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Verizon bags AOL

But should network players really become media giants?

 

ORGANISATIONS SHORTOPINION Earlier this week, US wireless and communications giant Verizon announced the acquisition of internet pioneer AOL, for $4.4 billion. The deal, which is set to be completed later this summer, is seen as a bet by the US’ largest telecoms group on mobile rich media content and advertising.

But does the deal – and similar moves like it in recent years – represent a viable long-term strategy, and a correct reading of the digital economy’s surge towards mobile content?

This is certainly the latest, and highest profile, example of a ‘dumb pipe’ carrier refocusing on the content that is being carried, and how that can be used to monetise customer loyalty and sell advertising into its customer base – which in Verizon’s case includes 100 million+ mobile users.

But the story of its latest acquisition bears repeating.

AOL was the definitive internet service provider in the 90s, but at the turn of the millennium it entered into one of the worst deals in corporate history with the acquisition of Time Warner, which led to a $99 billion goodwill write-down just two years later when advertising revenue vanished, leaving AOL shares worth one-tenth of their former value.

While AOL’s current assets include the (increasingly noisy) Huffington Post and TechCrunch, Verizon’s core interest is in acquiring the technology that allows AOL to embed targeting advertising into video – something that consumers strongly dislike; a fact that remains a baffling, but almost universal blind spot for both technology and content companies.

The possible futures that might result from such deals can only be guessed at. In the medium term, it’s conceivable that business users might receive targeted advertising from partners on their tablets or phones: something that suppliers who have the technology to achieve it might find irresistible. In such circumstances, customers typically pay a premium to have advertising switched off.

A recent Computing survey found that collaborative tools are easily the biggest sweet spot for enterprise mobility, with 50 per cent of respondents saying that they use them. Figures such as these may make pitching advertising at business users too big a temptation to resist for any provider that has paid big money for long-term growth opportunities.

And for content partners, such as TechCrunch, would Verizon stomach editorials that are critical of its own services, or those of its partners and customer businesses? That remains unknown.

But in general terms, it is normal for ‘content providers’ to swiftly become lead generators for any purchaser that has no heritage in editorial services and no real interest in them, beyond the technologies that they sit on or the advertising channels they create towards new or existing customers.

Peel back the skin of heritage on many a respected business and technology analysis service and you’ll often find a ruthless lead-generation business that has stripped out its internal expertise in favour of pursuing advertorial opportunities.

But back to the present day. Acquisitions such as Verizon’s of AOL are currently seen as essential for any company whose heritage is in fixed-line services, because digital-native consumers are fast getting out of cable and/or satellite subscriptions to access video content over the top on mobile devices from online providers.

In January, the Strategist interviewed former Wall Street analyst turned Fox Business News anchor, Alexis Glick, in New York. Glick has recently walked away from both successful careers to run a non-profit enterprise for US teens, GenYouth, which focuses on mobile technology and sport. She said, “The notion that today’s teens will pay for cable TV [in future]? They won’t!”

But despite the clarity of Glick’s view, it is not quite so certain that a generational preference for mobile content will map directly onto a long-term trend in future households.

For one thing, young people’s choices can run counter to conventional wisdom. For example, in the US many teens watch live sports events on Instagram, not on a TV or video platform, while vinyl records – currently sold in youth clothing chain Urban Outfitters, along with turntables and film cameras – is a market that has been growing 70 per cent annually for several years, principally among students rather than middle-aged diehards or hi-fi buffs. (For more on this phenomenon and why it is happening, see our in-depth report, Substitute.)

What is certain is that digital natives hate having advertising pushed at them within content they have chosen to watch, or have paid for, on their mobiles. Indeed, any provider that supplies the tools to switch off advertising may win surprising numbers of loyal customers in the long term.

More, as AOL’s own history amply demonstrates, pouring billions into a shift away from your core business into acquiring content and advertising channels has a mixed – and often lamentable – history. It is also one that customers tend to pay through the nose for in the long run, even if they have no interest in the layers of noisy (and often ad-filled) content that their network provider slathers on top of the infrastructure services they desire.

BT is a serial offender in this regard, with its tendency to regard fixed lines as its own, privileged sales channels into private premises, rather than the private communications channels out that its customers would prefer.

Arguably, the strong underlying trends across the digital economy benefit infrastructure and platform providers, and not content players. Nevertheless, every large organisation wants to be a media conglomerate – despite the surprisingly few such conglomerates that have found a way to make digital content pay.

The bottom line of that equation tends to be the customer’s bill going up – even as the digital economy commoditises everything in its path and pushes prices down: an unsustainable tension. Some organisations have yet to grasp that the three things that people pay for online are convenience, scarcity, and personal service (or personalisation), not ubiquitous, low-value clickbait.

Sadly, the nearest comparison is to the Financial Services sector. Being an infrastructure provider is boring and predictable, but also remarkably low risk – just like traditional retail banking used to be, based as it was on the reliable principle of compound interest. Retail bankers tried to spice up their trade by upping the stakes and gambling with customers’ money.

It didn’t end well.

 

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