Verizon Could Boost Yahoo Ad Targeting, but Challenges Await

Verizon's deal for Yahoo could give the phone company a stronger foothold in digital advertising as it takes what it knows about its customers' whereabouts and combines that with Yahoo's popular destinations and AOL's advertising expertise.

To boost traffic and revenue even more, Verizon could also ship some phones with Yahoo apps already installed.

Ultimately, Verizon could do what Yahoo alone could not: make money off its highly trafficked properties, such as Yahoo Sports and Yahoo Finance.

But Verizon also faces the same challenges a stand-alone Yahoo had: how to get better ad rates through personalization and targeting, when Google and Facebook are already adept at that.

Although the new Verizon would be No. 3 in the $60 billion U.S. market for digital advertising, "one shouldn't delude themselves into thinking that it's a close third place," MoffettNathanson analyst Craig Moffett said. "They're third place in a two-player market. Ad dollars are going to Google and Facebook and they're coming out of everyone else."

According to eMarketer, Google and Facebook had a combined 55 percent of the U.S. digital-ad market last year, while a combined Verizon and Yahoo would have had just 6 percent.

Marketers could be drawn by Verizon's ability to know where its phone users are, but that might apply only to Verizon's customers -- not to other Yahoo users around the world. Meanwhile, Facebook and Google already have a lot of that data -- Facebook through its social network, and Google through its Android phone system and popular services like maps, email and search.

Like many other major broadband providers, Verizon wants to be more than a "dumb pipe" that just provides internet access, Columbia Business School professor Rita McGrath said.

Verizon wants to build a business that can make money off the ever-growing amount of time people spend on their phones. To that end, it...

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