Verizon-AOL Bond In A Mobile-Crazy World

by Sohini Bagchi    May 13, 2015


“The world is going mobile, and it is going there really quickly,” Tim Armstrong CEO, AOL announced as the news of US telecom major Verizon’s buyout of the internet company AOL for $4.4 billion flashed in newspapers and news sites this morning. While rumors were ripe in January that something’s brewing between the two companies, the immediate takeaway is that the deal creates a potential competitor for Google and Facebook in the online advertising market, and particularly in video.

A powerful force

The deal, which is expected to be one of the most remarkable one in 2015 is an example of how Verizon and AOL combined force in the online advertising and mobile video space, and transform itself into massive networks. As Lowell McAdam, Verizon chairman and CEO, said in a press release that the merger will help “provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience.”

Earlier, analysts and investors on Wall Street have been pushing Yahoo to combine its business with AOL for years. But Yahoo CEO Marissa Mayer was never really interested.  Re/Code’s Kara Swisher reported last year that she found a deal with AOL “small, unexciting, uninspiring and backward-looking.” The acquisition ends the speculation with Yahoo.

Armstrong will stay with AOL after the acquisition and help build the phone company’s growing content business. According to sources, David Shing, or “Shingy,” known as AOL’s “digital prophet” will also remain in place after the takeover is completed.

Taking on Google, Facebook?

AOL, a company that has struggled to define itself since the 1990s, has focused on building strong technology in the online ad and mobile spaces. It also owns blogs including The Huffington Post and TechCrunch.

Benedict Evans, an analyst at the venture capital firm Andreessen Horowitz, told New York Times, “mobile is eating the world,” the smartphone industry is now shipping nearly three times as many devices as the personal computer industry did at its peak. Smartphones have led to more consumption of media than we ever thought possible; we spend just about half the time we’re not sleeping glued to some kind of screen.

Its little surprise then that the real impact of Verizon buying AOL will be felt in the online ad market – an area which has been dominated by Google and Facebook until now.

At the moment, except for Google and Facebook — which together control more than 55 percent of the $42.6 billion worldwide mobile ad market, according to eMarketer — few companies have managed to navigate the transition from desktop computers to phones. AOL always remained the poor cousin – operating in the online advertising space, yet not got its due as the hottest company in the US. Online video was yet another area where the company has put in a lot of money.

The sudden upsurge of mobile had shaken everybody including Internet portals like AOL and Yahoo; carriers like Verizon and AT&T; and e-commerce ventures like Amazon. Several companies are also striving to switch from physical shops or print to the web or online platforms.

The timing of the deal, according to analysts is therefore right – posing challenge to the tech giants and strengthening its grip in the mobile ad video market – with mobility already underway.