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 dennis.berman@wsj.com
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