Online Ad Industry Dealmakers Busy Despite Dull Economy

Despite a weakening U.S. economy during the past year, the level of investment deals and acquisitions involving companies in the online advertising world have remained healthy, says a new report by ContentNext Media.

The "Online Advertising Deals Report" focuses on activity between the second quarter of 2007 and the second quarter of 2008. During the period, there were 160 venture capital investments in the industry, according to the report. Most but not all of those -- 137 -- revealed financial information; disclosed investments added up to more than $1.9 billion.

ContentNext estimates the overall investment in online ad companies during the period -- including the investments where money wasn't revealed -- totaled more than $2.1 billion with the average investment coming in at about $14 million.

In a quarter-to-quarter comparison, ContentNext says that, while the number of investments in online advertising companies declined slightly, the money involved increased by about $100 million, going from $300 million during Q2 of 2007 to $400 million during Q2 of 2008.

The researchers said 100 acquisitions took place during the period. Financial details were revealed for only 46, but ContentNext estimates the value of both disclosed and non-disclosed acquisitions to be $20.5 billion. It noted that 16 acquisitions occurred during Q2 of 2007 while there were 26 in the second quarter of this year.

In both investments and acquisitions, there were some mammoth deals during the past year, notes the report. It cited Federated Media and Glam Media raising at least $50 million in investment money.

Then, notes the report, there was the Big Kahuna of acquisitions: Google's April 2007 purchase of Doubleclick for $33 billion, a deal that made even the $6 billion acquisition by Microsoft of aQuantive and Yahoo's acquisition of Right Media for $680 million seem small.

The Google/Doubleclick deal could be seen as proof that, as Kent State University Practitioner-in-Residence Lauren Rich Fine writes in the report, "ad networks are all the rage."

Fine added that while most ad networks are "only as good as the inventory" they can amass and rarely have exclusive rights to Web sites, "they are extraordinarily powerful as a way to monetize more pageviews and allow larger marketers to put more meaningful dollars to work."

Indeed, ad networks were the most active sector for both investments and acquisitions. ContentNext found 78 ad network company investments and 44 ad network acquisitions during the period.

It said service companies [defined by ContentNext as third-party companies offering advertising and/or marketing solutions online, such as Greenfield Online] were the next most active segment, with 33 investments and 39 acquisitions. They were followed by technology companies such as Ripple Networks, businesses that are creating online ad solutions including platforms, marketplaces and new algorithms. ContentNext found 27 investments and five acquisitions involving technology companies.

Google might have topped the list in terms of money spent, but it was AOL that compiled the most acquisitions during the period, says the report. AOL engaged in eight transactions, followed by Aegis Group with six, Microsoft with five, Google with three and Meredith Corp., also with three.

Draper Fisher Jurvetson led in terms of the amount of investment in the industry. ContentNext said the firm was involved in five rounds of investment. Second on the list was Mayfield China with four rounds, according to the report.

ContentNext Network Editor and Publisher Rafat Ali said the huge Google/Doubleclick deal might skew any analysis based purely on deal dollars. He said he found it more educational to look at the less flamboyant activity.

"The point is not necessarily the full total values of deals," said Ali. "What's more interesting are the small mid-level deals. For me, the more interesting activity is on the venture capital side where innovation is happening."

One place investment money did not seem to be going was search advertising, according to the report.

"Surprisingly, pure search advertising plays are limited, while more entrepreneurial investment is going into emerging categories such as social media, video and behavioral," it says.

Ali believes Google's dominance of the search sector is the likely explanation. "It does show the concentration of power in terms of Google," he said. "Because of Google's dominance, startups are worried about starting anything in search advertising and trying to take on Google."