Ad-Tech, not Content, Is King in the Verizon-AOL Deal

Takeaways From This Morning's Announcement

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The deal of the year may be upon us.

Today, Verizon announced it has reached an agreement to buy AOL for $4.4 billion. The move, expected to be completed this summer, is likely to realign the power balance in the ad-tech ecosystem and will be felt in the advertising industry as a whole.

Here, a few takeaways on the coupling, starting with the meat of the deal, ad-tech.

Ad-Tech Frankenstein

The digital advertising industry (and some might say, the entire advertising industry) is on the fast path to automation. Scores of companies have emerged to help automate different parts of the ad buy -- the buying, the selling, the targeting, the attribution, etc. -- and AOL owns a piece of tech for just about every step of the way. For a while, everything seemed peachy in the desktop-focused ad-tech world, but then media consumption moved quickly to mobile, where targeting cookies don't work effectively, and the system essentially broke.

Verizon, acquirer of AOL, owns the key to fixing this problem: concrete mobile data which can be used to tie user identity across devices.

"The deal means we will be a division of Verizon and we will oversee AOL's current assets plus additional assets from Verizon that are targeted at the mobile and video media space," Mr. Armstrong said in a memo to employees. "The deal will add scale and it will add a mobile lens to everything we do inside of our content, video and ads strategy."

If Verizon's data integrated into AOL's ad-tech, it could result in the first ad-tech stack which can target across devices with deep accuracy (Facebook is currently developing one, using its login data). This combination could help ad-tech get its groove back, and should be strong enough to give Google (the market leader) and Facebook (up and coming) a run for their money.

The location thing

One of the best ways to determine the effectiveness of an ad campaign is to identify the number of people who physically visited a store after seeing an ad for a product sold in it. Verizon, with its wealth of location data, may use it in conjunction with AOL's ad data to provide a killer attribution tool to advertisers using its ad platform.

See ya content?

In addition to its ad-tech business, AOL owns a content-publishing operation, though it has been rapidly scaling it down. The content side of AOL once possessed over 300 brands, but now it's closer to 15, with the Huffington Post and Techcrunch among them.

AOL CEO Tim Armstrong gushed over these brands in a memo to AOL employees, but don't expect them to stay with Verizon for long. "I don't see us as a content company," Verizon CEO Lowell McAdam said at a conference this January. If Verizon sees value in AOL's ad-tech, then the content side of the business is a liability. Not only is content expensive to create, but owning media can open up an ad-tech company to accusations of bias since it has an interest in directing dollars towards its own properties. In an interview with Recode, Mr. Armstrong hinted the content brands will soon be gone. "Obviously we've seen a lot of interest in the content brands we have. So over the course of the summer, stay tuned," he said.

Verizon on the a tightrope

Verizon is currently lending its data to some ad-tech companies, and it will need to be careful with the way it handles those relationships. One company it is working with, RUN, was acquired by ad agency holding company Publicis last fall. If Verizon decides to scale back its partnership, cutting out RUN in favor of AOL, it could find itself on the wrong end of an angry phone call from one Maurice Lévy.

Beware of the zombie cookie

Verizon in the past has run into trouble with the way its data has been used by ad-tech companies. Turn, another Verizon ad-tech partner, used the company's data to continue to track users even after they cleared their cookies. This so-called zombie cookie put both companies under fire and Turn eventually apologized and stopped using it. Critics and regulators will keep a close eye on AOL to ensure it is a responsible steward of such data if and when Verizon gives it full access.

Sad day for Yahoo

A few years ago, AOL and Yahoo were sitting in essentially the same place. Both had plenty of visitors but sold commoditized ad inventory which limited the value of their businesses. From this starting point, Yahoo invested in content, snatching up Tumblr and a number of other companies until going on an ad-tech spending spree with the acquisitions of mobile ad-tech company Flurry and video ad-tech company Brightroll. AOL, meanwhile, went straight for ad-tech, building a full "stack" while paring down its content business. AOL's strategy, today at least, seems like it was the right one.

Contributing: Michael Sebastian, Kate Kaye

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