Tuesday’s announcement that Verizon plans to shell out $4.4 billion for AOL was a big shocker to almost everyone on the internet. AOL is still widely known as an archaic dialup provider that used to mail introductory CD ROMs and gave Arianna Huffington more than $300 million for some reason.
But for ad tech insiders, the deal made a lot of sense. AOL has spent the past 10 years quietly building an online advertising technology stack that can compete with the major players in the space, like Google, Facebook and Twitter.
While on the surface it might look like Verizon wants to try and convert AOL’s 2.1 million dialup holdouts, the people who pay attention to these things for us are saying it has a lot more to do with Verizon’s ambitions for data-driven online advertising.
Here’s eMarketer’s Lauren Fisher, speaking to the Associated Press:
“AOL’s focus on unifying the advertising experience across display, video, mobile and TV makes it an attractive asset because advertisers are looking for better ways to reach their audience across screens… Coupled with Verizon’s existing mobile (and streaming video) presence, the companies’ combined ad offerings mean massive cross-screen reach with much richer audience data.”
And Forrester’s James McQuivey, speaking to The Verge:
“After Verizon sells off the bits it doesn’t want or need, like The Huffington Post, it will actually have acquired a decent customer list at relatively low cost per head… Not to mention advertiser relationships and ad selling and measurement technology it would have taken years to build. The net of this deal is good for Verizon.”
To unpack that a little bit: the biggest assets AOL can bring to the deal are the mature solutions it’s built up for using data to target ads at online audiences, and the data it has actually collected on its audience.
Ad tech generated the largest share of AOL’s revenue in 2014, trailed by advertising revenues and subscription fees from its legacy ISP users. Earlier this year, AOL doubled down on its commitment to becoming a tech company, consolidating its sales team around its platforms business, and promoting the head of its tech division, Bob Lord, to president.
That strategy appears to have been effective in growing the company’s value to the point where a communications giant like Verizon was willing to shell out considerably more than the average consumer thinks AOL is worth. According to the Wall Street Journal, Verizon VP operations John Stratton told investors Tuesday morning that the company’s “principal interest was around the ad tech platform.”
Verizon’s growing interest in online and mobile advertising, especially video, likely has a lot to do with its promised “mobile-first” short video online streaming service, due out later this year.
That will give Verizon a lot of mobile video inventory to run ads in front of, and AOL’s programmatic tech and audience data could significantly strengthen the package it can sell to advertisers. Plus, it will give Verizon the infrastructure to leverage its own substantial subscriber data for cross-screen advertising and measurement.
Of course, not everyone saw wisdom in the partnership.
What a STUPID deal for Verizon to buy AOL for $4.4 billion. AOL has been bad luck for everyone who touched it. Worth less than $1 billion!
— Donald J. Trump (@realDonaldTrump) May 12, 2015
Analysts disagree about whether Verizon sees AOL’s global media brands (The Huffington Post, TechCrunch, Engadget and AOL.com) as a bonus or an unwanted tag-along, and neither company has said much about what plans are for them. Re/code has reported rumours that AOL has already been in talks with private equity groups to spin off HuffPo, its most-visited property.
Although HuffPo et al. have been successful as media properties, Verizon doesn’t show many signs it’s interested in becoming a web publisher. And if it does decide to get into the media business, it could generate a lot of ownership conflicts, especially since two of AOL’s top properties focus on tech news. As Dennis Berman at the Wall Street Journal writes:
“This puts Verizon in a number of intriguing, if conflicted, new positions. It will have to be neutral arbiter in these advertising businesses, but also have to nurture and develop its offerings of online video and content. Does a phone company have the mettle and creativity to do this well? Does the prospect of a TechCrunch video show—brought to you by Verizon—captivate or horrify the average millennial?”
