Say what you want about the details of Verizon’s bid to acquire AOL, but the intent behind it can be summed up in one word--validation.
The $4.4 billion price tag attached to the deal lends some serious wind behind the sails of three very distinct but connected market forces that is sure to have a wide impact far beyond the two companies involved.
All media has moved or is in the process of moving to mobile. Everybody knows that, and without a solid mobile distribution plan, no media company has a shot at competing in the 21st century for viewers and traffic.
AOL has a lot of content, but didn’t have a particularly strong mobile distribution network. Verizon has mobile distribution, but didn’t have its own content. Teaming up makes sense.
But there’s more to it than that.
If media consumption is “mobile first,” then advertising is moving with it. And in mobile, video advertising has been found to be one of the most effective advertising formats available to brands looking to make an impact.
Google and Facebook combined have carved out more than 50% of the mobile ad market, according to eMarketer. That’s an imposing head start that every media company should fear. What better way to elbow into the mobile ad space than by teaming up with a mobile operator with a built-in audience, complete with the branding and user data benefits that it provides?
Expect to see other wireless (and cable) operators following suit. None of them want to become dumb pipes, competing only on coverage and speed. Just like the cable operators, the game is fast turning. Carriers tried this once before, but frankly blew it with some seriously clunky walled gardens that become totally disrupted in the smartphone app store revolution. This is stage two of that battle.
Full-Stack Ad Tech
OK — so advertising is the name of the mobile video game. So how do you capture that market? Simple, you incorporate a full-stack ad tech platform. Now there are a lot of ad tech players in the market today; too many actually. But few offer all the elements necessary to compete in the mobile ad environment. They include:
AOL cobbled this full-stack platform together through various acquisitions over the last four years, including Adap.tv ($405mm in 2013) and Converto ($101mm in 2014) resulting in increasing revenues. It’s first-quarter ad tech division revenues grew nearly 20% year-over-year to $231.6 million.
But media companies looking to make a similar move need to be careful. Too many desktop and Web-based ad tech solutions have fumbled into the mobile space without a proper understanding of the space. Many don’t have a viable mobile SDK with in-app implementation, their backend ad serving is far too slow because the mobile output is daisy-chained to the legacy web system, and their ad mediation system is not mobile optimized.
As a result, many mobile-first startups have emerged to fill their competence gap, but not all offer the full stack requirements necessary to meet all the needs of a major media player.
One of the smartest things AOL did was to syndicate its original content across a broad network of third-party publishers. That not only generated incremental ad revenue by widening the potential ad inventory for its content, but drove awareness of its properties beyond its own homepage.
In an attention economy driven by advertising, syndication is a must-have arrow to place in the quiver. That extends to the publishers who vie for the syndicated content as well. Those with no video content of their own gain a complementary channel to further engage their existing audience, not to mention drawing in new viewers in the process, all while finding a new home for their ad inventory.
And while mobile is certainly the driver of all this, Verizon’s efforts to merge content and programming across formats that also include the Fios TV network and over-the-top applications show the full breadth of this strategy. When it comes to video, apps (regardless of the device) are the new channel. And the same principles that apply to mobile apply to any device running the apps and the ads that come with them.
Whether or not you feel AOL and its subsidiaries can deliver to Verizon the promise of these opportunities is another discussion. It is the motivation behind Verizon’s decision to pull out the checkbook to tackle these issues that deserves further attention, and one that bodes well for smaller companies competing in this space also looking for a significant exit.