AOL CEO on Yahoo deal: “We want to get to 2B users” [Memo]

Today Verizon confirmed that it plans to acquire Yahoo’s core assets — search, advertising and content, along with Yahoo’s Sunnyvale real estate — for $4.83 billion in cash. That business will in turn be combined with AOL, which Verizon acquired last year for $4.4 billion.

Tim Armstrong, CEO of AOL (which owns us), said that it’s all about scale for his company to build up more traffic on content sites, and subsequent ad impressions against that content.

“We want to get to 2 billion users, that is the scale we want to get to,” Tim Armstrong noted today at a company all-hands. “We just got off a bunch of phone calls and everyone know that this is the number that all huge media companies want to be at.” Currently, AOL is at around half of that number, he said.

He described the Verizon mobile footprint as a “powerhouse” position going ahead but also that the real goal is to compete better against Facebook and Google. Indeed, as we noted last week, this was the likely logic behind this deal. That’s because the Google, as search leader, and Facebook, as social media leader, are the primary destinations today for content discovery, and subsequent monetization around that content.

Using a really goofy (but timely!) gymnastics analogy, Armstrong talked about shaping up, planning “our routine” and making sure the company is good enough to compete against them.

“If you want to play in the Olympics you have to compete against Google and Facebook,” he said, before himself losing the thread of his over-extended comparison as he talked about toning up and practicing.

He also highlighted the fact that AOL is still in the process of integrating Microsoft’s assets that it picked up form its advertising business.

As we’ve mentioned elsewhere today, whether Marissa Mayer, the CEO of Yahoo, will be coming to Verizon after the deal closes is still not yet totally clear.

For starters, her role was not specified in the deal terms, from what we understand (and Mayer herself doesn’t indicate anything specific, either).

However the CEO of AOL, Tim Armstrong, today issued an internal memo that confirmed Mayer and her leadership team will be working with her on the deal up to the close — expected in Q1 2017 — along with other details.

Then, in the all-hands with AOL later, he noted that he has a 20-year relationship with Mayer — both worked at Google at the same time, for starters, although not directly together.

“It’s not drama camp here,” he said. “I’m not going to drama camp this summer.” (Which, like the gymnastics, also got a laugh.)

On top of that, there was an interesting point made on this during the all-hands, where it’s clear that AOL and Verizon are obviously trying to keep her on once the deal completes.

“I’d love to keep Marissa doing what she’s doing overall but she wants to see what the strategy and structure will be,” said Armstrong in answer to (yet another) question about Yahoo’s charismatic (if controversial) CEO and her fate. “We’ve spoken five times this weekend, and had a lot of communication with executive teams.”

Along with core assets in search, mobile, advertising and content, AOL/Verizon are also getting about 20% of Yahoo’s patents, plus licenses for the remaining 4,000 that are not in the Excalibur portfolio, which Yahoo had been trying to sell separately for around $1 billion.

The full text of Armstrong’s memo is below:

We promised you a year ago that AOL and Verizon would aggressively work to build a mobile media company capable of touching billions of consumers and becoming one of the top companies in the world in the digital media industry. Today, we are delivering on that promise. This morning, Verizon is announcing our intent to acquire Yahoo, one of the most powerful and largest scaled digital brands in the world.

Yahoo is a powerful platform for global consumers and has an incredibly talented global team. Together AOL and Yahoo, mobilized by the power of Verizon, will instantly create an entity reaching over 1B people with an unrivaled roster of the world’s most powerful brands. We are charting the course to our 2020 goals of reaching 2 billion consumers and today’s deal is a major and important milestone in that journey.

The deal will get major coverage and you will read many theories on the potential outcomes of the deal – we are working in an important space on important things. We won’t do everything perfectly and that is not our goal. Our goal is to take a growth mindset to this deal and to our ability to invent and learn. We have clear goals and a clear mission and we will figure out how to reach those goals by being differentiated, creative, taking risks, and working really hard.

We expect the transaction to close between the end of Q4 2016 and the end of Q1 2017. During the time before close, we will be working closely with Marissa and the Yahoo leadership team to plan our future strategy based on the scale of our portfolio. At AOL, it is business as usual for Q3 and Q4 and you will be involved in building a robust plan for 2017 that includes the scale and team at Yahoo. As we progress in the closing cycle, we will be communicating often and we encourage you to ask questions and to share ideas. 
While we have a tremendous amount of work to do moving forward, we wanted to take a moment to thank our deals team – they have done more big deals in the last 12 months than any other team we know of – and that takes leadership and hard work. To the AOL M&A team led by Mark Roszkowski, in partnership with John Doherty who leads M&A from Verizon – thank you. Our entire leadership team – on many levels – has been involved in the Yahoo process and as always, teamwork makes the dreamwork. 
Here are some of the reasons why Yahoo is a leading brand in the world and why we are going to do great things together:
– Yahoo Finance is ranked #1 with its unmatched access to financial news and insights
– Yahoo Sports, second only to ESPN, draws 7 million roaring fans every day with live programming, news, real-time scores, and award-winning reporters
– 43 million people start the day with the Yahoo Homepage – a launch point for a $1.4b search business
– Tumblr is home to nearly 300 million blogs that are socialized by over 550 million creators each month
– Flurry brings unmatched app analytics and data to drive better mobile ad campaign results
– Yahoo News is ranked #1 in unique visitors and time spent per visit
– Gemini is a breakthrough native and search ad platform that focuses on increasing ad engagement
– Yahoo adds 165 billion daily data events to our scaled deterministic data sets across devices
We are off on the next leg of our journey and we have a very powerful partner in Yahoo and the team at Yahoo. Stay focused on moving forward and on nailing the second half of 2016. We’ll see you at the all-hands today to discuss the deal. Go AOL – TA
Updated with comments from an AOL employee all-hands.