Verizon’s bid to acquire AOL for $4.4B dollars seems like a head-scratcher at first, but on closer inspection makes a great deal of sense for both companies and, more importantly, could offer substantial benefits to the marketplace, especially marketers, who should pay attention to its implications.
Before we can analyze it rationally, we must first get past our collective nightmare recollection of AOL’s last big deal when, in 2000, it acquired Time Warner, Inc., then the world’s largest media and cable conglomerate, for $178 billion in inflated stock. This turned out to be a strong candidate for the worst M&A debacle in history, but this deal bears almost no resemblance to that one. AOL is a much different company today, and the marketplace has evolved considerably since those crazy pre-bubble days. Digital advertising and over-the-top distribution are for real, and the awakening of telecom giants like Verizon is no misconception. So ignore the déjà vu, this is a new world. That doesn’t mean the deal is sure to succeed, but it’s odds are a lot better.
First, some high-level synergies to consider:
- Local advertising: AOL, like many other Internet publishers, has tried to penetrate the huge local ad market for a long time. Verizon got out of the yellow pages in 2006 when it spun off its directory businesses, but it maintains a strong local business sales force, which is the missing ingredient in making the local ad business scale.
- Programmatic TV: Ad tech fans know that TV is programmatic media’s manifest destiny – the final prize in the ad tech revolution – but the TV ad market is recalcitrant and well-defended. With Verizon joining the disruptors, the pace of change can only accelerate, to the point where TV’s legendary sight, sound, and motion merges with the targeting efficiency and real-time dynamics of digital advertising.
- And, of course, mobile advertising and targeting: given its leading mobile carrier role, Verizon has a unique opportunity to leverage its mobile footprint – and, with caution, the valuable data it provides – to become a significant player in the fast growing market for mobile ads and content services. The complexities of mobile identity and privacy are formidable, but with AOL’s experience (and that of its acquisitions) Verizon becomes better armed to enter this fray.
So what’s in it for Verizon, and, more to the point, why should we believe this is more than an attempt to burnish its stolid image with a once-grand consumer brand and some random media offerings and email accounts? No, Verizon is smarter than that. With the rise of the Internet as the main distribution channel for all media, and the recent reinforcement of net neutrality principles and regulation at the FCC, Verizon and its ilk face the often-cited challenge of being relegated to the status of “dumb pipes” – undifferentiated connection providers competing exclusively on the falling price of utility bandwidth, with slim prospects for leveraging their substantial “last mile” infrastructure investments for profitable long-term growth. They’ve chased the promise of competing with cable companies on TV bundles while they watched Internet companies like Apple and Google and Netflix ride their infrastructure to enviable success. They rightly imagine that their capacity to sell small business and enterprise communication packages could be enhanced – as it once was in the yellow pages era – by providing digital advertising services as well. So this isn’t just a sideline – it could be transformative for the company and the sector. AOL’s publishing assets may help Verizon with some content distribution leverage and audience data, but it’s the ad tech assets that could change the business.
That’s where One by AOL comes in. It was just a month ago that AOL announced – to somewhat less fanfare then it may have hoped for – the unveiling of One. This represented the culmination of years of acquisition and integration of components up and down the ad tech stack, from adap.tv (for video and TV) to AdLearn (for display) to Convertro (for attribution), among other assets built and acquired over the years, plus a significant chunk of new code, into a unified end-to-end global platform for advertising that rivals the scope of offerings from Google and Facebook. The elephant in the room is that, despite the Chinese wall AOL has erected between its publishing and ad tech businesses, some advertisers can’t seem to escape the feeling of unease that comes from relying on targeting and attribution services provided by a major seller of ads. Since attribution measures the effectiveness of ads, this felt reminiscent of allowing kids to grade their own homework. This in turn probably made One by AOL appear less desirable than its capabilities warranted, because it really is among the most comprehensive ad tech solutions on the market, although you might not know it by comparing its penetration with some of its larger rivals.
So, what to do about that elephant in the room? Answer: get a bigger room. Under Verizon, the ad tech business can be more clearly delineated in a larger portfolio of related offerings, to which selling ads will make a relatively small contribution. And this isn’t just about the online or mobile worlds, as AOL has one of the few solutions that addresses the next generation of automated, targeted TV advertising. Coincidentally, this week marks the start of the Upfronts, the annual period when TV networks attempt to seduce sponsors into closing major ad deals against their autumn line-ups. Many are predicting that, like last year, this year’s upfront will be soft, for the simple reason that, as TV ratings fall across the board, it’s clearer than ever that digital delivery and multiscreen consumption are the future of TV and advertising. Against this landscape, an AOL-Verizon merger makes increasing sense, as Verizon positions to take a much larger role in the new world order, unencumbered by legacy ad operations and empowered by the rapid rise of mobility.
So what does this mean to marketers? Here are a few take-aways:
- The ad tech landscape is far from settled territory, so always remember to prioritize openness and adaptability throughout your stack, because better solutions are always coming, and are quick to gain scale in a climate of rapid consolidation.
- There are more reasons than ever to take on the process of de-siloing your marketing channels – especially where TV, online, and mobile are concerned. Convergence is coming and you need to be ready. How? As One by AOL has shown, it makes sense to put attribution and analytics at the core of your plans. Marketing and advertising will continue to grow more complex, and analytics is the glue that holds it together.
- Service levels will be an increasingly important differentiator among marketing and ad tech providers. While telecom consumer customer service may not win a lot of awards, the scale of these operations, especially in the context of business (as opposed to consumer) services, is an important advantage for large providers in the telecom space as they enter the fast-moving world of digital advertisers, and especially as the try to bring these capabilities to smaller businesses and divisions with largely local marketing aspirations and not a lot of media expertise.
One big question remains. The new elephant in the room is whether Verizon has the cultural tolerance and flexibility to retain and attract the kind of digital talent it will take to ensure AOL’s success under its new leadership. When AOL arrived at its new conquest in 2000, it couldn’t resist the urge to attempt to reconfigure Time Warner in its own image. Now that the cycle’s come around, time will tell if Verizon can avoid the same fatal impulse. Despite its awkward past, AOL still attracts and relies on some very bright, passionate people, and talent is still the scarcest resource around.