Brain Stormer: Why an old phone company bought a new-age tech giant?

US telecom giant Verizon Communications Inc’s decision to buy Yahoo’s core online assets for $4.83 billion, announced on Monday, has been portrayed as the end of an era of sorts. Yahoo was, after all, one of the biggest names in the first dot com boom, and synonymous with the advent of the World Wide Web. The deal with Verizon -- which should be completed by next year – will now end Yahoo’s existence as an independent company.

What is interesting about this deal is that you have a new-age tech company that was supposed to be at the cutting-edge of things being procured by what is very much an old-school phone company. Of course, Yahoo had long since fallen behind on the tech curve, unable to innovate and keep up with the changing times. Verizon, on the other hand, has stayed the course, and is now looking to add to its core business – hence, its acquisition of Yahoo, and before that, of AOl, another big name from the early days of the World Wide Web.

Both should help Verizon build its digital media portfolio, which will also be an interesting turnaround for Yahoo which has often been criticized for seeing itself more of a media company than a tech company. In fact, there is some merit in the argument that this conflict in its core identity is what caused Yahoo’s downfall. Former Google veteran Marissa Mayer who took charge of the company in 2012 sought to fix this problem but her efforts didn’t pay off. Oddly, the one thing that did pay off -- Yahoo’s one billion dollar investment in Alibaba, the Chinese e-commerce giant, in 2005 – hastened Yahoo’s demise.

The Alibaba investment was so successful that by 2015, the Chinese firm accounted for the large majority of the Yahoo’s value. In other words, Yahoo’s core internet business was diminishing its market value. But even though on paper the Alibaba shares were worth around $25 billion, selling those shares to pay out shareholders was problematic because company would then have to pay billions of dollars in taxes. Hence, the sell out on Monday, and the eventuall fold-in with another Silicon Valley also-ran.