Verizon pays $4.4B for Arianna Huffington

The headline may seem a bit outrageous but is a fair assessment of what Big Red gets from its proposed purchase of AOL. The all-cash, $4.4 billion deal would strengthen Verizon's media portfolio, and I wonder: Is this what happens when there is Net Neutrality? ISPs become content carriers?

Verizon's venture cannot be understated for what it means. Like a game of Risk, where players jockey for early-play position and forge alliances with eventual combatants, mobile is a battleground in the making. Territory captured now will mean everything in the future. AOL's content portfolio, which includes Huffington Post, is among the major assets.

"This acquisition supports our strategy to provide a cross-screen connection for consumers, creators, and advertisers to deliver that premium customer experience", Verizon CEO Lowell McAdam says in a statement. Keywords: Cross-screen (with emphasis on mobile), advertising, and, to support it, original content -- although the latter applies more to properties like Engadget and TechCrunch than to the Huffington empire.

The Future Starts Here

According to Juniper Research, global mobile advertising spending will reach $51 billion this year, more than doubling to $105 billion by 2019. Three key findings:

• Programmatic advertising (which is the Real Time Bidding of advertising space) will drive the growth in digital advertising as the technology advances over the coming years.
• Video advertising is expected to see progressive growth due to the higher engagement rates of the medium.
• Addressing viewability concerns should be at the forefront of issues to tackle within the industry.

All are relevant to today's announcement, from which Verizon calls out "original video content" and "programmatic advertising platforms" as major reasons for buying AOL. The media company promotes about two-dozen "original" video programs. Additionally, there are massive amounts of original, and socially shareable, videos from tech news sites and Huffington Post, among other AOL content producers.

Video also is key to Verizon's mobile ambitions; for good reasons. Display advertising still dominates digital. Last year, spending on video outpaced "any other display category -- up 56 percent in 2014 -- and now accounts for more than a quarter (27 percent) of total display ad spending", according to Pew's annual State of the News Media report.

But programmatic advertising is the future, not display. During AOL's first quarter 2015, programmatic advertising, which video delivers, grew by 80 percent, accounting for 45 percent of global revenues for brand advertising. Ad platform revenues rose by 21 percent overall.

Verizon's soon-to-be media subsidiary calls its digital advertising program ONE by AOL. The platform crosses mediums, such as online video and TV, and is available for advertisers and publishers. The latter is more significant than it might seem. During the last decade a fundamental shift occurred in daily publishing, as, starting with newspapers, large tech platform providers seized control in advertising.

For example: "Five companies -- Google, Facebook, Microsoft, Yahoo, and AOL -- still generated 61 percent of total domestic digital ad revenue in 2014, $30.9 billion out of a total $50.7 billion", Pew explains. Google captured the largest chunks: 37 percent for mobile and 38 percent of all.

The Road to Disrupt

With AOL, Verizon strategically advances across the Risk board into territory that Google dominates and upon which Yahoo seeks foothold. Big G disclosed last week that "more Google searches take place on mobile devices than on computers in 10 countries including the U.S. and Japan. This presents a tremendous opportunity for marketers to reach people throughout all the new touchpoints of a consumer’s path to purchase".

Search and advertising are conjoined, and there relationship is tighter still around mobile devices. But advances into Google territory will require more troops -- competitive search capabilities.

Nevertheless, as a mobile-first provider, Verizon is uniquely positioned to leverage AOL's advertising and original content platforms. For example, according to Pew, 64 percent of Americans own a smartphone -- up from 35 percent four years ago. Among them:

• 7 percent "own a smartphone but have neither traditional broadband service at home, nor easily available alternatives for going online other than their cell phone".
• 10 percent "own a smartphone but do not have any other form of high-speed internet access at home beyond their phone’s data plan".
• 15 percent "own a smartphone but say that they have a limited number of ways to get online other than their cell phone".

Smartphone users with limited or no broadband access, which certainly includes some of AOL's legacy dial-up customer base, are primped for Verizon data plans if properly wooed. Their eyeballs will fall on mobile ads served natively from the new subsidiary.

"Call it a mobile majority", Pew says. The group's influence on online content consumption cannot be understated. "At the start of 2015, 39 of the top 50 digital news websites have more traffic to their sites and associated applications coming from mobile devices than from desktop computers". As measured by unique visitors, among the top-10 news networks (Huffington Post ranks fourth), all reach larger audience on mobile devices than desktop. However, for some individual news sites, including Engadget and TechCrunch, desktop traffic is greater.

The future is clear: "Mobile ad spending now accounts for 37 percent of all digital ad spending, up from 25 percent last year", according to Pew. That's $19 billion, up from $10.7 billion. Total digital ad spending for 2014: 50.7 billion.

As wireless ISP Verizon pushes into mobile advertising, video, and search, Google expands the other way, by slowly rolling out the Project Fi cellular service. But there's a notable difference: Big Red seeks to produce more original content, while its rival leeches off what others produce and relies on Sprint and T-Mobile networks for Fi. Which is the sounder long-term strategy? One of organic expansion or forged alliances?

This game of Risk will answer.

Photo Credit: Joe Wilcox