By acquiring AOL (AOL) in an all-cash deal valued at roughly $4.4 billion, Verizon stands to be better positioned to leverage the data it collects on more than 100 million wireless subscribers, data that represent a veritable gold mine for prospective advertisers.
"For Verizon, it's all about monetizing personal data," said Ken Doctor, media analyst at Newsonomics, an independent research firm. "The access that Verizon has to its customers' habits, preferences, their buying patterns is enormous, and with AOL it sees the opportunity to monetize those even better than it's doing right now."
Verizon wants to sell more digital advertising, especially on mobile devices, and for good reason. Sales growth from its traditional bundle of telephone, Internet and pay-TV, is declining. After revenue grew 5.4% to $127 billion in 2014, Verizon's sales are expected to rise by just 3.2% this year and 1.3% in 2016, according to the average forecast in a Bloomberg survey of 27 analysts.
Growing its video advertising business is essential if the company is to reverse its sales growth.
The deal also reflects the changing nature of the telecommunications business. Rather than being chiefly concerned with historic rivals led by Comcast and AT&T, Verizon's focus has turned, in part, to the dominant players on the Internet: Google (GOOG), Facebook (FB), Apple (APPL) and Amazon (AMZN). At $4.4 billion, AOL, with its ad-targeting technology, is a bargain compared with trying to buy one of those much larger companies.
The target for Verizon and its newer rivals is the worldwide market in digital advertising. In 2014, Google held a whopping 31% stake in a market that totaled $145 billion last year and is expected to rise to $279 billion in 2019, according to an eMarketer study. Facebook's share was 8% while AOL held a mere 0.7%.
Of course, Verizon isn't buying AOL for the Huffington Post or TechCrunch or AOL.com, even though all three Web sites have loyal followings.
But Verizon is first and foremost a mobile telecom provider, and in 2014 mobile advertising worldwide totaled $42.6 billion and is expected to jump 61% this year to $68.7 billion, according to eMarketer. Google's share of global mobile advertising is 38% followed by Facebook at 17%.
"Verizon wants to get revenue from its readers, viewers and subscribers as it does through its core business," Doctor said. "And they can also get it from advertising and e-commerce. Those are the two worlds, and Verizon wants growth from both areas."