Yahoo and AOL, Early Internet Pioneers, Are Sold to Private Equity Firm


Yahoo and AOL, kings of the early internet, saw their fortunes decline as Silicon Valley raced ahead to create new digital platforms. Google replaced Yahoo. AOL was supplanted by cable giants.

Now they will become the property of private equity. Verizon, their current owner, agreed to sell them to Apollo Global Management in a deal worth $5 billion, the companies announced Monday.

The business housing the two brands, Verizon Media, is to be renamed (yet again) to Yahoo (sans the brand’s stylized exclamation point), and the sale will also include its advertising technology business. Verizon will retain a 10 percent stake in the newly formed media group, the company said in a statement.

Guru Gowrappan, the head of Verizon’s media business, who will continue to lead the new Yahoo, was optimistic in a note to employees Monday morning. “This next evolution of Yahoo will be the most thrilling yet,” he said in the memo, which was obtained by The New York Times.

He added that Apollo would allow the business to grow, a more difficult prospect when it was operating within Verizon, which was planning to spend even more money to expand its next-generation 5G wireless network.

“Yahoo will now have the investment and resources needed to elevate our business to the next level,” Mr. Gowrappan said, suggesting that the company will be able to develop new sources of income such as subscriptions and e-commerce. The company does not plan any layoffs for now.

The deal signals an unraveling of a strategy Verizon heralded in 2015 and is the latest turn in the winding history of two of the web’s pioneers.

Yahoo used to be the front page of the internet, cataloging the furious pace of new websites that sprang up in the late 1990s. AOL was once the service that millions of people used to get online.

But both were ultimately supplanted by nimbler start-ups. Google and Facebook became the dominant forces of the web, and Yahoo and AOL became giant publishers instead. Yahoo Sports is a popular destination with sports fans, and Yahoo Finance is a wealth of information for retail traders. AOL acquired a raft of early media brands, including the Huffington Post (now HuffPost), TechCrunch and Engadget, and several digital ad-tech companies to create a giant platform for advertising.

When Verizon bought AOL in 2015 for $4.4 billion, the company called AOL “a digital trailblazer.” Lowell C. McAdam, Verizon’s chief executive at the time, championed the deal as part of its “strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium experience.”

Tim Armstrong, the head of AOL, was part of the package, and he soon persuaded Verizon’s executives to add to its media holdings. Mr. Armstrong orchestrated the 2017 purchase of Yahoo for $4.5 billion — a prize he had been pursuing for years.

In the statement announcing the deal at the time, Mr. Armstrong said, “We’re building the future of brands.”

It was all in the pursuit of almighty “scale,” a business term of art that has almost become a religious mantra in Silicon Valley. The goal was to build a bigger audience to sell more advertising. But the internet’s economics had already shifted years before, and content that users provided free, whether in the form of Facebook posts or YouTube videos, drove much online activity. AOL and Yahoo, despite their big audiences, had become distant also-rans.

Verizon still saw value in Yahoo and AOL. The idea was to give Verizon customers content they couldn’t get elsewhere at a time when all cellphone service offerings were essentially the same. And AOL’s giant ad-tech business could give Verizon a better way to sell advertising on its phones.

But that strategy fell out of favor when Verizon’s current chief executive, Hans Vestberg, was appointed in 2018. At the time, he lauded the work of the media division, but fast internet on phones was key to the company’s health, and he redoubled efforts to build out Verizon’s new 5G network.

In 2018, Verizon announced the departure of Mr. Armstrong and began a restructuring of the media unit. In early 2019, it laid off about 800 workers, about 7 percent of the staff. Last year, Verizon began to dismantle the media group with the sale of HuffPost to BuzzFeed.

Mr. Vestberg called the Apollo transaction “a bittersweet moment” in a companywide memo Monday morning, but he added that the sale “is a big step forward” for the media group.

“I believe this move is right for all of our stakeholders, including the Media employees,” he said. “Our purpose is to create the networks that move the world forward, and this will help us better focus all our energy and resources on our core competencies.”

Verizon has had to spend big to improve its mobile business. In March, it agreed to pay nearly $53 billion to license wireless airwaves that will help the company expand its 5G infrastructure. It also plans to spend $10 billion over the next few years to wire more cell towers and upgrade its systems. The company’s total debt now exceeds $180 billion, and its net debt is more than three times its annual pretax profits. Typically, the industry prefers to keep that ratio closer to 2.5.

For Apollo, the purchase is an opportunity to further invest in the digital media space — an industry it has already put money into, with deals for the photo printing business Shutterfly, the web-hosting company Rackspace and Cox Media Group, which owns TV and radio stations throughout the country. Apollo also has plenty of experience with the complex process of buying businesses spun out from larger companies, which generally requires separation of interwoven financials, systems and, often, key executives.

And Yahoo and AOL still generate plenty of revenue. Verizon’s media division recorded $1.9 billion in sales in the first three months of 2021, a 10 percent gain over the prior year.

Apollo is hoping that an increased focus on the individual brands it believes are lost inside a large corporate empire can accelerate that growth. One strategy could be to add more subscription offerings. Yahoo Finance already sells a premium service on top of the free website. Apollo also sees an opportunity for Yahoo Sports to take a bigger piece of the online betting and fantasy sports industries, which have seen explosive growth, two Apollo executives told The Times in an interview.

Apollo is notably upbeat about digital advertising amid regulatory scrutiny of some of the biggest players, like Google. And as digital ads rebound postpandemic, Apollo expects the overall industry to grow.

“Does most of that go to Google and Facebook and Snap and Twitter? Of course,” said Reed Rayman, a partner at Apollo. “But is there still a role for others in the digital media space to benefit from the rising tide, like Yahoo and the other properties? Absolutely.”

Apollo has been on a buying spree in the past few months, announcing deals to acquire Michaels, the chain of crafting stores, and the Venetian Resort in Las Vegas. It has also had a shake-up in its senior ranks, with its co-founder Leon Black stepping down as chairman in March after the revelation he had paid more than $150 million to the convicted sex offender Jeffrey Epstein.



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