Verizon Is Playing for Third Place, but It's Not Alone

Brands and Publishers Want a New Option to Google and Facebook

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Verizon is trying to get in position for a future ad business dominated by mobile, video and data.
Verizon is trying to get in position for a future ad business dominated by mobile, video and data. Credit: Victor J. Blue/Bloomberg

When Verizon bought AOL last year it made clear its intentions to challenge Google and Facebook, which together control about two-thirds of all digital ad dollars in the U.S. Now, with Yahoo in its control, Verizon-AOL is closer to taking them on.

Well, it's closer to at least giving marketers a respectable option.

"The marketplace is dominated by two brands," Verizon CEO Lowell McAdam said during a conference call Tuesday to discuss Verizon's latest quarterly earnings, a day after announcing the company's $4.83 billion deal to buy Yahoo. "Content creators and advertisers are hungry for an alternative as the market expands for both in-home and mobile consumption."

Mr. McAdam summed up the acquisition as a content play, drawing on Yahoo's billion mobile users, and a data play to use its digital insights on its customers to target ads. Much rests on the execution and decisions that have yet to be made, but here's how the Verizon-AOL and Yahoo tie-up looks likely to impact advertising.

Steadily expanding audience
Verizon has tried to turn its wireless advantage into a media advantage by developing properties like Go90, a video platform, to deliver to its 100 million-plus mobile customers. AOL owns The Huffington Post, and Verizon has acquired Awesomeness TV and Complex Media. Now, Yahoo brings along sports, finance and news brands.

"We are scaling up to be a major competitor in mobile media," Mr. McAdam said.

Publishers and advertisers could be looking for such an alternative as they increasingly rely on Facebook and Google for distribution of their content.

"It's a very distant third, but brands and content owners are always looking for a better deal a better way to reach readers and viewers," said Jim O'Neill, principal analyst at Ooyala, a video tech platform.

All about video
Sometimes it seems that the future of digital platforms is entirely video. Last year, Yahoo became the first internet company to stream an NFL game to desktops, and Verizon has an exclusive mobile deal to show football games. This type of premium content is where the major internet players are swarming: Twitter is a National Football League partner this year, streaming games in the upcoming season, and just announced new deals to stream weekly Major League Baseball and National Hockey League games as well.

But nearly half of "video starts," measuring all videos that play for at least a second online, do so on mobile devices, according to Ooyala data.

So Verizon is trying to make the most of its natural position to take advantage of consumers' shift to mobile. In addition to expanding through acquisitions, it is racing to become the first wireless carrier to provide 5G data speeds, a step up from 4G LTE it currently offers. The speed factor is something AOL CEO Tim Armstrong has been talking about for years as the key to winning with content, and matters particularly when it comes to the video experience.

Data and ad tech
Yahoo and AOL will overlap in some of the ad tech platforms they've previously built or bought, and some of their audiences overlap as well. But on the whole Verizon will now have more data to target ads, data that comes from first-party sources -- a strength of Google and Facebook.

Yahoo's data is more valuable than its content, according to Shar VanBoskirk, a Forrester analyst. "The more access to customer data Verizon has -- online through Yahoo and AOL, in home via cable boxes, on mobile via smart devices -- the more targeted it can be with advertising and sponsored content or product placements across those same devices," VanBoskirk wrote in a blog post. "This allows Verizon to create better ad products which is competitive against primarily online giants such as Google, and creates a better user experience which is competitive against other cable and telecom providers."

The race is on
This acquisition is all about trying to stake a position behind Facebook and Google, who are almost unbeatable in terms of attracting users and delivering ads. However, as Mr. McAdam said, brands and publishers will always welcome another option.

That said, upstarts like Twitter and Snapchat are moving quickly, too. "Facebook and Google are out of reach," 360i Chairman Bryan Wiener said in an email. "This is a race for the lucrative third place spot. AOL-Yahoo needs to provide a cross-device ad offering that leverages advertisers first party data -- and they need to so quickly as the competitors including Snapchat and Twitter aren't sitting still while this deal closes and they integrate teams and platforms."

Contributing: Alexandra Bruell

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