What Did Verizon Really Get In The Yahoo Deal?

Verizon Communications Inc. VZ agreed last month to buy Yahoo! Inc.'s YHOO core Internet business, but Yahoo shares surged 3.3 percent on Thursday following Alibaba Group Holding Ltd BABA’s big Q2 earnings beat. The vast majority of Yahoo’s value comes from its 15 percent stake in Alibaba and its 35.5 percent stake in Yahoo Japan Corp, neither of which is included in the Verizon deal.

If Verizon isn’t getting Yahoo’s most valuable assets, what exactly is it getting and why does Verizon want it?

Digital Advertising

As the telecommunication market becomes more saturated, Verizon is trying to stay ahead of the curve by looking for growth opportunities in mobile digital advertising. In fact, this new strategy is exactly why Verizon paid a combined $9.2 billion for Yahoo and AOL within the past year, two former Internet giants who are typically seen as companies that came out on the losing side of the battle for modern Internet domination.

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Despite its shortcomings, AOL has put together some impressive programmatic video advertising technology in recent years.

Content Is King

Yahoo has struggled to turn a profit on its Internet business in recent years, but it certainly has an audience. Roughly a billion users visit Yahoo sites regularly for sports scores, financial news, Yahoo email, photo-sharing and other services.

If Verizon is going to make a successful transition to mobile advertising, it needs content, and it needs an audience. Yahoo has both.