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Why is Verizon buying AOL? This is about reinventing the telco

The traditional telecom business has become a challenging environment to find growth and sustain profits. Beyond subscriber saturation (no one new to sell things to), this situation is exacerbated by pricing wars for traditional services (driven by T-Mobile/Sprint) and encroachment from OTT players into traditional communication services (Skype/WhatsApp). 

New revenue growth initiatives must be developed for the future. Verizon buying AOL is one such example of how telecom operators will seek to transform themselves and take different positions higher up the stack in the digital ecosystem, according to 451 Research (www.451research.com).  

AOL has seen its fortunes shift (as in steady revenue growth) in the past couple of years on the back of its programmatic advertising platform. Programmatic advertising describes a highly automated platform for buying, placing and optimizing media inventory to maximize ad revenue. This technology is clearly of value for a company such as Verizon with announced plans for content business expansion, a strong national network and in-house subscriber intelligence (context). 

Verizon has made no secret of its intention to enter the mobile video tray both connected to its LTE network or completely “OTT” – just as other contemporaries such as Dish Networks and HBO have pursued. Having AOL at its disposal to support this effort would clearly deliver benefits, and bringing in an established advertising platform and ecosystem is a clear example where “buy” has the advantage over “make” – especially at such a thin premium of 15%, says 451 Research.

So while AOL’s premium content properties have value and count more than 200 million monthly eyeballs, Verizon’s real interest in AOL is access to the platform technology for video content monetization, as well as its in-house expertise and experience in growing a digital content business in a multi-channel world where mobile is increasingly the dominant screen. 

451 Research says that, importantly, there also exists opportunities to leverage Verizon’s recently established Media Insights group to bring a new layer of subscriber context into the AOL platform, further enhancing the ability to target consumers and maximize AOL platform effectiveness and performance.

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