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January 06, 2015

Is AOL on Verizon's Horizon?

One of the predictions I did not see in the last few weeks was one where somebody was willing to say the Internet would cease to be lit up by rumors attributed to “people with knowledge of the matter.”  So with the New Year we are back to seeing the blogosphere ripe with all types of comments from people about unsubstantiated rumors from people who the original content provider believes is a reliable source. In this regard, at least in the tech field, the report on Bloomberg.com with the headline “Verizon has approached AOL for possible takeover or joint venture,” like the first baby after midnight on New Year’s Eve seems to be the first big rumor of the year. 

It has to say the least stirred things up. It also has garnered the standard “No Comment” from Verizon and AOL. 

A year of musical chairs?

The reasons d’être for a possible move by Verizon on AOL are now well-vetted on the net.  Verizon, particularly its wireless arm, can ill-afford to be left at the gate when it comes to the monetization possibilities on the company’s mobile subscribers’ devices, and time is of the essence.  AOL, as many have noted has the “programmatic advertizing technology” for the buying and selling of online advertising Verizon needs.

In addition, AOL during a very disruptive period for content providers has done a reasonable job re-inventing itself as a go-to place for watching video. In fact, it is now the third-largest desktop video company in the US with recent reports sowing it had 86.3 million of the 191.5 million unique viewers that watched videos online via desktop computer in October 2014.

With communications network operators looking to grow revenues in the hotly contested U.S. mobile market, which analysts suggest has reached it saturation point in terms of attracting new subscribers although the number of devices we all want connected is exploding, the pressure to obtain advertising dollars to better monetize those subscriptions and obtain more services to gain more eyeballs, is intense.  Indeed, it is why AT&T is making a run at DirecTV. Being able to provide multi-screen/omni-screen experiences to keep customers from never leaving ones billing system is seen correctly as critical to future success. 

In fact, while my inbox has been over-flowing with observations, I like what IBISWorld analyst Sarah Kahn's had to say in her report on the rumors.

“AOL’s networks segment, offering advertising technology products and services to advertisers, publishers and other technology companies individually or on a bundled basis, is well positioned to address the cross-screen digital media advertising trends. Verizon Wireless, with more than a third of the wireless telecommunication carriers industry’s revenue, would expand its mobile-video offerings and use AOL’s advertising technology to retain its customers and attract new ones from its competitors.”

Kahn continued saying: “Any Verizon-AOL deal, and even simple rumors of a deal, is expected to trigger a race among other industry players to invest their capital and research on mobile video consumption and advertising as well…The advertising and video race to consumers’ pockets has begun.”

The race may have begun but whether the value is there remains problematic.  While advertisers have dedicated more and more resources to marketing campaigns aimed at our mobile devices, in terms of generating more clicks that translate into closed deals has been a challenge. Video is certainly turning out to be a game-changer as is mastering cross-screen engagement.

This is why this particular rumor has plausibility. Verizon needs the advertising technology, and growing its own rather than purchasing a known quantity with expertise and a large existing base for its content given competitive pressures makes sense. That said a takeover of AOL by Verizon does not.  There are two old sayings that apply here.  The first is, “If you can’t beat them join them!” The second is the Chinese proverb I have cited previously about joint ventures, which applies to acquisitions as well, which roughly translates into, “Same bed different dreams.”  Verizon needs AOL as a partner, but based on the history of communications service providers being in the content business, it does not need to anything more than have a preferred relationship with the likes of AOL’s Huffington Post, just to name one of AOL’s premiere content businesses.

2015 is going to be a very robust year, for what can be referred to as “ecosystem development.”  It has become quite clear to all of the actors on the grand global stage that everybody needs to in some way depend on the kindness of friends to disadvantage competitors.  As physical network operators look to head off even further in-roads by Over-the-Top (OTTs) providers, whether you wish to use the old term “eyeballs” or the newer one “unique visitors” advertisers are intent on reaching the broadest audience in a cost effective manner and then leverage using Big Data and sophisticated analytics what they can glean from engagements.

Mobile, especially with so much of advertising being embedded in apps and videos and so many people using personal devices as their preferred means for being always on and all ways connected, is therefore a must-have for companies looking to be dominant players. The challenge is that as ecosystems develop who in those systems really is dominant and how to share the spoils so everyone is happy is a constant stress point.  However, you can’t be a player without having all of the requisite pieces in place, and the scramble is on. This is not just a U.S. phenomenon, but rather a global one.  In fact, Europe and Asia-Pac are regions which really bear watching in 2015 as the ecosystem musical chairs game starts narrowing the field and options. 

Edited by Maurice Nagle

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