Since 1996, in the United States alone, Telcos (telecommunication companies) have invested $1.1 trillion to build their networks.
In the meantime, Google, Facebook, Amazon, and Netflix – the most notable among many others – have formed powerful and wealthy empires off the infrastructures that Telcos paid so much to build. If that could be overlooked (which hasn’t been the case), some of the services these tech pioneers have provided to the public have also taken a sizeable chunk of revenue away from the AT&Ts and Deutsche Telecoms that ruled the market. In response, Telcos have mobilized with a clear plan of attack.
Their strategy doesn’t require any analysis; it’s plainly evident in the major acquisitions that have dominated headlines this year and kept the American Department of Justice busy with antitrust proceedings. Here’s a list of some of the most noteworthy ones:
– AT&T acquires AppNexus (Ad Tech)
– AT&T merges with Time Warner (Media)
– Comcast battles with Disney to buy 21st Century Fox then turns attention to Sky (Media)
– Verizon rumoured to be looking at CBS and Viacom (Media)
– Verizon (who already owns AOL) acquires Yahoo (Ad Tech)
– Altice acquires Teads (Ad Tech)
– Singtel acquires Kontera, Adconian, and Amobee (Ad Tech)
– Telenor acquires Tapad (Ad Tech)
Telcos are simply acquiring major media and ad tech companies to cash in on the billions in revenue floating around on the networks they built and to take back what was originally all theirs – the internet.
There is a simple explanation as to why Telcos are now scrambling to buy strong players in the ad tech and media spaces.
After investing great sums to build their networks and infrastructures around the world to provide the public with mass internet, mobile, and other digital services, Telcos were seemingly content to sit back and see their earnings grow. Revenues naturally increased with the mass adoption of the internet. This boost then intensified with the popularization of the smartphone. Telcos sat on a goldmine with multiple services (telephone, mobile, internet, cable tv) that could be bundled to create firm grip on their consumer.
This resulted in complacency or inaction – depending on your point of view. The consequence of this lack of foresight was that Telcos failed to identify developing market and user trends. Innovators crept up behind them with business models that monetized services or content off the networks they invested nothing to build.
Companies like Google, Facebook, Amazon, and Netflix started making billions by serving ads, delivering content, or providing services within an infrastructure they never contributed to. To make matters worse, some of their services started even taking money directly out of Telcos’ pockets by using their own networks against them.
A lot of services and applications now available have removed the dependency a user once had on the fundamental services provided by a traditional telecom provider.
Facebook-owned WhatsApp is the prime example of an over the top application that has created a dent in Telcos’ market share while using their networks that cost trillions to build. Big minute- and message-laden contracts are no longer needed by the average user assuming they have an adequate data plan or have regular access to WIFI where they can exchange digital messages or recorded audio files.
On a separate note, Cable TV subscriptions which was a cornerstone of Telcos’ offer has now come under threat by streaming media providers like Netflix. With a reported 125 million average monthly users using the video streaming service in Q1 of 2018 and an impressive upward trend, there’s definitely a correlation with a high number of users cancelling their paid TV subscriptions with telecom providers.
The dots aren’t difficult to connect. It’s why AT&T has acquired Time Warner that comes with Warner Bros studios and Turner TV channels, Comcast’s pursuit of 21st Century Fox before moving for Sky, or Verizon’s interest in CBS and Viacom. Telcos are purchasing media assets to create streaming services to challenge Netflix and win their users back, along with the billions in revenue that comes with them.
The money on the table for digital advertising is already immense and still growing. In 2018, digital ad spend is estimated to reach $273 billion and represent 43.5% of total media investment for advertising. By 2020 this will grow to $357 billion and represent half of all media ad spend.
At the moment, Facebook and Google are taking the lion’s share of this revenue. They’ve created a duopoly and completely control the market. In 2017, Facebook reported $40 billion from advertising revenue. In the same year, Google reported $95 billion.
These ads are all served on the networks the Telcos paid for and built, yet they find themselves on the outside looking in within this lucrative and growing industry.
This is what has motivated the acquisitions of ad tech providers; to challenge the major players and take back some of the money being made on their networks. Rather than Telcos building their own platforms and going through the growing pains of developing a technology in an incredibly complex ecosystem, it’s more logical to acquire this IP (intellectual property) and the resources that come with it from providers with a solid footprint in the industry.
Considering the current state of the digital media landscape, acquiring both media and ad tech companies makes more sense for Telcos now than ever.
Streaming services like Netflix have become so valuable and popular because of the personalized experience they deliver.
Digital adveritising is so lucrative because of the potential to deliver super-targeted ads. Targeting allows advertisers to maximize their ROI (return of investment) because they can deliver ads to their target audience. Targeting also allows publishers to maximize the value of their inventory. Selling an ad space in an auction for an unknown user that could be male or female of any age with an undisclosed location does not offer an advertiser much incentive to bid on that space. But disclosing where the user is from, their gender, age, etc. could fit exactly who the advertiser is targeting for the product or service they’re selling.
Now the digital media industry is at a point where this ability it being throttled. The European Union’s introduction of GDPR (General Data Protection Regulation) is a prime example. Having to ask for consent, and then rely on users to provide this consent before being able to process their data for targeting purposes constrains the earning potential of digital advertising.
Yet Telcos are in a position of power. They don’t have this problem. They sit on a mountain of first-party data that trumps the type of data any competitor might have in the media or ad tech space.
Telcos know your age, where you live, and where you bank because you willingly give them this information when purchasing their services and signing a contract.
They also know where you go on a day to day basis because you use their cellular towers. The list of what they know and have access to goes on.
The opportunities to build ultra-personalized experiences with streaming apps or serve you ultra-targeted ads according to everything they know about you is endless. This is why they are acquiring media and ad tech companies; to take the internet back and all the money that comes with it.