Verizon’s AOL Deal Could Lead to New Privacy Problems

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

National Journal
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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