Aol e Yahoo logos.
Aol e Yahoo logos. Image: Reproduction

Living long enough to be ostracized. What happened to Aol and Yahoo?

Verizon Media's CEO, who will remain Yahoo's lead, said in a memo that “Yahoo’s next evolution will be the most thrilling yet.” Well, I wouldn't hold my breath for this

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In 2008’s The Dark Knight, a rare good superhero movie, the character Harvey Dent (Two Faces) utters a memorable phrase when debating Batman’s role with him: “You either die a hero, or you live long enough to see yourself become the villain.” It isn’t easy to attribute such qualities to companies, but I remembered this line when I learned last Monday that Verizon had sold Aol and Yahoo to a private equity fund. You see, in the business world, companies that do not “die” at their peak are at risk of being ostracized after a while.

The new owner of Aol and Yahoo is Las Vegas’ Apollo Global Management, known for buying deficient parts of large conglomerates and making them healthy again. The new entity will be called Yahoo (without the exclamation point), and Verizon will maintain a small 10% stake. The value of the deal was $5 billion.

Such a large figure seems less impressive when placed side by side with what the two brands, both internet pioneers, boasted in their glory days.

At the turn of the millennium, just before the dot-com bubble burst, their combined market value was at almost half a trillion dollars, already adjusted for inflation. The 2000s were not very generous times, and not just because of the bubble. New, more agile companies, like Google and Facebook, knocked the old digital titans down (or “disrupted” the sector, to use a more generation Y term).

In a memo obtained by the New York Times, Guru Gowrappan, CEO at Verizon Media, and who will remain in charge of Yahoo’s new phase, says that “This next evolution of Yahoo will be the most thrilling yet.” Well, I wouldn’t hold my breath for this.

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Rise and fall of Yahoo and Aol

When Yahoo! (with exclamation) born it was a kind of Google’s ancestor. There were few websites in that newborn commercial web, so much so that manually cataloging them in a directory was feasible. That’s what friends Jerry Yang and David Filo did in 1994 in Jerry and David’s guide to the World Wide Web, the company’s original name, and changed a year later. It did not take long for Yahoo to adopt automatically generated indexes and, perhaps more importantly, thinking now in retrospect, to expand its tentacles in all possible ways. With the most diverse verticals and services, the company strengthened the idea of being “the” gateway to the web for users who were just discovering it.

Aol, created in 1985 under the name of PlayNET, had a similar goal but originally acted in a deeper layer of the customer’s journey: it was synonymous with dial-up connection. With the popularization of the commercial internet in the 1990s, Aol grew into such a lucrative and powerful business that, in 2001, it starred in the largest merger in American history by incorporating Time Warner and creating a $360 billion multimedia conglomerate.

At that time, it was unthinkable that Aol and Yahoo could be wiped out of the main playing field. But it happened. At Aol, the merger with Time Warner was disastrous. The company was unable to adapt to the migration of dial-up connections to broadband. At Yahoo, a series of bad decisions, like letting go of the opportunity to buy Google for only $1 billion in 2002 and the many acquisitions of Web 2.0 that ended up being emptied under its domains (Flickr, Delicious, Tumblr), made the company pay a high price a while later.

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In recent years, the two brands were under Verizon’s umbrella as the foundation of a plan to face up Alphabet and Facebook in digital advertising. The plan was to gain scale (read audience, in billions) to have bargaining power with advertisers. After the initial plans collapsed, Aol and Yahoo saw content as their lifeline. Verizon acquired Aol in 2015 and, under the influence of Aol’s CEO at the time, Tim Armstrong also bought Yahoo in 2018. The two acquisitions cost Verizon about $9 billion.

The scale-up plan via content also does not seem to have worked, at least not within initial expectations. Verizon’s justification for divesting both brands now is to focus on what it does best: mobile internet access. Just over two years ago, a new leadership also changed the company’s plans, and the focus shifted to the deployment of the 5G network in the United States, an initiative that consumes a lot of capital. In this new scenario, Verizon Media, the content and advertising arm of the company that controls Aol and Yahoo became a distraction.

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Both brands still have potential

Aol owns some relevant media outlets in the United States, such as the tech sites TechCrunch and Engadget. Yahoo, on the other hand, is still a destination and has some strong verticals, such as Yahoo Finance and its fantasy sports leagues. In Brazil, its website is among the ten most accessed in the country, according to the Alexa ranking, and it is not difficult to come across email addresses @ out there, which signals that many people have not let go of the service.

Although they no longer have the market value or recognition of decades ago, Aol and Yahoo remain strong brands and still generate revenue.

In the first quarter of 2021, still under Verizon’s control, they had revenues of US$ 1.9 billion, 10% more than in the same period last year. With more resources and freedom – resources that Guru Gowrappan hopes to receive from Apollo – and a long-awaited post-pandemic resumption in advertising investments, the prognosis is good. Not that the new Yahoo will be “exciting,” as the CEO expects, nor will it become the next big tech member, but it has great chances of prospering by eating the crumbs Alphabet, Facebook, and Amazon drop when they feast on the huge digital advertising cake.

Translated by Fabiane Ziolla Menezes