Verizon’s AOL Deal Could Lead to New Privacy Problems

AOL’s advertising technologies could help Verizon better track users across devices.

National Journal
Brendan Sasso
Add to Briefcase
Brendan Sasso
May 12, 2015, 9:52 a.m.

Ve­r­i­zon’s $4.4 bil­lion pur­chase of AOL isn’t really about ob­tain­ing The Huff­ing­ton Post or AOL’s 2.2 mil­lion dial-up sub­scribers. It’s about ad­vert­ising.

In­dustry ana­lysts think the com­pany’s goal is to use AOL’s tech­no­logy to de­liv­er more finely tar­geted video ads.

That fits with AOL’s re­cent dir­ec­tion un­der CEO Tim Arm­strong, who pre­vi­ously led Google’s sales unit. Arm­strong, who Ve­r­i­zon said it plans to keep as the head of AOL, has in­ves­ted heav­ily in ad­vert­ising, in­clud­ing pay­ing $405 mil­lion in 2013 for Adap.tv, which con­nects buy­ers and sellers of video ads.

“We can en­vi­sion a scen­ario in which Ve­r­i­zon lever­ages AOL’s ad-tech plat­form to tar­get con­sumers and meas­ure their en­gage­ment across tra­di­tion­al and di­git­al video, and meas­ure and de­liv­er in­ter­ac­tion across its mul­tiple devices, plat­forms, and prop­er­ties,” Craig Mof­fett, a tele­com-in­dustry ana­lyst, wrote in a note to in­vestors.

He said the deal “speaks to a pos­sible sea change” in the wire­less in­dustry. Skyrock­et­ing data us­age has not trans­lated in­to much rising rev­en­ue for the cel­lu­lar car­ri­ers, Mof­fett wrote.

Ve­r­i­zon, he pre­dicted, may be bet­ting that the real money will be in de­liv­er­ing ad­vert­ising to its wire­less users. That strategy would likely tie in­to Ve­r­i­zon’s plans to launch its own on­line-video ser­vice in the com­ing months that will fo­cus on mo­bile devices.

But pri­vacy ad­voc­ates are nervous about Ve­r­i­zon’s ef­forts to gath­er more de­tailed per­son­al in­form­a­tion about its users for ad­vert­ising.

“Wheth­er or not the com­bin­a­tion of a ma­jor on­line ad­vert­iser with the largest mo­bile-ser­vices pro­vider raises sub­stan­tial an­ti­trust con­cerns, it raises ex­tremely sub­stan­tial and ur­gent pri­vacy con­cerns,” said Har­old Feld, the seni­or vice pres­id­ent of Pub­lic Know­ledge, a con­sumer-ad­vocacy group. “Ve­r­i­zon has already shown an alarm­ing tend­ency to har­vest private in­form­a­tion from sub­scribers to bol­ster its for­ay in­to on­line ad­vert­ising.”

Feld said the deal shows that the Fed­er­al Com­mu­nic­a­tions Com­mis­sion needs to en­act new pri­vacy reg­u­la­tions on In­ter­net pro­viders like Ve­r­i­zon.

“With this ac­quis­i­tion, Ve­r­i­zon ap­pears to be tear­ing down the wall between tele­com­mu­nic­a­tions and per­son­al­ized ad­vert­ising,” said Jonath­an May­er, a com­puter re­search­er at Stan­ford Uni­versity. “The FCC might have something to say about that.”

May­er ar­gued that tele­com com­pan­ies like Ve­r­i­zon are “in a priv­ileged and trus­ted po­s­i­tion” be­cause they have such sweep­ing ac­cess to sens­it­ive in­form­a­tion flow­ing over their net­works, and it’s of­ten dif­fi­cult for con­sumers to switch to com­pet­it­ors. 

Jeff Chester, the ex­ec­ut­ive dir­ect­or of the Cen­ter for Di­git­al Demo­cracy, warned that there are “dis­turb­ing pri­vacy is­sues here as Ve­r­i­zon in­teg­rates its massive cus­tom­er data­base in­to AOL’s cut­ting-edge di­git­al data-tar­get­ing sys­tem.”

Ve­r­i­zon already ran in­to a pri­vacy con­tro­versy last year by us­ing a kind of track­ing code that was im­possible to de­lete. After fa­cing cri­ti­cism from pri­vacy ad­voc­ates and law­makers, in­clud­ing Sen. Bill Nel­son, a Flor­ida Demo­crat, Ve­r­i­zon said it would al­low users to opt out of the so-called “su­per­cook­ies.”

Ve­r­i­zon de­clined to com­ment Tues­day on the cri­ti­cism from pri­vacy ad­voc­ates.

In an­noun­cing the deal, Ve­r­i­zon CEO Low­ell McAdam said he wants to provide video and ad­vert­ising across plat­forms like tele­vi­sions, com­puter screens, and smart­phones. “AOL’s ad­vert­ising mod­el aligns with this ap­proach, and the ad­vert­ising plat­form provides a key tool for us to de­vel­op fu­ture rev­en­ue streams,” he said.

Mean­while, Ve­r­i­zon doesn’t seem to have much in­terest in AOL’s web­sites. Tech-news site Re/Code re­por­ted Tues­day that Ve­r­i­zon is look­ing to sell off The Huff­ing­ton Post.

Ve­r­i­zon may be hes­it­ant to get back in­to the news busi­ness after it be­came em­broiled in a con­tro­versy last year when it tried to start a tech-news site called “Sug­arString.” The com­pany faced charges of cen­sor­ship be­cause at least one em­ploy­ee re­portedly said con­tro­ver­sial top­ics like net-neut­ral­ity and gov­ern­ment sur­veil­lance were off-lim­its for the news site. Ve­r­i­zon shut down Sug­arString not long after it launched.

The AOL deal will still have to win ap­prov­al from either the Fed­er­al Trade Com­mis­sion or the Justice De­part­ment. The Justice De­part­ment has tra­di­tion­ally handled ma­jor tele­com mer­gers, in­clud­ing Com­cast’s failed bid for Time Warner Cable, but the FTC of­ten fo­cuses on deals in­volving on­line com­pan­ies. The re­view will fo­cus on com­pet­i­tion, not pri­vacy is­sues.

The FCC will not in­vest­ig­ate the deal be­cause it won’t in­volve the trans­fer of any FCC li­censes, the agency con­firmed.

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