'The industry is looking for alternatives to the duopoly': Here are the potential winners and losers if AT&T buys AppNexus (T, FB, GOOG)

Brian Lesser

AT&T is in talks to buy digital ad firm AppNexus, Cheddar reported.
That likely signals that the company's plans to challenge advertising titans Google and Facebook.
There's sure to be winners and losers if a deal goes through.

Just a week after AT&T won a landmark ruling allowing its merger with Time Warner to continue without conditions, it appears its acquisition plans aren't slowing down anytime soon.

The company is in talks to buy digital ad firm AppNexus, Cheddar reported on Tuesday, likely signaling the company's plans to challenge advertising titans Google and Facebook.

During an interview with CNBC at Cannes Lions, the advertising industry's biggest annual festival, Brian Lesser, CEO of AT&T advertising and analytics, declined to comment on an AppNexus acquisition but didn't downplay AT&T's acquisition ambitions. According to the Wall Street Journal, the acquisition could cost around $1.6 billion.

"We need more tech," Lesser told CNBC's Andrew Ross Sorkin. "We have a big opportunity in front of us and we’re going to build what is today a $2 billion advertising business into something that is more significant, so of course you would expect us to look at every opportunity to accelerate our time to market."

AT&T declined to comment for this article and AppNexus did not respond to a press inquiry.

Given Lesser's background, the move isn't exactly shocking. Before joining AT&T, Lesser built out the programmatic business at WPP and was an instrumental player in the holding company's partnership with AppNexus. Lesser also formerly sat on AppNexus' board.

"Since AT&T hired Brian Lesser, it’s been somewhat of an open secret that AT&T would acquire AppNexus to accelerate its advertising ambitions given the close partnership he had with the company in his prior roles at WPP," said DataXu CEO Mike Baker. "AppNexus would provide AT&T with a lot [of] ad-tech expertise and scaled global technology."

In terms of both technology and content, an AT&T-AppNexus deal could give the telecom giant a run at stealing money from Facebook and Google while also pulling some budgets from television, said Mark Douglas, CEO of ad-tech agency SteelHouse.

That said, there's sure to be winners and losers in the deal. Here's which companies stand to gain and lose the most.

Winners

AT&T

"This is a big deal from a digital ads perspective," Eric Franchi, an ad tech venture capitalist, told Business Insider. If a deal were to go through "it would be transformative—it would be an incredible jump in the market in a short time."

AT&T would gain a relatively large digital ads business. And this base of tech assets would allow it to be more competitive with Verizon.

Facebook and Google

Amazon and Snap have both made a push to try and take some of Facebook and Google's ad dollars but neither have been successful at moving marketers significantly away from the duopoly. AT&T might have an opportunity at hand to do the same.

But this is going to be no easy feat. Unsurprisingly, the duopoly's grip on digital advertising will be a tough challenge for AT&T since the two companies collectively control 56.8% of digital ad budgets in the U.S., according to research firm eMarketer.

Marketers

AT&T could be another big option to consider when marketers split up their ad budgets, something that this deal would provide them with.

"The industry is looking for alternatives to the duopoly," Franchi said. "Marketers want choices."

Losers

Oath

Verizon’s portfolio of its telecom data, AOL and Yahoo has been trying to make similar moves to AT&T over the past couple of years. Marrying up all of the company’s assets has been a challenge though, marketers say.

“Verizon went on a tear to acquire a lot of content but there’s a lot to do and integrating this type of tech is not easy” said Scott Gifis, president of AdRoll.

Indeed the amount of work involved in synching up legacy platforms is difficult and while Oath CEO Tim Armstrong likely believes that that work is well under way, “from an outside perspective, it doesn’t seem to be moving very quickly,” Gifis said.

SteelHouse’s Douglas added that AT&T’s content push is significantly different from Verizon. “Verizon has not set down to this table yet,” he said. “They have mobile and digital content but TV content is just another category.”

Facebook and Google, again

Like almost everything involving the complex advertising worlds of Google and Facebook, both companies stand to win and lose in AT&T's potential deal.

Despite all the talk about marketers' dislike of so-called walled gardens that limit the amount of data that marketers are able to extrapolate from, AT&T's ad business could also resemble a walled garden since they will own the content themselves.

Taking on the responsibility of being a media owner is something both Facebook and Google have shied away from, instead calling themselves technology companies.

"In my mind, they're publishers because they're delivering content and have control over content," Robin O'Neill, managing director of digital trading at WPP-owned GroupM UK told Business Insider recently.

If AT&T were to fully embrace the role of being a media owner along with having the sophisticated ad-tech pipes to power digital ads, "Google and Facebook will have a virtually impossible time competing in this area," Douglas said.

TV networks

It’s no surprise that television viewership continues to decline and every major network is scrambling to assemble their own tech stacks and new business models for digital, which increasingly includes rolling out programmatic buying that allows marketers to buy targeted ads.

AppNexus brings that back-end technology to AT&T but also a trove of premium content from HBO and Turner's slate of properties like CNN, TBS and TNT.

"You see someone like AT&T essentially buying content—that's a smart move," said SteelHouse's Douglas.

In another potential situation, a source said that AppNexus could potentially be plugged into DirectTV Now and the company's apps, including an algorithm "to figure out whether a movie advertiser will pay more than other advertisers at a given moment" down the road.

In an interview with Business Insider at Cannes, Lesser said he wants AT&T to build the ad-tech infrastructure that could serve all the major TV networks and cable distributors (not unlike what Google has done with digital ads).

Snap and Pinterest

SteelHouse's Douglas added that part of Facebook and Google's success has been their slick, self-serve platforms that allow marketers of all sizes to purchase ads in real-time without having to deal directly with a sales rep. It's a model that Snap and Pinterest have tried to replicate, especially when it comes to winning over small businesses that don't have large marketing budgets, but ad revenue from Pinterest and Snap has not cut significantly into Facebook and Google. If AT&T were to successfully build out a self-serve platform, it could pose a threat to Snap and Pinterest, he said.

"It's basically hard in ad-tech to go over a billion dollars in advertising without having a self-serve platform," he said. "If you really want the multi-billion businesses, you need self-serve walled garden businesses wrapped around tens of millions of consumers—AT&T is essentially assembling that."

Nielsen

Nielsen ratings are as old as the TV industry, but that doesn’t mean the advertisement industry that relies on them is happy about it. There are frequent calls for alternatives to Nielsen, but none exist as of yet. If AT&T buys AppNexus, that may change.

"It's a steady move away from estimating audiences," SteelHouse's Douglas said. "AT&T has the targeting and digital content," so that marketers won't need to work with Nielsen.

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