Speaking of technologies that have ridden over the horizon and into the sunset — as we were last week in discussing the end of the VCR — let’s turn our attention to a tech service that hasn’t even started shuffling toward the exit … yet.
Free stuff on the internet.
The following musings were prompted by the news that Verizon is buying Yahoo’s operating businesses for $4.83 billion. Yahoo (we’re leaving off the exclamation point, even though it’s officially a part of the corporate name; the company hasn’t given its investors much to cheer about in recent years) will be combined with a previous Verizon acquisition, AOL.
Just contemplating the corporate names in that previous paragraph is to invoke bookshelves groaning from the weight of multiple case studies on business history, strategy and evolution. Verizon was born out of one of the Baby Bells (in this case Bell Atlantic), which in turn were offspring of the AT&T breakup (kids, ask your parents). Through various acquisitions it owned landlines in multiple states, including Washington, where its traditional telephone service was later sold off to Frontier Communications. Verizon is now better known for its wireless operations and its fiber-optic TV, internet and phone service.
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Verizon is a decent example of a company that learned not just to roll with the changes but reshape itself to ride them. AOL and Yahoo are prime examples of companies that didn’t manage that trick quite so well.
For many people AOL was their first introduction to email and the idea of accessing large quantities of information and content, albeit as a pay service through a dial-up modem (just for old times’ sake, let’s all sing a chorus of the familiar buzz and screech of making the connection to AOL, another cultural reference that will baffle the kids).
AOL was eclipsed, however, by the spread and adoption of the internet and the emergence of companies such as Yahoo that offered email and internet search and did so for free. Yahoo, in turn, was overtaken by that company with the funny name that offered free email and internet search, and proved more adept at those and the underlying advertising business that funded it all.
Who knows if Google will in turn lose the competitive race to a company not even founded yet, but in the meantime Yahoo has been trying to devise a strategy for reclaiming leadership in the business, without much success. It spent big to become a media and content company, with little to show for it. Acquisition has long been on the table — Microsoft made a bid, but no deal resulted, which was probably a great blessing to the Redmond company.
OK, that’s the history. The big question now is why Verizon would want Yahoo (especially when it’s not getting the really attractive parts — a boatload of cash and a stake in China’s Alibaba). What’s it going to do with Yahoo? How is Verizon going to make Yahoo earn its keep?
Under AOL, Verizon has multiple content brands including TechCrunch, The Huffington Post and Makers (self-described as “the largest video collection of women’s stories”). Yahoo’s offerings will be added to that, supported by the advertising business that Yahoo brings.
Online ads have traditionally paid for all that free content and email you love the way that over-the-air advertising paid for free broadcast television. The idea behind the business model was that by offering the freebies, you could aggregate enough eyeballs (that was an actual term used to describe the potential audience) to make advertisers pay to reach them.
Here’s the problem with the theory. The infinity of the internet universe is such that only a few can generate enough to survive on.
Not only is the money spread thinly, in some cases it’s being spent somewhere else. Advertisers increasingly doubt that all those eyeballs are actually seeing ads, because of the clutter and because people are tuning them out. That’s why advertisers jump on every new social-media channel, to see if the latest works any better
The problem is only going to get worse. Mobile presents physical limits on the real estate available for ads. Millennials, we are told, don’t do email, preferring to text. And if free email no longer works as a draw, what’s the point of spending all that money to offer it?
Companies such as Verizon won’t turn off the lights on free email and other content and services overnight, but they’re going to be experimenting frenetically to find out how to make someone — advertisers, subscribers, occasional users — pay for them. Nothing is free or forever, and free internet stuff will likely last until whoever has been paying the tab decides it’s no longer fun or rewarding to do so.
Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at email@example.com.