On Tuesday, Verizon Communications announced its plan to acquire AOL for $4.4 billion. The main reason behind the acquisition is the consumers’ ever growing love for watching video on smartphones and tablets.
With $202 billion market value, this acquisition would have a very little impact on Verizon’s growth rate or valuation. The company will buy AOL for $50 per share in cash which is 17% more than AOL’s closing price on Monday. This all-cash deal is expected to be completed by June this year completing the regulatory approvals.
Lowell McAdam, Chairman and CEO of Verizon, claimed in the press release that the merger would help ‘provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience.’ “AOL has once again become a digital trailblazer, and we are excited at the prospect of charting a new course together in the digitally connected world,” stated McAdam. He also added, “AOL’s advertising model aligns with this approach and the advertising platform provides a key tool for us to develop future revenue streams.”
AOl’s online advertising technology can be used by Verizon across mobile and broadband services to compete against Google, Yahoo, Facebook and other tech giants of Silicon Valley that are much ahead in the business and process. “This is really about AOL’s advertising platform. It is one of the few working video advertising platforms out there. Verizon bought it for a relatively cheap price,” said Roger Entner, an industry analyst at Recon Analytics.
The technology used in AOL simplifies the process of ad agencies, publishers and brands to take the ads directly to the most suitable customers on video and publisher sites across desktop, mobile, tablet and TV. Though it is the dial-up internet access service and other media sites the company is well-known for, advertising technology, which the company developed in recent years, is the key revenue generator for the company.
“Certainly the subscription business and the content business are very noteworthy. For us, the principal interest was around the ad tech platform,” said Verizon President of Operations John Stratton in a press conference yesterday. Through the automated advertising technology, the company’s revenue grew 21% to $280 million in the first quarter. Research shows, overall digital ad market is expected to increase 15% to $58.6 billion this year which would be more profitable to the company. Though the company is much behind the giants like Facebook and Google, it has a considerable portion of the share in the market.
For the AOL employees, the merger is expected to bring better wages and benefits. The current CEO of AOL Tim Armstrong will continue to head the company once the deal is through. “The leadership at AOL is staying and I am staying – enthusiastically, and we made that part of the deal. We know their (AOL) team well and they know our team well. The cultures share very similar values and are both working on very similar ways to do good while doing well,” said Armstrong in a memo to his employees.
Verizon has been planning to introduce a streaming service for mobile devices next month for which AOL brings video-ad serving expertise and some extra video content. Verizon has said advertising is one of the funding methods for the service, which will display a shorter version designed for watching in smaller screens.Hope the companies merge together on best interest and build the best media technology company in the world.