Advertising technology has been widely cited as the reason for Verizon’s purchase of AOL. However, of at least equal importance is AOL’s advanced distribution platform, which has helped propel the company to the status of syndication powerhouse.
AOL has spent over $1B in the last 5 years to acquire 4 companies that form the linchpin of its online video business. Two of those companies sit squarely in the ad technology space, two in the video distribution space. The combination of the two technologies make the acquisition by Verizon so compelling.
Squarely in the ad tech space is the purchase of Adap.TV for $405M in 2013. Adap.TV was one of the pioneers in the programmatic ad space, providing both a sell side platform (for publishers with ad space to sell) and buy side platform (for advertisers looking to buy ad space.)
What good is an ad campaign if you can’t measure its performance? To answer this question, AOL purchased Convertro for $101M in 2014. Convertro helps advertisers understand what’s working, and what’s not, with their campaigns. In particular, the speed with which this data can be delivered allows advertisers to optimize their campaigns while they are still in progress.
Verizon is very keen on the combination of Convertro and Adap.TV. John Stratton, EVP and president of Verizon’s Global Enterprise and Consumer Wireline business, heaped praise on this aspect of AOL’s business:
“For us, the principal interest was around the ad tech platform that Tim Armstrong and his team have done a really terrific job building.”
Equally worthy of praise, however, is the video distribution platform. This technology was jump-started by AOLs purchase of 5min, for $65M almost 5 years ago. At the time, 5min was the largest video syndication platform. As the Adap.TV ad technology brings together ad spot buyers and sellers, 5min brought together online sites that wanted to include video with video content providers.
Since the 5min purchase, mobile has become an increasingly important part of video distribution. AOL moved to expand its syndication capabilities into that space with its purchase of Vidible for $50M last year. Vidible specializes in multiscreen syndication of video content.
These two purchases have gone a long way to turning AOL into a syndication powerhouse that it is today. The company now reaches a staggering 140,000 publishers.
Of course, AOL is also a big publisher of online content. With properties like HuffingtonPost and TechCrunch the company has plenty of content to syndicate and to advertise against. As well, it has been able to leverage the syndication technology to create genuine YouTube stars. For example, in 2013 Ran Harnevo, former head of 5min, talked about #Candidly Nicole, a reality show focused on the life of Nicole Richie. The show generated 16 million views, most of which came from sites other than those owned by AOL. Hardwired, a technology review show with web personality iJustine, has done equally as well. The show generated 16 million views and was seen by 2.6 million unique viewers watching for an average 7.2 minutes. Each show was watched, on average, half a million times.
There is further evidence that it is the combination of the ad and syndication technologies working together that is the big win for Verizon. In the fourth quarter of 2014, AOL ad revenue grew 8% year-over-year to $562M. Display ads on AOL sites actually lost ground, down 6%, on the previous year, while non-AOL ad revenue increased 16%, to $260M.
Now AOL has proven the power of combining ad and distribution capabilities, Verizon Digital Media Services looks like a great home to help bring the technology to the broader online video market.
Why it matters
The reasoning behind the Verizon AOL deal has focused around the company’s ad technology.
Of equal importance to AOL’s success is the video distribution technology.
The combination of video syndication and ad automation is something that should help many aspects of Verizon’s business, especially VDMS.