You're Not Going To Believe This, But There Are Some Very Good Reasons Facebook Should Buy Yahoo

Sheryl Sandberg FacebookWhat are you laughing at, Sheryl? This post?

Photo: Flickr/Sit With Me

Facebook has valuable currency in its stock and a mountain of cash.Someday (not too soon), it will get to acquiring big companies.

When it does, people in the industry assume it will buy popular, revenue-rich applications on its platform.

If we had to pick two likely targets, we’d go with Pinterest (which sends good, monetizable traffic to online stores) and Spotify (which is already the number two revenue source for the labels).

One company we cannot imagine Facebook ever buying is Yahoo.

Or at least we could not.

Not before yesterday’s conversation with an M&A advisory source.

Now we can – if we squint really hard.

Before you click away with your eyes rolled into the back of your head, here’s the source’s logic:

  • Yahoo is going to be a much cheaper purchase in a few months, after it divests its Asian assets. It might cost only $10 billion for Facebook to buy.
  • Yahoo has lots of users still: about 700 million.
  • Those 700 million users create a lot of pageviews – 88 billion in May, according to ComScore. That’s a lot of inventory for ad sales. 
  • But, while that inventory is better than Facebook inventory (ads belong next to premium content, not status updates), Yahoo is not monetizing it as well as it could. 
  • That’s mostly because the ads served against those pageviews are “un-targeted.” The people looking at that inventory are not signed in, and Yahoo doesn’t know enough about them to target ads very well.
  • Facebook knows everything about everybody – particularly which brands, products, and other marketing tells they “like.”
  • So, with the merger, Facebook gets inventory more valuable than it currently has, and Yahoo’s inventory become more valuable than it currently is. 
  • Thus, value is created out of thin air, and therefore, the idea isn’t completely insane.

Really, if you step back and look at it, the deal does make some sense.

For years, Yahoo made money off its free email product by funelling that traffic into ad-friendly content pages.

There is nothing wrong with this model – or least a model of an “engagement engine” driving traffic to monetizable pages.

The only reason Yahoo stopped growing is that email has stopped growing. 

For years, everyone always assumed that Yahoo would fix this problem by creating or buying the “the next email” – an engagement engine that could drive traffic.

Eventually “the next email” was created but outside of Yahoo – at Facebook. Yahoo should have bought it, and even could have at one point. It did not.

But just because it did not, does not mean that Yahoo’s model won’t keep working. If “the next email” – aka Facebook – were plugged into Yahoo’s monetizable inventory (sold by a massive team of excellent inventory sellers with great relationships), that would be a winning business.


It’ll never happen.

We can’t imagine Mark Zuckerberg wanting to get into the content creation/media business, which is what Yahoo is.

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