Verizon's (NYSE:VZ) Oath, the company it created by merging AOL and Yahoo's internet properties, recently updated its privacy policies with a big change -- it will now scan AOL and Yahoo emails so that it can know more about you and thus better target ads to you. The updated policy allows Oath to store and analyze "all communications content, including email content from incoming and outgoing mail," which will allow it to "deliver, personalize and develop relevant features, content, advertising and services."
The move isn't surprising, since Verizon bought AOL and Yahoo to expand into internet advertising, but it comes at a time when consumers are becoming increasingly suspicious of targeted ad platforms, most recently being up in arms about people using data from Facebook to figure out what drives them to action.
Understanding Verizon's plan for Oath
Verizon launched Oath last year, and its portfolio consists of over 50 media and technology brands, including HuffPost, Yahoo Sports, AOL.com, and TechCrunch. That ecosystem generated $2.2 billion in revenues last quarter -- representing 10% sequential growth from the third quarter.
Oath accounts for just over 6% of Verizon's total revenues, but the telco believes that its growth could eventually offset the slower growth of its core wireless and wireline businesses. Verizon hasn't fully integrated Oath into its other businesses yet, but online video is a big part of that push.
Verizon plans to launch its own OTT (over-the-top) platform later this year to counter streaming services like AT&T's DirecTV Now. Oath is currently integrating its ad placement system, which is currently used in its network of websites, into that platform. Therefore, Verizon's ultimate goal is to create an advertising ecosystem that straddles its websites, apps, and streaming service. And the key to making money from ads is being able to show advertisers that you can get their ads to people who will buy what they're selling. The more you know about a person, the more you know how to sell to them.
Last year, President Donald Trump signed a resolution that allowed internet service providers (ISPs) like Verizon to share their users' browsing data without their explicit permission. That move gave ISPs a huge potential advantage against web service providers like Facebook (NASDAQ:FB) and Alphabet's (NASDAQ:GOOG) (NASDAQ:GOOGL) Google. Whereas Facebook and Google mined users' data if they stayed within their ecosystems, ISPs could mine all the data that flowed through their "pipes."
This meant ISPs could monetize their customers' data for targeted ads -- if they had a decent ad delivery platform. That's why Verizon bought AOL, took over Microsoft's ad sales business (via AOL), and acquired Yahoo's internet business. By merging those ad platforms with the browsing data of its users, Verizon could potentially challenge Facebook and Google's duopoly in internet ads.
Will privacy advocates take note?
Verizon's plan is alarming, but it isn't making big headlines like Facebook's Cambridge Analytica data breach or Google's recent loss of its landmark "right to be forgotten" case in the U.K.
That's likely because Oath generates lower ad revenues than Facebook and Google, and it still isn't considered a "dominant" data miner or creator of targeted ads. Instead, properties like AOL and Yahoo are often considered relics of the 1990s. Yet the Oath ecosystem still reaches over a billion users per month, and Verizon's ISP network offers advertisers a direct line to consumers.
Verizon shouldn't be surprised if its decision to scan emails attracts the ire of privacy advocates. Google previously scanned Gmail accounts, but it halted the controversial practice last year. Facebook -- which is under fire for scanning Messenger and SMS messages -- might need to follow Google's example.
Scanning AOL and Yahoo emails also raises serious security concerns, since both platforms were hit by severe data breaches in recent years. Yahoo's data breach in 2013, which affected 3 billion accounts, is considered the worst data breach in history. AOL and Yahoo both have fewer email users than Google's Gmail and Oath's decision to scan emails might finally convince the two platforms' remaining users to switch email services.
The bottom line
Oath's decision to mine data from AOL and Yahoo emails makes sense, but the unit's long-term business strategy remains fragmented and unclear. If Verizon aggressively leverages its position as a leading ISP to mine user data for advertisers, it could turn Oath into a major pillar of growth. But if it pushes too hard, it could spark a backlash that would cast an unflattering light on its advertising ambitions.