Smartphone Video Driving Verizon-AOL Deal

1990s dial-up Internet pioneer has evolved into lucrative technologies to put video, ads on phones

Say “AOL” and many people over a certain age immediately think of the sound of a dial-up modem and a perky announcer intoning, “You’ve got mail!”

The company once known as America Online does, believe it or not, still have over 2 million dial-up Internet subscribers these days.

Less visibly, but far more lucratively, AOL also has a wildly successful and growing technology platform for serving up video and advertising to smartphones.

That, experts say, is what’s made AOL worth $4.4 billion for telecom giant Verizon Communications Inc. to buy. Verizon has 108 million wireless subscribers across the country and knows their ages, where they live, and what they buy. Use that data along with AOL technology to connect advertisers to very specific demographic groups they want to reach, and wireless expert Mark Lowenstein of Mobile Ecosystem in Brookline, Mass., says it’s clearly worth billion.

“One of the significant assets that Verizon brings to the table is that it has the leading share of wireless subscribers in the U.S., and all of the data and information that comes from those wireless subscribers adds value to the ad-buying platform that AOL has grown over the past several years,’’ Lowenstein said in an interview Tuesday afternoon. “So those two combined can be a potentially pretty powerful asset.’’

Also driving the deal: Americans, especially younger ones, are month by month watching far more television not on television, but on smartphones and tablets, another area where AOL can help with its expertise in getting video content to portable devices. It’s generally estimated that the amount of time Americans will spend with mobile video is increasing at about 50 percent per year.

“Verizon's customers want to be able to watch and enjoy what they want, where they want, when they want, on any device,’’ said Ian Cross, director of Bentley University’s Center for Marketing Technology. Verizon Wireless already is the only cellphone company offering live National Football League content, and this summer plans to unveil a TV-like service offering a mix of paid, free, and advertising-supported content, not in a traditional broadcast format but in chunks and snippets of various durations. AT&T, meanwhile, is making its own $48.5 billion bid for DirecTV to push beyond its U-Verse service more deeply into paid video content.

“We've seen the success of Netflix, and we know Google is moving into the TV space, and we know Apple is moving into the TV space,’’ Cross said. “So we’ve really got two camps here. We’ve got the technology vendors from the computer side of the house, and then we’ve got the other vendors from the telecom side, and they’re all battling for share.’’

Finally, while a $4.4 billion takeover sounds reasonably big, in the context of Verizon, that’s just 2 percent of its stock market value. “In the context of Verizon’s size, it’s not a big number,’’ Lowenstein said, but added: “This is all part of Verizon's effort to be a bit of a new breed media player’’ as video watching and advertising dollars continue to move to smartphones and tablets. 

Contact Us