Daily Dose of iQ: Verizon Buys AOL to Connect Mobile Data and Ad Sales

May 13, 2015 — Collin Prior

News broke yesterday (May 12) that Verizon is acquiring AOL for a sum of $4.4 billion and AOL CEO Tim Armstrong (pictured above) sent a memo to staff about the deal.

"If there is one key to our journey to building the largest digital media platform in the world, it is mobile," he wrote. "Mobile will represent 80% of consumers' media consumption in the coming years and if we are going to lead, we need to lead in mobile."

Look around you: People's attention is completely devoted to the phones in their hands.

The NY Times' Farhad Manjoo wrote an insightful article yesterday, describing how AOL wants to better compete in mobile ad sales with the likes of Google and Facebook, "which together control more than 55% of the $42.6 billion worldwide mobile ad market, according to eMarketer," he noted. All sorts of Internet stakeholders -- web portals like AOL and Yahoo, mobile carriers, content providers like Amazon and Netflix, even news media -- are trying to figure out how to penetrate the mobile ad market.

The viability of this market, Manjoo added, is due to how we consume information now: predominantly via mobile devices. Last week, Google told us we've hit an inflection point: Google mobile searches now exceed desktop ones in 10 countries. The two photos within Manjoo's article were poignant: people on the street or in the park, heads down, their attention completely devoted to the phones in their hands.

It makes sense for Verizon to spend big money to diversify its business.

Ad revenue is what drives most of the content that we see. Without this revenue, companies simply cannot pay for content. Correctly targeting customers is key to the success of a media company like AOL. In a space where customers are increasingly getting their news from places like Facebook, companies like AOL need to stay relevant. This, of course, is where Verizon comes in.

We also blogged recently about how carriers are at risk of becoming dumb pipes. Guess who? Google is threatening their livelihood there too. Therefore, it makes sense for Verizon to spend big money ($4.4 billion to be precise) to diversify its business. There is some risk involved, however, and VentureBeat was quick to point out that AOL owns news media like TechCrunch and the Huffington Post.

I do see a certain conflict of interest when large corporations own media outlets that report on them. Even if there is a policy of remaining neutral, it can become hard to trust where the motivation for stories is coming from. Time will tell I guess as to whether Verizon has a strong influence over the articles that are written.

Verizon will have to be careful about a) a conflict of interest in media coverage and b) how it discloses subscriber data in order to sell ads.

Coming back to Manjoo's article, it begged the question: How much data can Verizon share/sell without violating subscriber privacy? FierceWireless' Phil Goldstein pondered the same question yesterday, and he wrote:

With the AOL purchase, Verizon is enmeshing itself into "programmatic advertising," which is basically automated ad buying. The trick is that such ad buying is difficult on mobile, where advertisers don't have a lot of data on users and targeting cookies are unreliable (or criticized for being too invasive, as Verizon Wireless learned)

However, as AdAge notes, Verizon "owns the key to fixing this problem: concrete mobile data which can be used to tie user identity across devices." Verizon will be able to leverage AOL's ad-tech with its network to let advertisers target subscribers based on users' location and other information that can be gleaned from Verizon's own wireless and wired networks. Unlike Google and Facebook, Verizon actually owns and operates a network, and can use granular data to see when and how customers respond to ads.

Depending on how close Verizon brings in aspects of the business units, how the company words subscriber agreements and how it is able to interpret legislation, it's possible that they share quite a bit of information. There is definitely more opportunity here for both Verizon and AOL than if there was simply just a partnership in place.

Topics: Privacy, Wireless Trends, Mobile Industry, Retail Marketing

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