Blog

Verizon, the largest wireless provider in the country, announced Tuesday that it will buy AOL for $4.4 billion.

Although many consumers still think of AOL as an early-era Internet service provider that continuously sent free trial CDs in the mail, the mass media corporation has made big gains in mobile video and advertising technology. By acquiring AOL, Verizon will be able to buy the content and advertising consumers view when they use the company's cable, Internet and cell phone services.

"Verizon will buy AOL for $4.4 billion."

"AOL's technology suite could prove to be valuable for Verizon for monetizing its subscriber base," Cantor Fitzgerald analyst Youssef Squali wrote in a research note that was delivered to clients and press on Tuesday.

How does buying AOL help Verizon?

Since there are many companies that are now offering cell phone services at cheap prices, Verizon has to do something to stay relevant in the industry. By adding AOL's technology to its wireless connections and cable business, the telecommunication company can make billions of dollars in revenue just by selling ads against streaming video.

"They know that mobile is where it's at if you want to get millennials," Kathryn Winsted, a professor at Pace University's Lubin School of Business in New York told The New York Times. "They may sell ads, they may sell subscription content, but they need to figure out this market."

Buying AOL does more for Verizon than just acquire new advertising technology. The wireless operator also gets an opportunity to take over a company that has had difficulties in recent years. Even though AOL still operates a dated dial-up Internet business, it runs several news websites, including Huffington Post and Patch, that are viewed by many consumers.

Verizon can make more money from its existing customers by offering bundles of content and selling ads. To view the content and ads, consumers will have to use more data. However, it is yet to be determined if buying AOL will give Verizon an edge over its competition.

Jonathan Miller, the chief executive of AOL from 2002 to 2006, told The New York Times that acquiring AOL isn't enough to put Verizon ahead of other media companies.

"If you're really going to compete with Google and Facebook on ad sales, you have a lot of investment to make. You have to put money behind this," he explained.