Verizon-AOL: A War of All Against All - Surprising deal suggests a crumbling empire
Verizon-AOL: A War of All Against All
Surprising deal suggests a crumbling empire more than it shows the power of the network
By Dennis K. Berman
Updated May 12, 2015 8:15 a.m. ET
When Steve Jobs released the first iPhone in June 2007, Apple Inc. and Verizon Communications Inc. were worth almost exactly the same in the public markets: About $115 billion.
What came over the next eight years was one of the greatest transfers of power and wealth in corporate history. Mobile phone operators—who had been brutish, intractable gatekeepers to the customer—were turned into Apple’s lackeys.
The customer was still spending money with the carriers, but now she was spending far more with Apple. Today Apple is worth about $735 billion, nearly double that of Verizon and AT&T Inc. combined. The carriers still love to romance the “power of the network,” but this has the feel of a crumbling empire, vainly proclaiming its domain over places long overrun.
This morning’s shock announcement of a Verizon purchase of AOL makes these big changes ever more clear. Physical communications networks are less of a competitive advantage. They are becoming table stakes. Google Inc. and Facebook Inc. are launching gliders and blimps and laying fiber in the ground; cable TV operators are deploying Wi-Fi workarounds; there are now mobile-phone carriers in which Wi-Fi is the default; and cellular technology is the backup.
Neither Verizon nor AT&T is going away. But their place in the world seems ever more insecure. What is their purpose in this converged world? AT&T has taken a path into the past, agreeing to buy satellite-TV operator DirecTV for nearly $50 billion. Verizon is spending $4.4 billion on AOL, a loose confederation of advertising-technology businesses, random “content” plays, and a beguiling, money-leaking adventure called the Huffington Post.
This puts Verizon in a number of intriguing, if conflicted, new positions. It will have to be neutral arbiter in these advertising businesses, but also have to nurture and develop its offerings of online video and content. Does a phone company have the mettle and creativity to do this well? Does the prospect of a TechCrunch video show—brought to you by Verizon—captivate or horrify the average millennial?
The answer is that no one has the answers. It is a war of all against all. Platforms against platforms. Content against content.
The ideas are manifold. Facebook is dislodging original news articles from their creators, hosting stories directly on its world-spanning platform. Apple will soon debut its new music service, based on the old Beats platform. And there is Google’s YouTube, which has become a kind of low-grade Hollywood studio, trying to turn cooking segments into “inventory” for video advertisers.
All these moves appear to put, at least for the short-term, a premium on high-quality content, be it NFL games or Vice miniseries.
Over the long-term it seems the benefits will accrue to the company that can stitch everything together—software, connectivity, content—into one undeniable package. Right now, the advantage seems strongest with Facebook and Google.
Of course, that was precisely the idea of the wretched ur-merger of AOL and Time Warner. A generation later, we are still chasing its ideal, with Verizon just the latest to pick up the harpoon and pursue the great white whale.
Write to Dennis K. Berman at email@example.com