In recent years the “A” in AOL could stand for Advertising as well as America. The pioneer of the consumer Internet in the past few years has developed and bought digital video advertising technologies. And that’s why Verizon is buying the company for $4.4 billion.
The deal, announced Tuesday and expected to close later this year, brings together two parts of a continually converging media business.
AOL was one of the first nationwide Internet service providers that people connected to with a computer. Its ubiquitous disks helped people connect to the Internet through dial-up and it had a range of offerings from chat rooms to news, entertainment, and, of course, email.
In the past few years, AOL has been busy developing ad and video platforms. It has technology that automates the buying and placing of ads across the Web landscape. In 2013 AOL bought Adap.tv, which connects buyers and sellers of online video advertising.
Verizon, the second-biggest mobile phone service in the US with 108 million customers, is riding the wave of users turning to mobile devices. Verizon’s customers text, send email, browse social media, reads news, and watch video. Oh, and they make calls too.
As its business becomes more competitive, Verizon seeks advantages over rivals like AT&T, Sprint, T-Mobile, and even Google’s fledgling Project Fi service. Users are turning to mobile devices for the things they used to do on AOL, and advertisers are moving with them.
Mobile advertising is expected to grow to $64.25 billion worldwide in 2015, about a 60% increase from 2014, according to eMarketer. It could reach about $158 billion by 2018, when mobile ads could account for nearly a quarter of advertising spending around the world.
In announcing the deal, Lowell McAdam, Verizon’s chairman and CEO, said the company has been investing in emerging technology that taps into the market shift to digital content and advertising. ”AOL’s advertising model aligns with this approach, and the advertising platform provides a key tool for us to develop future revenue streams,” he said.
Tim Armstrong, AOL’s CEO, said, “The visions of Verizon and AOL are shared; the companies have existing successful partnerships, and we are excited to work with the team at Verizon to create the next generation of media through mobile and video.”
This summer Verizon plans to create its own video, offering paid, free, and ad-supported content that it promises will be different from what’s on television. Look for shorter content, for one thing.
Since it became an independent company in 2009 after splitting with Time Warner (ending the worst merger in business history), AOL has built a programmatic advertising business in video and mobile that has ads on websites owned by AOL and third-party websites (including Bizmology, the blog you are reading now). Advertising accounted for about 75% of AOL’s revenue in 2014, a growth of 15% from 2013.
AOL’s Third Party Properties business accounted for $856 million in revenue in 2014 and was the biggest part of its overall advertising business, growing 39% over the year. The growth was driven by premium ad formats, including video, over its programmatic platform.
By the way, AOL gets more than $600 million a year from dial-up subscribers. While that number has declined year-to-year, it’s a nice chunk of change for little operating cost. The average AOL subscriber has been with the company for 14 years.