Verizon’s Risky Bet on AOL’s Ad Business

From my story in MIT Technology Review:

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, 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. …

Read the rest of the story.