BREAKING NEWS; Merger..AOL + Yahoo to Take on Facebook + Google's 'Duopoly on Digital Advertising

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.”