AOL seeks merger to take on Google, Facebook digital duopoly
AOL chief
executive Tim Armstrong is chasing a merger with US internet major Yahoo
to build a data-driven “global platform system” to challenge Facebook
and Google’s duopoly on digital advertising.
Armstrong
laid down the blueprint for how he plans to build the world’s top
mobile-led media company in the world by 2020, one that reaches “two
billion consumers”, up from a current 700 million users.
“Today that sounds like a really big number,” Armstrong told The Australian
at the Cannes Lions advertising festival. “I think when you look
forward four or five years, that’s probably going to be an average size
number for the large digital platforms in the world. Any of the deals
you hear us talking about or doing is part of a laser focus on helping
us get to that level. Our interest is making sure that we have a direct
way to access consumers at scale.” Armstrong is aiming to boost the ad
tech firm’s annual revenues somewhere in the range of $US10
billion-$US20bn, up from $US2.7bn.
A year after Verizon Communications, the largest mobile phone
network in the US, acquired AOL in a $US4.4bn deal, growth has become a
bigger strategic imperative as Facebook and Google take all the ad
market growth and then some.
Combined,
they controlled 76 per cent of digital media ad expenditure last year
and rising, according to a recent internet Trends report by influential
analyst turned venture capitalist Mary Meeker, a partner at Kleiner
Perkins Caufield & Byers.
“Facebook
and Google are in a powerful enough position to where they can really,
in some cases, set the agenda on data for their partners,” Armstrong
said, noting how the two tech giants don’t give agencies or advertisers
access to their algorithms or the data being mined on users.
“We’re in a position, because we’re a challenger brand, where we can basically use data as a more open mechanism to create a deeper
partnership with people. Our strategy is to actually leverage our data
to get better outcomes for our partners overall. Facebook and Google are
really good at data, but we have a different strategy.”
With
deep pockets on the back of 113 million retail subscribers, AOL’s telco
parent Verizon is a leading contender to buy Yahoo. It handed Armstrong
a leading role in Yahoo takeover talks earlier this year. Armstrong, a
prolific dealmaker and former US sales chief for Google, submitted a
preliminary bid in the first round by the April 11 deadline.
Bids for Yahoo’s core internet assets came in the range of $US2bn-$US3bn. Although it has been reported that potential buyers,
including Verizon’s rival AT&T, are frustrated that Yahoo is
dragging its feet on sale talks, Armstrong would not comment directly on
the process.
“They’re running their
own process. We don’t know how that process is going to end,” he said.
“We’ll be as interested as anybody to see where it ends up overall.”
By
combining Yahoo’s one billion monthly users, 600 million of whom are on
mobile devices, with Verizon’s customer data and AOL’s ad tech,
Armstrong is planning to build sophisticated ad targeting solutions for
brands to take on Facebook and Google.
Clinching a deal with Yahoo would also boost Armstrong’s empire-building ambitions. “Using
data to optimise your business scale is an important part of the
future of media. The second thing is content. We’ve been big investors
in content and content’s been in favour, out of favour over time. The
reality is the bigger the platforms are getting; content is their
differentiation play.”
Meetings with
agencies and marketers at Cannes have convinced Armstrong that brands
are craving a credible alternative to the duopoly.
“Facebook
and Google are doing a very good job of executing and I think they’ve
gotten to be the size they are because they’re very good at what they do
overall,” he said. “I think from a market standpoint, the marketers are
asking, and the agencies and publishers are asking, for more
competition. They’re looking for a third, fourth, fifth platform to
emerge and one of the things that they want us to do is invest in that
area heavily.”
Armstrong’s argument
drew support from Martin Sorrell, CEO of WPP, the world’s largest
advertising holding group. “I would like to see that happen,” said
Sorrell about a AOL-Yahoo merger. “Not from a personal point of view,
but I think from a client point of view it creates a third force.”
It
has been six years since AOL was spun off from Time Warner to be reborn
as a network to sell ads on its own websites, including Huffington
Post, TechCrunch, Engadget, and digital properties owned by third
parties.
Asked if he could achieve his
2020 goals and take AOL into a new growth phase without mergers and
acquisitions, Armstrong said: “I think we will have to continue both
organically and inorganically to add audience, so it’s likely that we
will do a lot more building and investing ourselves. I don’t know what
size deals those will be but we really want to focus on the two billion number for consumers.”
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