Verizon and AOL: The rise of the Ad-Telco?

Esther Franks in Advertising

in Advertising

On 12 May 2015 it was announced that Verizon intends to purchase AOL for $4.4 billion. The move has been described as “the most aggressive incursion by a telco into the digital ad monetization space” and some believe it will place Verizon in a position to compete with Google, Facebook, Microsoft and Yahoo. We consider the reasons behind this acquisition and the potential copycat deals it may spark.

Verizon vs AOL

Verizon is the US’ largest wireless carrier, with over 100 million customers. AOL has been around for decades and it, at one point, was the US’ most popular Internet service provider. However, following a series of disappointing deals in which its value tumbled, AOL reinvented itself as a digital media and ad tech company.

AOL’s content offering includes The Huffington Post, TechCrunch and Engadget websites and also original video content. However, as John Stratton, president of operations at Verizon disclosed, “the principle interest [in AOL] was around the adtech platform”.

Why this cross-sector acquisition?

Telcos are seeking to avoid the ‘dumb pipe’ scenario, in which they carry more data across their networks and yet see no increase in revenue. Moving into the digital content and advertising sectors is the natural way to capture some of the revenue others are obtaining from such data. Lowell McAdam, Verizon chairman and CEO, stated:

“We’ve been strategically investing in emerging technology, including Verizon Digital Media Services and OTT, that taps into the market shift to digital content and advertising. AOL’s advertising model aligns with this approach, and the advertising platform provides a key tool for us to develop future revenue streams.”

Over the past few years AOL has acquired a number of advertising technologies, such as Adap.tv (a programmatic video advertising platform), which has enabled it to deliver advertising across television, the web and mobile.

By ramping up its advertising technology, AOL achieved $1.8 billion in advertising revenue last year. This may sound like plenty, however, the Wall Street Journal reported AOL’s market share of digital ad sales last year was 2.1%, which is in stark contrast to Google’s 38.4%.

Given AOL’s relatively small slice of the digital advertising pie, why is it that the Verizon-AOL deal is being touted as a move to put Verizon in a position to compete with the likes of Google?

It comes down to the two significant advantages of large Telco’s: their access and reach; and the wealth of data they hold on customers.

Verizon claims to touch 70% of all connected digital traffic, across more than 1.5 billion connected devices. Obviously this is a huge captive market of which Verizon could leverage to deliver content and advertising.

Not only does Verizon have a ready market, with the right technology, it has the data to potentially enable it to use that market for what is described as the ‘holy grail’ of digital marketing – getting the right ad to the right person at the right time.

Such data includes information on its customers’ location and activity on their devices. Through its wireless service, Verizon essentially knows where a person’s phone is at any given time and where it has been. It has already used this location data to help measure the effect of sponsor messages in sports arenas on subsequent retail or restaurant purchases .

Further, Verizon has the capability to persistently track customers as they move around the web. As we explained in January, this includes the use of ‘zombie cookies’ that enable Verizon to tag and follow its mobile subscribers around the web. These zombie cookies cannot be deleted in the same way as a normal cookie (although Verizon has recently announced that a user can now ‘opt-out’ of this tracker).

If Telco’s can use their market and their rich customer data and combine it with ad technology in a manner that enables them to allow finely targeted advertising, they have the potential to be big players in the digital ad space.

Rise of the Ad-Telco?

So, is this move by Verizon the start of major acquisitions by Telco’s of ad tech companies?

Analysts around the web think it could be, as Andrew Frank an analyst at Gartner says, “I do think it signals a potential arms race among large carriers”. Forbes.com has even suggested that there was a connection between some small digital advertising company’s stock rising and the Verizon-AOL news.

The industry more generally is extremely wary of this first move by a telco into the adtech space and certainly fear that it could spark similar moves by rivals aiming to keep up and not lose competitive advantage. The end-to-end control held by any telco operating these technologies together with the wealth of additional subscriber information available to these companies has certainly added to the concern that similar moves could result in a series of “walled-gardens” controlled by these telcos rather than the far more (although not entirely) open ad market that is currently available.

We will have to wait and see whether this move is matched by other telcos – we will of course keep you up-to-date at ADTEKR with any further developments.

Verizon and AOL: The rise of the Ad-Telco? was last modified: May 22nd, 2015 by Esther Franks