Verizon Wireless has been linked with AOL according to a report from Reuters. Reuters’ sources believe that Verizon approached AOL but no agreement is imminent and no formal proposal has been made. The deal would be either an acquisition or joint venture between the respective companies’ mobile video offerings designed to focus on advertising technologies and reducing costs; it’s believed that Verizon is seeking AOL’s expertise to boost online content, mobile video and advertising because of an opportunity that the business has spotted. Let’s take a look into why Verizon Wireless might be sniffing around AOL.
Verizon and AOL’s businesses overlap in several areas and so there could be some cost savings to be had, but I believe the real story here is that Verizon reckon mobile video is a key growth area for the future. It’ easy to see the evidence of this if we look away from the mobile arena for a moment: video streaming services such as Netflix have grown massively in the last few years and devices have been getting larger. The two have and will continue to meet: we’ve already seen Samsung supporting this notion by bundling a years worth of Netflix with certain devices. From an infrastructure perspective, every carrier has continued to invest substantial sums into improving the network both in terms of coverage (typically enhancing 4G LTE but also improving the higher performance 3G network, DC-HSPA). We’ve also seen the carriers jostling for coverage at different ends of the spectrum, as the lower frequencies provide better building penetration at the expense of data performance and the higher frequencies have poorer propagation but may support more connections. Essentially, the world’s mobile networks are gearing up to be able to cope with the massive amounts of data already going through and an expected dramatic uptake.
Putting this back into Verizon’s perspective, their retail subscriber base is a little over 100 million, or for arguments sake approximately one third of North America. It’s invested significant sums into maintaining and improving its network and it will have already seen an uptake in mobile videos. Watching video over a mobile data network already accounts for approximately half of all traffic and here, the synergy for Verizon and AOL is advertising in this space. It isn’t exactly untapped but it lacks a direction or focus from Verizon and here’s where AOL could help. They’re the third largest desktop video business in North America (by users) behind Google and Facebook (which are probably beyond Verizon’s budget even if they were for sale!). AOL also has the widest range of America’s online video-ad network, which can reach more than half of the US population.
It makes sense, then. And the markets like the idea as both AOL and Verizon stock increased in price. There’s been nothing formal just yet so this may not happen, but we’ll keep you in the loop if it does.