How a Facebook Acquisition Would Benefit Yahoo

Sep.21.06 | About: Yahoo! Inc. (YHOO)

Not a proverbial 4 minutes after my last post on Yahoo's strategy, the WSJ reports this morning that Yahoo (NASDAQ:YHOO) is in discussions to acquire Facebook. I have been trying to decide all morning whether a Facebook acquisition is more of the same Flickr, type acquisitions or does it fit the more vertical approach I was advocating yesterday.

My current thinking is that this is a step in the right direction. College students are a huge vertical with great spending power and lots of free time.

Facebook already has a $150 million deal with MSN -- owned by Microsoft (NASDAQ:MSFT) -- to monetize the site, so they have proven that they can extract financial value from the booming network. College students also eventually leave college, get jobs, rent apartments or buy first homes and invest in the stock market. It is actually the last time to catch and influence them before they go out into the real world.

Facebook could be a great bridge for Yahoo to begin delivering deep vertical content and up-selling services to a very important and highly viral demographic (stuff spreads rapidly on college campuses).

It is also a bigger acquisition for Yahoo and one that in my opinion has much deeper engagement than Flickr or It will be a big ticket acquisition (probably $1Bn+) but I think a good bold move... provided, of course, the rumors are true.

Disclosure: Benchmark Capital is an investor in Seeking Alpha

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