A whopper of an acquisition was announced this morning: Verizon agreed to buy AOL for $4.4 billion.
While you may or may not remember AOL from its CD-ROM days, the tech giant has hung around, building up a network of media entities like The Huffington Post and TechCrunch, and developing its own valuable video technologies. The cash deal is big news for AOL investors, but it will also have significant impact on the media and technology space.
Here's what you need to know.
Why would Verizon buy AOL?
Verizon, most widely known as a wireless service provider, doesn't want to be just the pipes transmitting your data back and forth anymore. It wants to take part in that lucrative data stream. The company is primarily interested in AOL for its advanced mobile video and advertising technology. Verizon is reportedly launching a mobile streaming video service this summer that would feature short, under-30-minute broadcasts, as well as on-demand content and live feeds of sporting events and concerts. In other words: Verizon wants millennial eyes and dollars, and AOL can help it get them. How would AOL make that happen?
AOL has powerful video and advertising tech, including an automated program with which marketers can electronically bid for online video advertising spots. How will Verizon transform after this acquisition?
AOL CEO Tim Armstrong said that this deal will create what he believes is "the largest mobile and video business in the United States," putting it on par with digital ad behemoths like Facebook and Google. It won't stop being a wireless carrier; it will also roll in AOL's lingering dial-up business (Yes, it still exists. No, we don't know why). What happens to AOL?
AOL will become a subsidiary of Verizon, and current CEO Tim Armstrong will continue to head it up.
Verizon, most widely known as a wireless service provider, doesn't want to be just the pipes transmitting your data back and forth anymore. It wants to take part in that lucrative data stream. The company is primarily interested in AOL for its advanced mobile video and advertising technology. Verizon is reportedly launching a mobile streaming video service this summer that would feature short, under-30-minute broadcasts, as well as on-demand content and live feeds of sporting events and concerts. In other words: Verizon wants millennial eyes and dollars, and AOL can help it get them. How would AOL make that happen?
AOL has powerful video and advertising tech, including an automated program with which marketers can electronically bid for online video advertising spots. How will Verizon transform after this acquisition?
AOL CEO Tim Armstrong said that this deal will create what he believes is "the largest mobile and video business in the United States," putting it on par with digital ad behemoths like Facebook and Google. It won't stop being a wireless carrier; it will also roll in AOL's lingering dial-up business (Yes, it still exists. No, we don't know why). What happens to AOL?
AOL will become a subsidiary of Verizon, and current CEO Tim Armstrong will continue to head it up.
What are some problems with this deal?
One potentially troubling issue about the acquisition is how Verizon will handle its newfound media arm: AOL owns The Huffington Post, Engadget, and TechCrunch. All three cover technology; that is, they cover Verizon and its competitors. Looking at historical precedent, we've seen issues with a parent company like this interfering with journalistic integrity: Notably, CNET was forced by its parent CBS to recast its vote for "Best of CES" after choosing a product (Hopper) that CBS was litigating against. With Verizon's ambitions in being a wireless carrier, advertising platform, and streaming video provider, the list of its conflicts of interest is extremely long. Hasn't something like this happened before?
Yes. In 2000, AOL acquired Time Warner in what would become one of the "worst mergers of all time." Time Warner wanted to establish an online presence, and AOL was the digital darling of the dot-com era. Cultures clashed and the bubble burst, and the two went their separate ways. Verizon's deal is different: The climate is different, and rather than toeing to get its foot in the door of ad tech and streaming video, Verizon already has a place in the market — AOL would just make that even stronger.
Is it a done deal?
Not technically: The buyout still has to go through some regulatory hoops. There are also talks that Huffington Post will be spun off as part of the terms. We're expecting the deal to be finalized this summer.
One potentially troubling issue about the acquisition is how Verizon will handle its newfound media arm: AOL owns The Huffington Post, Engadget, and TechCrunch. All three cover technology; that is, they cover Verizon and its competitors. Looking at historical precedent, we've seen issues with a parent company like this interfering with journalistic integrity: Notably, CNET was forced by its parent CBS to recast its vote for "Best of CES" after choosing a product (Hopper) that CBS was litigating against. With Verizon's ambitions in being a wireless carrier, advertising platform, and streaming video provider, the list of its conflicts of interest is extremely long. Hasn't something like this happened before?
Yes. In 2000, AOL acquired Time Warner in what would become one of the "worst mergers of all time." Time Warner wanted to establish an online presence, and AOL was the digital darling of the dot-com era. Cultures clashed and the bubble burst, and the two went their separate ways. Verizon's deal is different: The climate is different, and rather than toeing to get its foot in the door of ad tech and streaming video, Verizon already has a place in the market — AOL would just make that even stronger.
Is it a done deal?
Not technically: The buyout still has to go through some regulatory hoops. There are also talks that Huffington Post will be spun off as part of the terms. We're expecting the deal to be finalized this summer.