Thursday 27 October 2016

Yahoo's data privacy woes may cost it €1bn

Published 09/10/2016 | 02:30

Yahoo CEO Marissa Mayer
Yahoo CEO Marissa Mayer

How much does a data breach really cost? For Yahoo, it could be €1bn. The company is in deeper trouble than some of its worst critics could have foreseen a month ago.

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It has suffered the biggest known data breach in history. It has been outed as an apparently willing accomplice ready to spy on its email users for the US government. And it may soon be on the receiving end of a regulatory kicking by EU data authorities that could water down its €4.4bn sale price to Verizon.

But do you even know what Yahoo, which is headed by Marissa Mayer (right), does? Be honest: aside from email, could you name three things Yahoo is engaged in?

If not, here's a quick reminder about what Yahoo is, how it makes money and why it is in so much trouble.


Believe it or not, Yahoo is still one of the top 10 websites visited every day around the world. That means it remains a relative powerhouse in developing, delivering and selling online display ads. It's nowhere close to Google or Facebook in scale, but it still sells enough to pull in over €1bn every quarter, largely from ads. A big portion of that comes from search ads: Yahoo is still used by lots of people (probably the same ones using for other things) for basic web searches.

Shareholdings in more valuable firms

Many financial analysts now regard Yahoo primarily as an equity-holding unit. This is because the most valuable parts of its business, by far, are its shareholdings in Chinese ecommerce Goliath Alibaba and Yahoo Japan (a joint venture between it and Japanese firm Softbank). The Alibaba stake is worth around €30bn (from an investment of under €1bn in 2005), while the Yahoo Japan shareholding is worth just under €10bn. Compare this to the sum of €4.4bn being paid by Verizon for all of the active 'core' parts of Yahoo's business (including Tumblr, Flickr, email and the web portals) and you get an idea of what's what in Yahoo's hierarchy of value. (The shareholdings in Alibaba and Yahoo Japan are not included in the Verizon acquisition.)

What it does in Ireland

Yahoo has a recently refurbished building beside the Point Depot in Dublin's north docklands. There, it houses around 300 people who work in finance, HR and support roles. Last year, the company had talked about possibly taking staff numbers up to 450 people. But recent events may cause the firm to alter course.

EU regulatory challenges

The recent data breach, where Yahoo admitted that "at least" 500 million email accounts had been compromised, has sparked the interest of US and EU data authorities. But as embarrassing as that may turn out to be (Yahoo's explanation of being attacked by a "state actor" is starting to look a little questionable), it may be nothing compared to possible sanctions arising from its other current problem. If reports that Yahoo co-operated in an email-snooping exercise at the behest of US spy authorities are substantiated, the company is facing some very serious repercussions in Ireland and Europe. Both the Irish data protection commissioner and EU courts have made clear that mass surveillance by US authorities on European personal data could carry penalties up to and including a block on data transfers into the US. That is a livelihood-threatening prospect for a firm in Yahoo's position.

The Irish Data Protection Comissioner's (DPC) office has set the ball rolling on this, too.

"Any form of mass surveillance infringing on the fundamental privacy rights of EU citizens would be viewed as a matter of considerable concern by this office," said a spokeswoman for the Irish DPC last week, who confirmed contact with Yahoo on the issue.

The immediate hit to Yahoo may be €1bn

Reports in the US suggest that Verizon, which is currently in the process of buying Yahoo's core internet assets for €4.4bn, wants €1bn knocked off the €4.4bn purchase price.

Several American media outlets are reporting that Tim Armstrong, who heads up the Verizon-owned AOL unit that is overseeing the Yahoo acquisition, now has cold feet over the deal and is looking to exit it or seek a much-reduced price.

So we may now have an answer to the question: how much does a data breach actually cost? In Yahoo's case, it looks like it could be €1bn.

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