Verizon is buying AOL for $4.4 billion. The offer of $50 per share represents a premium of 17.4 percent on AOL's Monday close of $42.59. The deal has been rumored for months, but most people didn't believe it because it sounded so silly

That's because it is silly. 

The big rationale of the deal seems to be to put more ads -- especially video -- on your mobile devices. Either that, or Verizon wants to expand its presence in the dial-up Internet market, as that is still AOL's primary revenue stream. The market was unimpressed, as Verizon's share price has fallen $0.22 to $49.58 in early morning trading. 

I'll go into the details in a minute, but the bottom line is that this deal is in no-man's land. It is not a strategic match, and it does not have the scale to impact what Verizon is really going after -- Google's dominance in Internet and mobile advertising.

A real quick reminder: AOL was worth $226 billion shortly after its disastrous merger with Time Warner in 1999. It's now worth $4.4 billion. And to repeat: Its largest revenue stream is still dial-up Internet. Its Internet and advertising revenues are still pretty tiny.

The overall media business is dominated by two things: content and distribution (and the combination thereof). A perfect example is cable companies and the piles of money they make when they combine ownership of valuable media assets, such as sports licensing rights or hot programming, along with distribution across their networks.

Internet media is growing faster than traditional media, and the shift of platforms from broadcast and cable to over-the-top (OTT), mobile, and Internet has opened up distribution channels to more competition. This has been demonstrated by the value created by Netflix (Nasdaq: NFLX) by distributing content using Internet broadband. Netflix has also driven toward vertical integration by developing its own programming

So, the theory is that Verizon has this idea that by buying AOL, it hopes to integrate its mobile distribution network (more than 30 million mobile phone subscribers) with AOL's content and advertising technology and become more of a player in mobile Internet content and advertising.

Good luck! 

Buying AOL is an unimpressive solution. AOL does not have the Internet content scale, technology differentiation, or leverage to make a dent in Google's dominance. It's not going to work, and here's why:

Minimal technology leverage. What is Verizon's leverage in mobile devices? None. Apple and Google control the operating systems on mobile devices, with roughly 90% of the market between them. All Verizon does is sell the devices, which means zero leverage. It doesn't control the technology at all.

Me-too video ad technology. I saw a pundit on TV say this was about AOL's programmatic video ad technology. That's preposterous. There are dozens of video-ad technology companies. Yahoo recently bought one of the best, BrightRoll, for $640 million. So if Verizon were really interested in video ad technology, why wouldn't it buy a video ad technology company?

Wrong culture. This is Time Warner/AOL all over again -- on a smaller scale. Zero cultural fit. Verizon is a global telecom player. It's trying to jump into the content and advertising business, with much bigger players such as Google, Disney, Yahoo, and Viacom. Have you ever hung out with telecom executives? They are in the business of putting cables in the ground, not creating exciting content.

AOL's content and advertising share is negligible. AOL is a tiny content and advertising player. Google controls nearly $20 billion in online ad revenues. AOL controls about $1 billion. How will that give Verizon any scale to take on the giant?

This is about Verizon's paranoia about the threat of OTT Internet content and the threat of cable, more than anything else. If you think about it, it's being squeezed on both sides: Netflix and Google are squeezing it on content and advertising, and cable companies are squeezing it on the distribution side.

AOL CEO Tim Armstrong this morning defended his track record at AOL, which he refocused on Internet content by buying assets such as The Huffington Post and TechCrunch. 

"If you look at AOL over the last five years... we turned the company around," he said on CNBC this morning after the deal was announced. "We outperformed the S&P 500 for the last five years, and when you look at where we are today and where we're going, we've made AOL as big as it can possibly be in today's landscape."

Armstrong has probably gotten as far as he could refashioning AOL as an Internet content company bolted on to Steve Case's old dial-up business. He's done well for AOL shareholders in the last five years, which he should be commended for. 

Armstrong is a great salesman, as he has just made a deal to sell Verizon a company for $4.4 billion that will have minimal impact on its ability to compete on advertising and mobile video.

This entry was posted on Tuesday, May 12, 2015 at 14:21 pm and is filed under .
Keywords: Verizon, AOL, Google, Advertising, Mobile Video

The race to provide efficient and secure access to cloud apps continues. Google has approved Global Capacity as a Google Cloud Interconnect provider, expanding the number of operators that provide direct access to Google's cloud platform, which enables direct access to Google's infrastructure and apps. 

By directly connecting to Google's cloud network, service providers and businesses can get higher availability and lower latency connections to applications. Google's cloud platform includes applications such as Google Compute Engine, Google Cloud Storage, Google BigQuery, and others. Google hopes enterprises will extend their private networks into these apps using Carrier Interconnect and VPN tunnels between the networks. 

This entry was posted on Tuesday, March 17, 2015 at 13:58 pm and is filed under Infrastructure & SDN.
Keywords: Cloud Services, Google, Global Capacity, Carrier Interconnect

This week the Federal Reserve Bank of the United States met on interest-rate policy and decided it will be very careful about raising rates. You may ask what this has to do with what the Rayno Report covers -- big tech trends in networking and communications. The answer is that it's all connected. 

A growing theme in the global economy is how technology is affecting jobs. This is what I call the #robotmeme, the idea that technology is contributing to deflationary forces. This comes in two parts: 1) Better networking and connectivity throughout the world enables labor arbitrage (outsourcing); and 2) Automation decreases the total number of jobs.

Real wages have declined since the financial crisis of 2008-2009.

This entry was posted on Friday, January 30, 2015 at 17:36 pm and is filed under Investing.
Keywords: Automation, Google, #robotmeme, The Fed, Jobs

Washington D.C. -- Guess what: One of the pioneers and inventors of Ethernet technology, Bob Metcalfe, believes that Net Neutrality and the regulation of the Internet is a colossal mistake.

"Right now the FCC [Federal Communications Commission] is being asked by the White House to invade this party we are having here," said Metcalfe, speaking here at the Metro Ethernet Forum's (MEF) GEN14 conference. "They are playing with fire. They are inviting the government to come in and regulate the Internet."

Metcalfe likened the federal government's efforts, as well as those by Net Neutrality supporters such as Google and Yahoo, as a decision that that the Internet was "done."

This entry was posted on Tuesday, November 18, 2014 at 14:38 pm and is filed under .
Keywords: Net Neutrality, Google, Bob Metcalfe, FCC

Hunter Newby, the CEO of fiber company Allied Fiber, believes the policies of the Federal Reserve Bank of the United States are impeding investment in telecom infrastructure -- and it may be creating a crisis in the world of "dark fiber."

Dark fiber is the building block of networks. It's fiber cable that has been laid in the ground but not yet "lit" by being connected to networking equipment and services. Think of it as a digital Interstate system. Newby says that Fed's 0% rate policies have driven money into other asset classes and diverted money away from more challenging infrastructure projects, which have longer term benefits. He says we need a more aggressive national fiber infrastructure policy. 

His arguments make sense. Investment in infrastructure can have beneficial results. Recently the Rayno Report published research results showing that investment in gigabit broadband can boost GDP. I've also written here about the puzzle of the plummeting money velocity: Since the Fed has implemented 0% interest rates and injected $4 trillion into the banking system, money velocity has collapsed. See the chart below from the St. Louis Fed, for proof.

This entry was posted on Thursday, September 25, 2014 at 13:58 pm and is filed under Infrastructure & SDN.
Keywords: Dark Fiber, Google, The Fed, Hunter Newby, Allied Fiber

Amazon (AMZN) has announced it is buying Twitch, a live video platform for gamers, for a mere $1B in cash, beating out Google (GOOG) in a bid for the company. 

Twitch is a fascinating story in itself. Originally known as justin.tv, which was founded in 2007, it was part of a crop of video-sharing platforms carving out a niche after YouTube achieved the leadership position.Twitch emerged as the more popular site focused on gaming content and the company rebranded itself as Twitch, as the Justin.tv population was migrated there. Justin.tv was actually shut down on August 4th of this year. 

This entry was posted on Tuesday, August 26, 2014 at 14:49 pm and is filed under .
Keywords: Amazon, Google, Video, User-generated Content, M&A

Remember how Google was the company would make money without being evil? Google's WiFi snooping may well be the biggest black mark on Google's aspirations of non-evilness.

This week, the Supreme Court declined to throw out Google's appeal that it broke the law by snooping unsecured data from private WiFi networks as its cars crawled the streets snapping pictures of everybody's homes. A federal appeals court ruled in 2013 that the U.S. Wiretap Act protects the privacy of information on unencrypted in-home Wi-Fi networks. Google is facing class-action lawsuits on the matter.

This entry was posted on Tuesday, July 01, 2014 at 14:05 pm and is filed under .
Keywords: WiFi, Google, Evil, Supreme Court

Another locally driven gigabit (Gbit/s) broadband Ethernet installation shows the growing thirst for big bandwidth in business communities across America.

Service provider Comporium and equipment provider ADTRAN this week are the latest to announce that they are partnering to rollout a gigabit Ethernet service that will serve 300 businesses the community of Rock Hill, South Carolina. The town, like many in Middle America, is looking to drive high-quality jobs by creating a tech-savvy district known as Knowledge Park.

This entry was posted on Friday, May 30, 2014 at 18:34 pm and is filed under .
Keywords: Gigabit broadband, Google, AT&T, ADTRAN, Comporium, Fiber, PON

You may already know this, but Netflix (NFLX) and Google's YouTube are eating all the Internet bandwidth. That's the conclusion in the latest Global Internet Phenomena Report from Canadian networking technology company Sandvine.

"Real-Time Entertainment" -- or streaming video and music -- continues to be the largest traffic category on "virtually every network" that Sandvine examined. It continues to grow and become a largest portion of bandwidth, including mobile networks. Real-Time Entertainment is responsible for over 68% of downstream bytes during peak period, compared to 65% six months ago, according to the report. Another growing area is "home roaming," or WiFi offloading, with 20% of traffic on fixed broadband being generated by a smartphone or tablet. Rich Communications Services, such as WhatsApp, are yet another growth areas.

This entry was posted on Wednesday, May 14, 2014 at 13:10 pm and is filed under Infrastructure & SDN, Digital Media, Investing.
Keywords: Netflix, Google, YouTube, Broadband, Streaming, Sandvine, Internet

Today AT&T announced it is in "advanced discussions" with the North Carolina Next Generation Network (NCNGN) to bring gigabit-speed fiber connections to communities in that state, potentially accelerating the race to deliver gigabit fiber broadband services to residential communities. 

AT&T said the proposal would bring fiber deployments in the areas of Carrboro, Cary, Chapel Hill, Durham, Raleigh and Winston-Salem in North Carolina, delivering speeds of up to 1 gigabit per second, packaged with AT&T's U-verse integrated voice, video, and data service. 

The move shows that incumbent telecoms aren't going to shy away from competing with Google, which has rolled out gigabit fiber in several communities including Kansas City, Provo, Utah, and Austin, Texas. Silicon Valley. In February, Google announced plans to invite nine more U.S. cities to work with Google on expansion

This entry was posted on Thursday, April 10, 2014 at 21:52 pm and is filed under Infrastructure & SDN, Investing.
Keywords: Gigabit Fiber, AT&T, Google, Adtran, Calix