IE 11 is not supported. For an optimal experience visit our site on another browser.

Like It's 1999: Why Verizon Bought AOL To Achieve Domination

Verizon already provides the cable and cell service that consumers use to get content. By buying AOL, Verizon buys the content and advertising too.
Image: Verizon
Verizon is giving its customers more control over the channels they pay for as the cacophony of cord cutting reshapes cable TV.Mel Evans / AP

For consumers, AOL and its "You've Got Mail" catchphrase may dredge up memories of the 1990s Web -- but for Verizon, the path into new businesses AOL offers is worth $4.4 billion.

Verizon announced early on Tuesday that it would acquire the company, and AOL CEO Tim Armstrong explained his rationale during a CNBC "Squawk Box" interview: "We've made AOL as big as it can possibly be in today's landscape. But if you look forward five years, you're going to be in a space where there are going to be massive, global-scale networks."

That consolidation is why Verizon bought AOL: to harness AOL's strengths in online advertising and mobile video, and transform itself into one of those massive networks.

AOL's strengths in those sectors "are likely the key strategic rationale for the acquisition," Cantor Fitzgerald analyst Youssef Squali said in a research note sent to clients and press on Tuesday morning.

Though consumers may think of AOL as an aging Internet portal, the company has focused on building strong technology in the hot ad and mobile spaces. It also owns blogs including The Huffington Post and TechCrunch.

In short: Verizon already provides the cable, Internet and cell service that consumers use to watch and read content. By buying AOL, Verizon buys the content itself and the advertising too.

"AOL's technology suite could prove to be valuable for Verizon for monetizing its subscriber base," Squali wrote, adding that Verizon has already expressed interest in launching mobile video content for its wireless customers and could add to the catalog of content on its fiber-optic FiOS cable service.

It's in Verizon's interest to expand to new types of businesses, as its bread-and-butter industry continues to become more competitive. A bevy of startups, along with T-Mobile, have been trying to undercut cell phone service costs, and all of the major players have been forced to offer new types of packages to entice and retain customers.

'I can't believe you still use AOL Mail'

Advertising and content delivery aren't the sexiest topics for consumers, many of whom are scratching their heads at AOL making headlines again.

But they don't see the sectors AOL has been working to beef up on the business-focused side, Regina Lewis, a former "consumer advisor" at AOL who worked at the company for 13 years, told NBC News in an interview.

"People can focus on the legacy stuff and say, 'I can't believe you still use AOL Mail' or 'I can't believe their homepage looks like that,'" Lewis said. "They can make fun of it all they want, but it gives you cover to build up your programmatic advertising and do it very well."

But AOL Mail diehards -- of which there are millions -- likely need not fear the new Verizon overlords.

"I'm guessing here of course, but AOL Mail is the longtime face of customer products for AOL," Lewis said. "I think they'll do right by those people."

Less lucky, depending on how one looks at it, may be the AOL-owned blogs. AOL itself has been busy closing or consolidating blogs including the video-game-focused Joystiq and the U.K.-based Parentdish. Verizon is likely more focused on AOL's technology offerings, and may not see a compelling reason to remain in the crowded online content space.

AOL itself has been in "advanced discussions" to sell off The Huffington Post, Re/code reported Tuesday (AOL denied the report a few hours later). And Verizon has already been burned in the blog space. Its ill-fated SugarString tech-blog experiment died after just weeks (following reports that the company wouldn't allow bloggers to cover topics related to net neutrality or the National Security Agency's surveillance program).

"This is just the first deal in what will be a sequence of deals," Lewis said. "Tim [Armstrong, the AOL CEO] already has a lot of connections as it is. And now your calling card is Verizon."