We noticed you're browsing in private or incognito mode.

To continue reading this article, please exit incognito mode or log in.

Not an Insider? Subscribe now for unlimited access to online articles.

Intelligent Machines

Verizon’s Risky Bet on AOL’s Ad Business

Verizon’s proposed acquisition of AOL looks promising on paper, but the devil is in the details.

With AOL, Verizon has the potential to help advertisers reach TV viewers on any screen.

In announcing plans to buy AOL for $4.4 billion, Verizon is betting that it can lead the future of television as it explodes from the living room to computers, smartphones, and tablets. But at least in the near term, it faces plenty of headwinds.

The deal, rumored earlier this year, catapults the largest provider of wireless Internet service into the media and advertising technology businesses, in direct competition with companies such as Google and Facebook. Already in the television business with its FIOS cable TV alternative, Verizon now has the potential to help advertisers reach specific audiences viewing online video and TV–still by far the most lucrative ad medium–on any screen. That’s something no other company has yet managed to do.

Although AOL is still known first for its declining but profitable dial-up Internet access business and second for owning prominent sites such as Huffington Post and TechCrunch, its growth is now driven chiefly by enabling the sale of ads–especially video ads–on other sites. The deal, expected to close this summer, would end AOL’s rocky history as an independent company, which began in the 1980s with its pioneering Internet access service and peaked in 2000 when it acquired Time Warner for $164 billion–later seen as one of the most disastrous mergers in corporate history.

Since then, the company has struggled to regain relevance. Under CEO and former Google executive Tim Armstrong for the past six years, it has attempted to build a media business; more recently, via acquisitions such as the 2013 purchase of video ad exchange Adap.tv, it has been cobbling together technologies to automate the sale of video advertising on other sites.

That ad tech business, whose revenues rose 19 percent in the first quarter, is probably what attracted Verizon more than AOL’s media business, which grew only 8 percent. Chairman and CEO Lowell McAdam said his company has been investing in advertising technologies that can reach consumers on any screen, from smartphones to computers to TVs. In fact, it’s expected to launch a service this summer that would bundle TV and video content into a cable TV alternative.

Those ad revenue streams will depend, as they do at rivals such as Google and Facebook, on the adroit use of data. Verizon’s dream is clearly to create what would be the first system that ties together data from mobile devices, Web browsing, and TV set-top boxes. That way, it could offer advertisers an unprecedented view into the behavior of customers and prospective customers across all the media they consume.

In particular, as people increasingly watch TV and other video content on whatever screen they want, it’s difficult for advertisers to reach them in a unified way and track the sales impact of ads on multiple screens. AOL’s One ad targeting system, launched in April, could benefit from Verizon’s data on its users—especially its information on their location, such as in a store. Google, for instance, has recently been honing a service that uses smartphone location data to infer in-store sales. “This is a great way for Verizon to buy into the lucrative ad tech space quickly,” says consumer tech analyst Jan Dawson. “It’ll take time to build these linkages, but in time they could be quite powerful for advertisers.”

For all that, it’s debatable how much difference this deal will make for the media and advertising landscape, at least in the short term. Despite Armstrong’s efforts, the company remains distantly behind what has become an online ad duopoly. AOL had a tiny 0.74 percent share of the $145 billion worldwide online ad business last year, according to eMarketer, while Google led with 31.4 percent and Facebook weighed in with 7.9 percent.

The deal also has the whiff of AOL’s disastrous 2000 merger with Time Warner, but this time AOL is a much smaller, more dubious savior. (As ProPublica assistant managing editor Scott Klein put it in a cutting tweet: “Another old person tricked into buying AOL so they can connect to the Internet.”) In short, neither company has led advertising’s migration to digital devices, and it’s not clear Verizon has the means to join the leaders that already have a multiyear head start. “The road to where a Verizon-AOL combination gets in the league of Google or Facebook is long indeed,” says former AOL ad executive Eric Bosco, CEO of the online ad-targeting firm ChoiceStream.

Not least among its problems, Verizon runs big risks even using the data at the heart of the deal. Last year it added identifiers for tracking people on their phones, similar to the cookies advertisers use to track users across the Web, which don’t work well on mobile devices. But it ran into trouble when privacy advocates realized that those “supercookies” couldn’t be deleted. “It’s going to be very dangerous for Verizon if the data is seen as an entity in itself that is handed over to Unilever and other big advertisers,” says Andrew Bloom, senior vice president of strategic business development at Sizmek, which helps advertisers and ad agencies run online ad campaigns.

Be the leader your company needs. Implement ethical AI.
Join us at EmTech Digital 2019.

Register now
More from Intelligent Machines

Artificial intelligence and robots are transforming how we work and live.

Want more award-winning journalism? Subscribe to Insider Plus.
  • Insider Plus {! insider.prices.plus !}*

    {! insider.display.menuOptionsLabel !}

    Everything included in Insider Basic, plus the digital magazine, extensive archive, ad-free web experience, and discounts to partner offerings and MIT Technology Review events.

    See details+

    Print + Digital Magazine (6 bi-monthly issues)

    Unlimited online access including all articles, multimedia, and more

    The Download newsletter with top tech stories delivered daily to your inbox

    Technology Review PDF magazine archive, including articles, images, and covers dating back to 1899

    10% Discount to MIT Technology Review events and MIT Press

    Ad-free website experience

You've read of three free articles this month. for unlimited online access. You've read of three free articles this month. for unlimited online access. This is your last free article this month. for unlimited online access. You've read all your free articles this month. for unlimited online access. You've read of three free articles this month. for more, or for unlimited online access. for two more free articles, or for unlimited online access.