The State of the Online Advertising Market

The State of the Online Advertising Market

To try and make sense of the recent M&A frenzy in the online advertising market, I put together an overview of what the current landscape looks like (click on the image to enlarge):


One of the first things that stands out when looking at this overview are the battle lines that are currently being drawn between Google and Microsoft, both of which clearly intend to dominate the advertising market. With the assets they've been stockpiling recently, we can expect even more of a clash between these two giants over the next few years.

It's also interesting to note that the recent run of advertising acquisitions have almost all been for ad servers - DoubleClick, Atlas, RightMedia, Strategic Data Corp., and 24/7 Real Media. This may indicate that companies are looking to lock up as much inventory as possible, given that CPM rates are only expected to increase along with more demand and better optimization/targeting. Ad servers may also be a way to gain direct access to advertisers and their agency representatives.

Given how much startup activity there is in both of these spaces, I was surprised to see how little M&A activity there's been so far in the video and mobile advertising markets. It could be that most companies are choosing to simply build their own solutions, or in the case of mobile advertising perhaps perceive the market as still being too early (although I do feel we are fast approaching a tipping point with mobile advertising).

Looking at the gaps in the market, it's clear we can expect a lot more M&A activity in the online advertising space over the next few years. Who's next? Here's a list of some of the more likely candidates:

AdMob
Arguably the leading mobile advertising company today, having already served over 3 billion mobile ad impressions since being founded by Omar Hamoui in 2006. Almost every mobile app I talk to is buying inventory from these guys. Check out some of the early entries on Omar's blog to get an idea of how fast this company took off.

BlueLithium
Massively profitable online ad network serves over 10 billion ad impressions a month to over 100 million unique users. Able to deliver relevance through effective behavioral targeting and optimization technology. With ValueClick under investigation, BlueLithium has emerged as one of the leading remaining ad networks.

SpotRunner
SpotRunner is interesting in that it represents both a new agency model for smaller advertisers, as well as the potential to apply online advertising targeting and optimization techniques to an off-line medium such as cable TV. The company has already raised $50 million from Index Ventures, and corporate investors including Interpubic, WPP and CBS. Will they add to Index's recent successes with TellMe and Last.fm?

Tacoda
The leading behavioral targeting company in the market, reaching over 120 million unique users a month. In addition to the ability to deliver increased relevance, behavioral targeting also allows advertisers to spend much less to reach the same prospective customer, which may help to explain why this segment of online advertising is projected to have double digit growth for the next several years.

VideoEgg
With it's broad reach and 15 million + videos served each day, VideoEgg (a First Round company) is already one of the largest video-based ad networks in the market. Although video advertising is still in the very early stages, and online video ad spending remains a small fraction of overall online advertising revenue, the explosion in online video, as well as the opportunity to blend video's high brand engagement with the Internet's interactive, tracking and targeting capabilities is expected to drive 60%+ yearly growth in this segment for the next several years.