This weekend, we learned that Verizon has agreed to purchase Yahoo! for $4.83 billion dollars. Recently, Salesforce.com CEO, Mark Benioff announced that it would have paid more than the $26.2 billion paid by Microsoft for LinkedIn. With Verizon’s $4.4 billion purchase of AOL last year, these mega transactions raise some questions about what is a fair price for these networks of users and the value of customer data. It also raises questions about the battle for customers and content in the digital environment. Who is winning and what can we expect next?
Value of Customer Data
In my recent article of how Microsoft can create value from this transactions, many people rightfully raised the point that data contributed to LinkedIn is given in exchange for networking. LinkedIn, like all social media and digital platforms, creates value from customer data. Of course, we contribute data to get a service or benefit back. I examine strategies for data monetization in my book, From Big Data to Big Profits: Success with Data and Analytics. But what is that data worth in LinkedIn’s case? Was it a good value to Microsoft? Was the deal for Yahoo! better? I think Microsoft has a great opportunity to create new and valuable data products with LinkedIn. Tom Davenport and I examined this opportunity in a recent article on LinkedIn’s future with data products.
Yahoo! Value per Customer: Verizon paid $4.83 billion for Yahoo’s user based, claimed to be 800 million users, which is $6.04 per user. Now, consider the LinkedIn transaction.
LinkedIn Value per Customer: With a sale price of $26.2 billion and some 443 million users, a coarse measure of value is $59.14 per user. Of course many users are more active and therefore more valuable in the LinkedIn network, and indeed some users might not even be real. Still, such a course measure gives us a very preliminary start on the value of customer data (at least as claimed by LinkedIn and accepted by Microsoft). I thought it valuable to look at a few other large networks that are monetizing customer data. I used market capitalization numbers and user numbers available as of June 15, 2016
The results are interesting, and Yahoo customers are valued much, much lower than LinkedIn users.
Yahoo: $4.83 billion price (recent) offer from 800 million users = $6.04 per user LinkedIn: $26.2 billion sale price from 443 million users = $59.14 per user
Facebook: $323 billion market cap from 1.65 billion users = $195.76 per user
Twitter: $11.01 billion market cap from 310 million users = $35.52 per user
Google: $401 billion market cap on 1.2 billion searchers = $334.17 per searcher
Since market cap is presumably the fair price for all future activities of the firm (if investors are rational and have complete information) then these are the prices each firm would pay a user for future contribution in the network. That is the value of your data.
In the case of Verizon’s purchase of AOL, there are still some 2.2 million Americans using AOL dial-up email service. Surely even more were using AOL e-mail and product through the web. Those dial-up users, mainly in rural areas, are paying about $20 per month for AOL email – so about $200-$240 per year. Verizon paid about $2000 for each user, or about 10 year’s worth of monthly service fees from its 2.2 million dial-up members. Clearly, Verizon was buying more. (At One point in the early 1990s, AOL had 25 million dial up users – wow that was a lot of America!)
AOL: $4.4 billion price from 2.2 million email users: $2000.00 per email user
Of course, Verizon got the Huffington Post and TechCrunch in the basket of AOL assets. Even though it looks like Verizon paid a large amount for AOL, if the 2.2 million users stick around for 4-5 years, the price of the AOL transaction might actually be a deal. Of course, TimeWarner once said that, too.
Importance of Data and Content in the Digital Environment
Verizon’s strategy has moved to focus on data and content. Verizon is to assembling user data and content from AOL and now Yahoo!. Microsoft pushed to get user content from LinkedIn and now Salesforce regrets it. User data and content are ever more important in the digital ecosystems going forward. Combining or fusing data, gives firms a synergy or they would not embark on these transactions. The rumors around Twitter being for sale are probably well grounded. Its data can help in someone’s ecosystem, maybe Microsoft or maybe even Verizon which seems to enjoy purchases. The battleground will be acquiring data. Wearables are the next industry that might be snapped up by firms. I project an insurer would like to buy FitBit or Jawbone. Even IBM bought the Weather Channel, giving it a new data asset in the arms race for data. I examined in how IBM can successfully monetize the weather data and it has great upside or IBM.
Value Created by User Data
I look at the 2015 annual revenue numbers published by these network giants
LinkedIn: $2.99 billion from 443 million users = $6.75 per user in 2015
Facebook: $17.93 billion from 1.65 billion users = $10.85 per user in 2015
Twitter: $2.22 billion from 310 million users = $7.16 per user in 2015
Yahoo: $4.98 billion from 800 million users = $6.23 per user in 2015
Google: $75 billion from from 1.2 billion users = $62.50 per user in 2015
Graphic: From KDNuggets, based on my recent article on LinkedIn’s sale.
By this measure, the price of LinkedIn based on revenue per user per year is on par with low-ball offers for Yahoo. It also looks like Verizon got Yahoo for less than the price of one year of revenue. That suggests that Verizon and Microsoft got a much better deals than the early reports suggest. I see much more upside in LinkedIn than Yahoo. At some level, Verizon through AOL and Yahoo has the Internet all-starts of the mid 1990’s. They will seriously need to breath more life into the AOL and Yahoo purchases. Verizon is moving away from physical connections, and has even sold some its FIOS businesses. It wants to be a mobile provider and content provider. It needs data and users; Yahoo and AOL can help, but there is work to be done. Revenue for in the digital environment will come from user data, and Verizon and Microsoft are making bold investments in data.
Assuming you are a user of LinkedIn, Facebook, Twitter, Yahoo, and Google, you create about $93.48 in the value from your data. Something to think about.
Of course, if you are still an AOL user, you generate about $240 in revenue a year in fees to Verizon. A colleague of mine still uses an AOL email address. It appears he might be a tech dinosaur, but that is not the case. He owns it like a hardcore fan wears an orange Tampa Bay Buccaneer shirt from the 1980’s. Cool, legit, and authentic. Hey, where is my Yahoo! e-mail address?! Nostalgia is the new black.
Footnotes: All data is taken from company announcements and annual reports of 2015 and early 2016. The analysis does not consider active users versus total users, and given that active users are less, the value for active users would be higher.
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About Russell Walker, Ph.D.
Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Associate Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. He has worked with many professional sports teams and leading marketing organizations through the Analytical Consulting Lab, an experiential class that he founded and leads at Kellogg.
His most recent and award-winning book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data through digital strategies. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.
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Russell Walker helps companies develop strategies to manage Risk and harness value through Analytics and Big Data. As Clinical Professor at the Kellogg School of Management of Northwestern University, Russell Walker has developed and taught leading executive programs on Big Data and Analytics, Strategic Data-Driven Marketing, Enterprise Risk, Operational Risk, and Global Leadership.
He founded and teaches the popular Analytical Consulting Lab and Risk Lab, experiential classes, which bring Kellogg MBAs together with real-world projects in Analytics and risk evaluation.
His is the author of the book From Big Data to Big Profits: Success with Data and Analytics (Oxford University Press, 2015) which examines data monetization strategies and the development of data-centric business models in the new digital economy. He is also the author of the award-winning text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management as a competitive advantage.
Dr. Walker consults with firms on the topics of Big Data and Analytics, Risk Management, and International Business Strategy.
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