Verizon diversifies with a dinosaur6/3/2015
In the business world, enough is truly never enough. Comcast isn’t satisfied being the biggest cable provider in the country, so it acquired NBC and is moving into the broadcasting business. PepsiCo doesn’t just produce soda, it also owns the entire line of Frito Lay potato chips, Quaker Oats, Gatorade and Tropicana. Clorox, a company that is synonymous with bleach, also owns KC Masterpiece barbecue sauce, Hidden Valley salad dressing, and Fresh Scoop kitty litter. What do any of these companies and product lines have in common? Very little beyond the corporate desire to diversify revenue streams and pad their stock price. Of course, the tech world is no different. This week’s example: Verizon purchasing AOL Inc. for $4.4 billion.
I know what you’re thinking, “America Online? Didn’t that company die with the dial-up modem?” Well, first off, the dial-up modem is still used by 3 percent of U.S. Internet users, so back off. Second, AOL may no longer be the juggernaut Internet provider it was in the 1990s, but it still generates a great deal of Internet traffic with its online video offerings and 2011 acquisition of Huffington Post. Finally, while Verizon is hands-down the No. 1 cellular provider in the United States, its media offerings are close to non-existent. Acquiring AOL may not be as flashy as Facebook buying Instagram in 2012 or Google acquiring YouTube in 2006, but it certainly gets them in the content-producing world.
Truth be told, it doesn’t matter if Verizon had dug up the rotting carcass of 1990s dial-up Internet provider Prodigy and trotted it out as its big media buy, as it is one of the big players in online content. With its fingers in cellular service, cable delivery and now online content delivery and generation, Verizon instantaneously became a media magnate. Acquisitions like these are huge for diversification and attracting the public persona of being creative and risk-taking.
In 2010, Amazon made a similar splash by unveiling its plans to build an original content department with Amazon Studios. It has taken five years for Amazon Studios to become a legitimate content provider, but this year it won its first Emmy for its online series “Transparent,” and it has given the company the look of validity and credibility. What is the world’s largest online retailer doing in the television and movie game? Simply trying to make a buck. Awards and recognition are nice, but, ultimately, having exclusive content brings in eyeballs and shoppers to the Amazon brand. Verizon is hoping the same story will unfold with its pickup of AOL.
Oddly enough, this same move was made 15 years ago, only then it was AOL acquiring Time Warner to bring exclusive media dollars into its world. The difference is the AOL Time Warner Inc. merger is considered by some to be the worst business move of all time. Due to horrible management and poor integration, AOL was never able to leverage Time Warner’s properties into online and media domination. This is a puzzling failure when you consider that, at the time, AOL was the biggest Internet provider in the country, and Time Warner’s subsidiaries included HBO, Warner Brothers, CNN, DC Comics, TBS and many more.
Ultimately, what does this mean for Verizon customers? The answer is in potentially exclusive content that will make being a Verizon subscriber desirable. However, more likely is Verizon increasing its costs and overhead in maintaining the struggling online service, eventually leading to customers paying more. Does it have to go that route? No, but if in 10 years AOL tanked its massive fortunes from king of the web to Internet laughing stock, what are the chances this ends up being a good move for Verizon users? CV
Patrick Boberg is a central Iowa creative media specialist. Follow him on Twitter @PatBoBomb.