In addition to its various properties, including Yahoo Mail and Yahoo Sports, Yahoo has access to large troves of data on its users, which can be sold to advertisers to create more targeted online marketing campaigns.
The addition of Pinterest would bolster Yahoo’s data on consumer behavior, allowing it to offer advertisers direct insight into the affinities and affiliations of 70 million users. Facebook is fast building a commanding business monetizing this sort of personal behavioral data, and Google is quickly trying to catch up. The acquisition of Pinterest would give Yahoo entry into this tussle, turning it into a three-horse race.
Only time will tell exactly how Yahoo might be able to leverage its upcoming and potential returns. In reality, it could buy anything – Starbucks or GM or Lockheed Martin. That’s right. At the high end, the pre-tax value of Yahoo’s total Alibaba stake is worth more than any of those companies.
Now the question is: Will it be a game changer?