Verizon acquiring AOL may seem like a combination of two legacy players, but its real value is very much rooted in the New IP. Verizon is spending $4.4 billion to acquire technology it says will help to monetize the major push it plans to make into OTT video and particularly Internet of Things applications.
As Verizon's John Stratton, executive vice president and president of operations, said on the company's investor call today: "There is an opportunity to seek new value streams and build on platforms. Two areas of investment and interest are obviously OTT video and IoT.”
Admitting it is "early stages" for this market, Stratton says Verizon will be doing things in IoT that look very much like what it is currently doing in OTT.
The New IP reached out to Verizon Communications Inc. (NYSE: VZ) for an interview, but they would not comment further on its OTT video and IOT service expansion plans. However, the powerful combination of IoT plus digital media and advertising could mean big bucks for Verizon. (See Verizon's $4.4B AOL Buy a Digital Media Play and Verizon's AOL Buy Completes Its Content Story.)
From energy and utilities to manufacturing to healthcare to transportation to smart cities, Verizon is already heavily embedded in the IoT market. And as Stratton noted above, monetizing the network is key for Verizon -- it's also one of the mantras of the New IP world alongside the distribution of digital media over multiple access networks in formats that fit different devices.
According to Verizon's recent State of the Market report "Internet of Things 2015," in 2014, the company "saw a 45% year-over-year revenue growth in our IoT business, with 4GLTE activations growing by 135%." In addition, Verizon manages more than 15 million IoT-enabled connections for a wide range of industries, noted the report.
Many analyst firms are predicting the Internet of Things market is on the verge of explosion. And an April 2015 report from BI Intelligence says it will be "the largest device market in the world," and predicts that by 2019 "it will be more than double the size of the smartphone, PC, tablet, connected car and wearable market combined," according to the firm. In addition, BI Intelligence says that IoT will result in $1.7 trillion on value added to the global economy in 2019.
The IoT Boom
Take BI Intelligence's information and put it together with AOL's advertising technology products and you can imagine the possible revenue growth chart.
Verizon has been talking about rolling out its video mobile service sometime later this year, noted John Byrne, senior principal analyst of Internet of Things for Infonetics Research, now part of IHS Inc., and plugging AOL's rich advertising platform in there first makes sense in terms of creating a more rich advertising environment. (See Verizon Digital Media Buys Custom Software From Disney and Verizon Scores New OTT Content Deals.)
Enabling that same rich advertising environment within IoT might be the next step, said Byrne. "I would say, they haven't quite figured out what they are going to do within IoT, they just know that there is a play for creating a more rich experience for advertisers."
As Sarah Kahn, an analyst at IBISWorld Inc., wrote today if approved by regulators, the Verizon-AOL deal is expected to trigger a race among other industry players to invest their capital and research on mobile video consumption and advertising. "The advertising and video race to consumers' pockets has begun."
— Elizabeth Miller Coyne, Editor, The New IP