Does it ad up?

“POETIC” is how Marissa Mayer, the boss of Yahoo (pictured), described the sale. Others, remembering better times at Yahoo, see little that is artful about the decline and fall of the 22-year-old internet company. On July 25th, Verizon, a telecoms giant that is also America’s biggest mobile operator, announced it would buy Yahoo’s main internet business for $4.8 billion (a price that does not include the firm’s properties in Asia or its portfolio of patents). The sum is paltry compared with Microsoft’s offer of $45 billion in 2008, which Yahoo’s management turned down, arguing that the firm was worth far more.

Four years ago, when Ms Mayer, an early Google executive and an engineer, arrived to try to reverse the fortunes of Yahoo, the firm’s Silicon Valley headquarters brimmed with optimism. For more than two decades, Yahoo had been torn between its identity as a media company that made content and a technology company that provided tools for people to use online. It seemed that Ms Mayer could be the leader to settle on a single identity and direction (see timeline).

Instead, she spent on everything and hoped something would work. Early on came the purchase in 2013 of Tumblr, a social network and blogging platform, for $1.1 billion, even though, according to an insider, it was about to run out of cash. Yahoo has since written down most of the purchase price. To beat out Google she inked a pricey, five-year deal with Mozilla, owner of Firefox, a browser; Yahoo became Firefox’s default search engine at an annual cost of more than $375m. As for Yahoo’s own core business, revenues are falling by a tenth each year as consumers and advertisers migrate from desktop computers and the internet firm’s products. Its gross profits fell by 44% between 2012 and 2015 and its costs, including those of an overstaffed headquarters, rose sharply.

Verizon’s shareholders must hope that the firm absorbs the lessons of Yahoo’s decline alongside its assets. But investors who know it well are near unanimous that this week’s deal may not fare all that much better than some of its target’s past ones, says Jonathan Chaplin of New Street Research in New York. Certainly, Verizon makes no claim to be able to restore Yahoo to its former glory. Rather, it reckons Yahoo could help buttress its main business of selling mobile-phone subscriptions. This has slowed now that most people have smartphones, which are falling in price.

“Yahoo brings viewers; viewers bring advertising; advertising brings top-line growth,” is how Fran Shammo, Verizon’s chief financial officer, sums up the firm’s thinking. Last year it spent $4.4 billion on AOL, another former dotcom darling. With both Yahoo and AOL it will achieve much-needed scale: in America it will command the second-most visited set of web properties. Only Google beats it now (see chart).

Scale makes sense because buyers of digital ads want to spend money where they can find large audiences. Every last percentage point of growth in global online advertising last year (outside China) went to Google and Facebook, notes Brian Wieser of Pivotal Research, which tracks digital ads, among other things. The two giants together control over half of the US mobile-advertising market, compared with Yahoo’s 2.4% and Twitter’s 3.4%.

Google and Facebook have invested heavily in technology that allows them to sell digital ads in an efficient, automated fashion. Verizon is hoping to take them on. Advertising is going through (yet another) digital transformation, meaning that marketers are not only spending more money online but also using technologies to buy ad space more efficiently, targeting their message to the specific people they are interested in. AOL has a smoothly functioning new platform for this, but Yahoo underinvested. Verizon reckons it will be able to use AOL’s technology to sell a lot of Yahoo’s inventory of ads to marketers.

All the same, Verizon will be taking on rivals whose main business is advertising, and in which they each have more than a decade of experience. It will need to move nimbly, not something telecoms firms are known for. Another reason why Verizon may struggle to challenge Facebook’s and Google’s duopoly has to do with new plans from the telecoms regulator. Internet-service providers and mobile carriers like Verizon know more about their customers than do Google and Facebook. They know their billing addresses, their precise location at any moment and all their online habits, says Harold Feld of Public Knowledge, an advocacy group.

So Verizon is now betting it will be able to muster data about all of its 113m retail subscribers and bombard them with targeted ads as they browse apps or websites owned by Yahoo and AOL. Advertisers are much taken with the possibility. For example, McDonald’s, a fast-food chain, could choose not to advertise to people who have visited a store recently and instead go after those who prefer Burger King. This kind of “geo-targeting”, as it is known, has long held promise but eluded advertisers.

But the Federal Communications Commission has proposed rules that could challenge this vision. The regulator may soon require that mobile-phone subscribers opt in to any sort of advertising by outside parties instead of automatically allowing it. Many, of course, would opt out. Investors in telecoms firms have paid insufficient attention to the discussions in Washington, DC, thinking them too wonky to worry about, says Craig Moffett of MoffettNathanson, a research firm.

Watching people’s physical whereabouts may already be a step too far for consumers, and could spark an immediate backlash over privacy. Verizon has recently had a run-in with privacy advocates over its use of “zombie cookies”, which allowed it to track its customers’ online browsing even when they opted out; it then shared the data with other firms. The company had to pay a small fine earlier this year.

Verizon’s deal does have one thing on its side: low expectations. Any success it has with its purchase of Yahoo is all upside, says Mr Chaplin. By contrast, during her reign, Ms Mayer was dogged by unreasonably high expectations, along with near-constant scrutiny. Verizon has the freedom to say next to nothing about how its advertising business does in the near term. Such relative invisibility may allow it to press on with the radical surgery, such as slashing headcount, that Yahoo has needed for years but never received.