Google is buying DoubleClick for more than $3 billion. Experian is buying Hitwise for more than $400 million. Hachette is buying Jumpstart Automotive Media for approximately $100 million. Yahoo is buying the 80% of Right Media that it doesn't already own for $680 million. Yahoo will also be the primary sales channel and ad-serving provider for Comcast.net. According to Dave Morgan, Chairman of TACODA, Inc., a behavioral targeting advertising network, companies making big bets on the internet now want to be acquirers in the industry, and not targets. There are probably 15 companies that want to buy into the piece of M&A action, from the search portals, to the major media and content companies, to the big ecommerce companies, to the major telecommunications infrastructure companies. Unfortunately, there are not 15 targets available today. According to The Monitor Group, about 92% of gross online ad spending in the US in 2006 was captured by just four companies (68% of net ad spend). While the number of potential targets might expand a bit over the next few years, it is probably unlikely that it will grow by more than one or two. That is why we are seeing big valuations for targets like DoubleClick, Right Media and the rest. In most cases, they are being bought for more than their potential cash flow. They are actually being bought for their strategic value in securing a top position in the market.
The Google/DoubleClick deal makes it clear that infrastructure matters. Technology-centric companies like Google and Microsoft can build lots of great technology to manage online display advertising in-house, but it's hard to match the value and capabilities of commercially driven, battle-hardened technology that's already been adopted by thousands of publishers and advertisers around the globe. With DoubleClick, Google instantly acquired market-leading infrastructure. Google didn't have to distract its existing engineering team from their other market-changing projects to focus on reinventing the wheel to create the company's own display ad infrastructure. With project Panama, Yahoo has just learned how hard and long the process is to build robust in-house ad technology. With 24/7 Real Media rumored to be on the block, the message is clear that basic ad serving infrastructure matters, and that there is a scarcity of suppliers.
Even before the announcement of the Yahoo/Right Media deal, the notion of online ad "exchanges" had already become hot around the industry. It has long been a dream of many that much of the human-driven, heavily negotiated and very opaque process of media buying and selling would give way to an automated, auction-driven and open and democratic market exchange. Therefore, Right Media and DoubleClick's recently announced exchanges were well received in the market, and have been pointed to as critical drivers in the strong valuations that these companies commanded. Their "exchange" stories helped drive the sales for these companies, but Yahoo and Google may not operate them as open and democratic exchanges. This is because; both Yahoo and Google derive 99% of their revenues from the sale of advertising. They bought the exchanges primarily because Right Media and DoubleClick can provide extraordinarily efficient platforms for scaling Yahoo and Google’s networks of third-party publishers. In addition, the targets provide highly efficient, self-service access to tens of thousands of small and medium-sized advertisers.
It is not about exchanges; it is about enabling dramatically more display ad network reach for Google and Yahoo. Right Media and DoubleClick platforms add tremendous efficiency to managing massive networks, and already have hundreds and thousands of pre-built relationships. This is the main driver for these deals. The Jumpstart deal is no different. Hachette is buying Jumpstart not just to operate a neutral exchange of automobile inventory. In fact, Hachette made the purchase to efficiently aggregate much more scale in the online automotive ad vertical on both the publisher and advertiser side. The deal enables Hachette to create a proprietary ad network.
News Corp bought SDC, an online ad and offer optimization service, and Hitwise was just bought by Experian because of the value of its data and analytics. Potentially, ad exchange platforms permit "off-site" behavioral targeting by portals with massive databases of audience behaviors and registration data. It will no longer be enough to have a platform, like Right Media for example, that can make it efficient for MySpace to sell, and advertisers to buy, incremental ad units for $0.07 CPM, as they do today. Without automated exchanges, these ad avails would be left empty since no one could justify the cost of serving for only $0.07 CPM, in addition to some friction cost. The next opportunity, and certainly why News Corp. bought SDC, is to use tools and data to turn that $0.07 CPM into $0.17 CPM, and then to $0.70 CPM through techniques like yield optimization or improved targeting.
Thanks Dave Morgan, Chairman TACODA, Inc. May 2007
The Google/DoubleClick deal makes it clear that infrastructure matters. Technology-centric companies like Google and Microsoft can build lots of great technology to manage online display advertising in-house, but it's hard to match the value and capabilities of commercially driven, battle-hardened technology that's already been adopted by thousands of publishers and advertisers around the globe. With DoubleClick, Google instantly acquired market-leading infrastructure. Google didn't have to distract its existing engineering team from their other market-changing projects to focus on reinventing the wheel to create the company's own display ad infrastructure. With project Panama, Yahoo has just learned how hard and long the process is to build robust in-house ad technology. With 24/7 Real Media rumored to be on the block, the message is clear that basic ad serving infrastructure matters, and that there is a scarcity of suppliers.
Even before the announcement of the Yahoo/Right Media deal, the notion of online ad "exchanges" had already become hot around the industry. It has long been a dream of many that much of the human-driven, heavily negotiated and very opaque process of media buying and selling would give way to an automated, auction-driven and open and democratic market exchange. Therefore, Right Media and DoubleClick's recently announced exchanges were well received in the market, and have been pointed to as critical drivers in the strong valuations that these companies commanded. Their "exchange" stories helped drive the sales for these companies, but Yahoo and Google may not operate them as open and democratic exchanges. This is because; both Yahoo and Google derive 99% of their revenues from the sale of advertising. They bought the exchanges primarily because Right Media and DoubleClick can provide extraordinarily efficient platforms for scaling Yahoo and Google’s networks of third-party publishers. In addition, the targets provide highly efficient, self-service access to tens of thousands of small and medium-sized advertisers.
It is not about exchanges; it is about enabling dramatically more display ad network reach for Google and Yahoo. Right Media and DoubleClick platforms add tremendous efficiency to managing massive networks, and already have hundreds and thousands of pre-built relationships. This is the main driver for these deals. The Jumpstart deal is no different. Hachette is buying Jumpstart not just to operate a neutral exchange of automobile inventory. In fact, Hachette made the purchase to efficiently aggregate much more scale in the online automotive ad vertical on both the publisher and advertiser side. The deal enables Hachette to create a proprietary ad network.
News Corp bought SDC, an online ad and offer optimization service, and Hitwise was just bought by Experian because of the value of its data and analytics. Potentially, ad exchange platforms permit "off-site" behavioral targeting by portals with massive databases of audience behaviors and registration data. It will no longer be enough to have a platform, like Right Media for example, that can make it efficient for MySpace to sell, and advertisers to buy, incremental ad units for $0.07 CPM, as they do today. Without automated exchanges, these ad avails would be left empty since no one could justify the cost of serving for only $0.07 CPM, in addition to some friction cost. The next opportunity, and certainly why News Corp. bought SDC, is to use tools and data to turn that $0.07 CPM into $0.17 CPM, and then to $0.70 CPM through techniques like yield optimization or improved targeting.
Thanks Dave Morgan, Chairman TACODA, Inc. May 2007
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