$4.4 billion AOL buy can make Verizon more than just another dumb pipe
The mobile carrier/ISP/cable company announced on Tuesday that it intends to buy AOL--a major producer of online content with a solid ad network--for a whopping $4.4 billion. If the deal gets regulatory approval, Verizon will become the proud owner of many popular sites including The Huffington Post, Mapquest, Moviefone, and a bunch of tech properties including TechCrunch, Engadget, Joystiq, and gdgt.
Oh yeah, and Verizon will get 2.1 million dial-up customers, to boot.
What The Future
With an AOL acquistion, (one of) Verizon's goals appear to be similar to Comcast's: Go beyond dumb pipe delivery of telecom services--especially with net neutrality looming--and create a popular media/ad business that travels through those pipes.
In an internal AOL memo leaked by TechCrunch discussing the acquisition, CEO Tim Armstrong suggests the two companies have big plans. "We [Verizon and AOL] are going to pursue the joint vision of building the most significant media platform in the world," the memo said.
That may sound like corporate non-speak, but Armstrong's memo also suggests Verizon plans to inject more funding into AOL sites. "The simple answer to the question of 'what does this mean for you [AOL employees]' should be, 'I just got more resources, more support and more growth opportunity,'" Armstrong said.
As a wholly-owned Verizon subsidiary, AOL's content creation will focus on mobile consumers.
For Verizon, the AOL buy supports its plan to create a "premium digital experience based on a global multiscreen network platform," Verizon CEO and Chairman Lowell McAdam said in a written statement.
With millions of mobile subscribers, home Internet users, and cable subscribers, Verizon is well-placed to put online content--and the ads that go along with it--in front of consumers.
Unfortunate past
Buying AOL also makes it easier for Verizon to be involved in content creation without falling flat on its face--like it did last time it tried getting into content.
In late 2014, Verizon launched a tech news site called SugarString.com.
A product of Verizon's marketing department, the site was billed as an example of "brand publishing"-- a platform to give Verizon a voice beyond press releases and corporate blog posts.
The short-lived news site was a disaster from the get-go once the site's editor stirred up controversy by telling prospective hires they would not be allowed to write about net neutrality or U.S. domestic spying. In other words, no writing about issues that conflict with Verizon's business interests or public image.
Verizon later said the editor got it wrong and that the site was "open to all topics that fit its mission and elevate the conversation around technology," according to The Washington Post.
Nevertheless, SugarString had the makings of an experiment gone wrong and weeks after that debacle Verizon shut it down.
It's not yet clear just how involved Verizon will be with content creation at AOL, but a repeat of SugarString and its purported misunderstandings seems unlikely. With so many different entities publishing news stories Verizon would be hard-pressed to control all of them. Nevertheless, we'll have to see how AOL sites handle any controversial Verizon stories post-acquistion.
Why this matters: Creating popular content for viewers to read and watch is one of two primary goals for the Verizon-AOL deal. Building on AOL's advertising platform is the other. In its announcement, Verizon cites an eMarketer estimate that the global online advertising market will be worth $600 billion in 2015. Verizon already sells mobile ads through its own mobile ad business, but acquiring a media company and building on what's already there helps Verizon nab a bigger slice of all those billions of marketing dollars.