AOL's Armstrong gets a shot to medal with Yahoo deal
When it comes to digital advertising, Google and Facebook take home the top prizes while the rest of the media players wrestle for the bronze, if lucky. Tim Armstrong wants to introduce a new medalist — and his boss Verizon just gave him a $4.8 billion chance to do it.
The former Google exec running AOL will buff up the telecommunications giant's reach in content and advertising with Yahoo, a deal expected to close early next year at the latest. His aim is clear: remake Verizon by bolstering its strengths in mobile with its growing content library that includes AOL's The Huffington Post and Yahoo's destinations for News, Sports and Finance, and its NBA site The Vertical -- and Yahoo's 1 billion users -- into a cutting-edge Net media company.
"We are going to run it as a house of brands with multiple very big front-end brands and we will try to leverage the scale of our services in the background," Armstrong said in an interview after Verizon announced its plan to buy Yahoo.
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Verizon's ad delivery technology, already evolved from the integration of AOL, which Verizon acquired in May 2015, will improve even more with Yahoo's own ad tech on board. The combination of Yahoo's massive audience, AOL's hundreds of millions of users and Verizon's 113 million mobile customers — not to mention the rich location-based data set on them -- should entice advertisers.
"We are going into this with a mentality that we are in the Internet Olympics and you have two gold medalists in front of us in Google and Facebook and when it is our time to get up on the platform we have to compete," Armstrong said.
The challenges are well-known and may ultimately be too formidable. Google and Facebook currently dominate the global digital ad market with 31% and 12%, respectively, of this year's estimated revenues of $186.8 billion, according to research firm eMarketer. Yahoo and Verizon (AOL and its Millennial Media) own 1.5% and 0.7% globally. In the U.S., they have a bit more clout with 3.4% and 1.8%, respectively.
And the frontrunners are not slowing down. In July, both companies reported their best quarterly ad revenue performances in two years — Google upping its mobile ad sales, Facebook garnering more video ads with Facebook Live.
Yahoo, meanwhile, has struggled. Brought in more than four years ago to help turn the pioneering Web portal around, CEO Marissa Mayer made dozens of acquisitions — some smart, some questionable, depending on who you ask. Among them: multimedia blogging site Tumblr (in 2013, for $1.1 billion) mobile ad and analytics firm Flurry (2014, about $300 million) and video advertising company BrightRoll (2014, $640 million). To bolster content, she signed Katie Couric as global news anchor for $6 million in 2014 — a deal re-upped to $10 million last year — and acquired style site Polyvore for $230 million in 2015.
The company had turnaround revenue because during that time, its 40% stake in Chinese online retailing giant Alibaba — a $1 billion investment co-founder Jerry Yang made in 2005 — increased in value and led to an $8.3 billion sale of shares in 2014. The remaining 15% stake, now valued at about $32 billion, led shareholders to call for a separation of the Alibaba shares from Yahoo's core business. That led to the sale process, begun in February, that ended last month with Verizon's acquisition of Yahoo, which leaves the new Yahoo-less company as an asset management firm.
Mayer's focus on mobile growth led to improvement. Its mobile ad business is expected to grow 24.5% to $1.31 billion this year, according to eMarketer. The problem? Google and Facebook are growing faster and are expected to squeeze Yahoo's market share from 1.5% to 1.3%.
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At Verizon, Armstrong and his boss, executive vice president Marni Walden, have overseen the integration of AOL into the telco company and begun offering some Huffington Post and other content onto Verizon's free ad-supported mobile video network go90. As a digital media property on desktop and mobile, AOL itself has seen its audience decline 10% over the last year to 153.6 million monthly unique visitors in June, according to measurement firm comScore. Yahoo's has fallen 1.4% to 205.8 million, comScore says, No. 3 behind, of course, Google and Facebook.
Obvious next steps include centralizing advertising sales across the Verizon-AOL-Yahoo landscape and providing advertisers improved targeting of consumers, says Martín Utreras, senior forecasting analyst with eMarketer.
"Verizon's traditional business is definitely slowing down, so they are investing in this mid-term and long-term to see future growth," Utreras said. "We think it is a good step for them and, at the same time, we also think a good step for Yahoo, as they have had all these challenges and now there’s an opportunity to leverage those large audiences (at AOL and Yahoo)."
But a connectivity company like Verizon successfully evolving into a content and media company is no slam dunk, says Robert Salomon, associate professor of international management at the NYU Stern School of Business. "It's not just Verizon," he said. "You can go back in history and marrying content and delivery has been a difficult business for a long time," he said. The most obvious example: AOL's own disastrous $350 billion merger with Time Warner, consummated in 2001 and separated eight years later, with both companies valued at a fraction of its 2001 worth.
"It’s not clear to me Verizon is really equipped to be a manager of content," Salomon said.
Another potential hurdle: New rules in the works by the Federal Communications Commission about privacy of consumer data on networks. The requirement of an opt-in for marketing could cause Verizon’s $9.6 billion AOL and Yahoo acquisitions to "lose their worth," according to a recent Forrester research report.
Regardless, the 45-year-old// Armstrong may have the background to pull it off. He is "this really, really interesting next-generation leader," said Ted Leonsis, who spent nearly 14 years at AOL including as AOL Studios president. He's now founder-CEO of Monumental Sports & Entertainment, which owns NBA's Washington Wizards and NHL's Washington Capitals.
After nearly a decade building Google's ad business, including the launch of Google AdSense that delivered ads to tens of thousands of sites beyond Google itself, Armstrong joined AOL in 2009. There he helped the company, in the post-Time Warner divorce, to bolster advertising and content.
"Tim is this unique mashup of someone who knows technology, who knows Web, who knows customers and marketing and what big advertisers are looking for and what they need to be relevant to that new audience on a global basis," Leonsis said.
Advertisers have watched the Yahoo-Verizon courtship, Leonsis says, and are eager for a third option. "Advertisers want more choice and they want to reach different audiences and many of these brands are very, very popular and are very, very engaging."
Armstrong will have the opportunity to work with Mayer, who was at Google when he arrived. Mayer will help with the transition of Yahoo with Verizon and has said she plans to stay. "I love Yahoo and am excited to see it into its next chapter," Mayer said.
But most observers expect she will eventually bow out. "This is more of a media-oriented company and she might be more comfortable in a next position in a tech-based world," Leonsis said.
This new vitalized Verizon does have a chance to compete with Google or Facebook, Salomon says. With the best of AOL and Yahoo's advertising technologies, Verizon can "go to potential clients and people doing ad buying (and) now say, 'You can go with Google ads and they can get you stuff on the Web and (the) Android (operating system), or you can come to us and get hundreds of million eyeballs to put your ads in front of, just through our subscriber base alone," Salomon said.
Follow Mike Snider on Twitter: @MikeSnider