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It would seem that Verizon’s recently announced purchase of Yahoo’s internet business, which includes Tumblr and Flickr, is part of the telecom’s desire to capture more revenue from the mobile ad market.

In the Washington Post, AOL’s head Tim Armstrong is quoted as saying, “Combining Verizon, AOL and Yahoo will create a new powerful competitive rival in mobile media, and an open, scaled alternative offering for advertisers and publishers.”

Indeed, on recode Armstrong was quoted as saying that in global media today, “scale is imperative.” Similarly, Vox wrote, in a long article explaining the purchase, “In recent years, scale has become increasingly important in the online advertising business. Advertisers prefer to make a few big ad deals rather than many small ones, and larger media companies are often able to command premium prices. With Yahoo and AOL under one roof, Verizon will be able to integrate their ad sales teams and offer advertisers packages that include media brands from both companies.”

What kind of scale are we talking about?

The scale we’re talking about is the kind that may, eventually, be able to compete with Facebook and Google.

Business Insider pointed out that, “Most of the web’s referral traffic runs through these platforms, and a plurality of the ad dollars runs through [them].”

To get a sense of the “plurality” of dollars that we’re talking about, this year Google is on track to earn $57.8 billion in ad revenue, while Facebook will collect close to $22.4 billion. Yahoo, on the other hand, is looking at a measly $2.83 billion (slightly less than Microsoft and slightly more than Twitter), while Verizon (thanks to AOL and Millenial Media) will pull down $1.39 billion.

So, yes, this deal means that Verizon more than doubles that figure. Lowell C. McAdam, Verizon’s chairman and chief executive, is fine with that, saying in a statement, “The acquisition of Yahoo will put Verizon in a highly competitive position as a top global mobile media company and help accelerate our revenue stream in digital advertising.”

That being said, even $4.2 billion is a far cry from $57 billion.

Could there be something else at play?

Possibly. At the time of Verizon’s acquisition of AOL last year, Matty Iglesias wrote this on Vox:

The answer to the riddle probably lies in something the press releases didn’t really deal with: AOL’s growing ad tech business, which lets advertisers automate ad buying and distribution.

If Verizon could integrate really good mobile ad targeting technology with its wireless infrastructure, it could conceivably gain a huge leg up on the competition. In effect, Verizon would derive more revenue from a Verizon subscriber than AT&T draws from an AT&T subscriber. That would let Verizon undercut rivals on price and create a flywheel where the growing size of Verizon’s customer base increases the value of its ad platform, which makes it economical to drive further aggressive expansion of the mobile business.

An interesting thought to be sure, and it may apply to the current purchase, especially given Yahoo’s purchase back in 2015 of BrightRoll, a programmatic video advertising platform. Of course, BrightRoll has had its own woes when it was reported that Yahoo’s ad business, which relies on this platform, was rife with fraud.

Bargain shopping?

Verizon is a very big company: more than twice the size of Google and close to eight times the size of Facebook. It’s main game, obviously, is telecommunications, not ad revenue.

Many users of Google and Facebook access these platforms through devices running on Verizon’s networks. By acquiring more ad technology, along with some content properties, on the cheap (Yahoo was valued at $100 billion, once upon a time), Verizon may be undertaking a kind of horizontal integration that will allow it to make more money off the content that it serves up to its customers.

What do you think?

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