Verizon Communications has announced its plans to buy AOL for a price of $4.4 billion, part of a bet that future growth avenues will come from a push into mobile video and associated advertising.
AOL Chief Executive Officer Tim Armstrong will stay in his job as part of the deal, as Reuters notes, while AOL and its associated properties, which include the Huffington Post and the websites TechCrunch and Engadget, will become Verizon subsidiaries.
— Wall Street Journal (@WSJ) May 12, 2015
The heart of the deal, according to USA Today, revolves around AOL’s expertise in targeted advertising as it relates to mobile video consumption. Armstrong has strengthened AOL’s capabilities in the field, as he sees the future of media being dominated by mobile platforms. According to him, a full 80 percent of media consumption in coming years will be carried out on phones and tablets.
“If we are going to lead, we need to lead in mobile,” Armstrong asserted while announcing the Verizon deal.
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AOL’s online advertising technology will allow Verizon to compete with Google, Yahoo, Facebook and other Silicon Valley companies that are further ahead in the field of mobile advertising. According to Roger Entner, an industry analyst at Recon Analytics, AOL represents one of the few companies that can help Verizon in this endeavor.
“This is really about AOL’s advertising platform. It’s one of the few working video advertising platforms out there. Verizon bought it for a relatively cheap price.”
Research firm IHS points out that global revenue from mobile advertising reached $11 billion last year, and is forecasted to grow to $19 billion by 2017. Verizon currently has over 100 million mobile consumers utilizing their platform, one of whom recently sued the company, as the Inquisitr previously reported, asserting their customer service caused her to have a heart attack. With massive content deals also in place, Verizon will need to acquire telecommunications spectrum in a dedicated fashion to accommodate increased traffic.
Verizon’s offer, which translates to $50 per share of AOL, represents a 17.4 percent premium over the company’s Monday closing price. Investors were quick to take note, however, and AOL shares jumped 18.4 percent to reach $50.41 on Tuesday. Verizon, meanwhile, lost 0.4 percent, dropping to $49.63.
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Armstrong noted that talks between Verizon and AOL first began last year, after he met with Verizon CEO Lowell McAdam in July to discuss a growing partnership between their companies.
[Photo by Joe Raedle / Getty Images]