@ AlwaysOn: Despite Economic, Display Woes, Social Media Provides A Rationale For Ad Net M&As

By David Kaplan - Wed 04 Feb 2009 07:54 AM PST

After reminiscing about the frenzy of ad network deals in 2006 to 2007, how do things look now? Speaking on a panel at day two of the AlwaysOn NYC media conference, moderator Jay Rand, partner Manatt, Phelps & Phillps, noted that it used to be “ad networks were the bomb.” And now, some appear to be bombing as display prices continue to shrink.

Lance Maerov, SVP, corporate development for WPP Group, said that he expects this is a time when the clear winners and losers will be settled. The winners will tend to fall into distinct vertical niches, added Steve Fletcher, managing director at GCA Savvian. Taking a different view, Paul Kwan, managing director at Morgan Stanley, said the real difference as display tanks, said that the focus of ad networks is showing a different shift. Those who can serve the buy side—through offering analytics and related tools—will find real success.

More after the jump.

—Thinking of starting an ad net today?: Jay MacDonald, partner DeSilva + Phillips, said that a few years ago, all you needed to start an ad network was some relationships with advertisers and technology. That’s not the case anymore. “Are you solving a problem or are you doing something better? If someone can do better targeting, that’s the foundation of a viable business,” said Michael Montgomery, president, Montgomery & Co.

—It’s a big world: It’ll be a long time until the IPO market comes back as well. But in terms of acquisitions, there will still be a lot of activity in other parts of the globe. Kwan: The best option would be to situate yourself as the object of a bidding war between Google (NSDQ: GOOG) and Microsoft (NSDQ: MSFT). But we’re not back to those days yet. We look at the IPO market and it’s tough. To compare, in 2007, we did 22 IPOs; last year, we did one. Still, comparatively, our market share in that space was up. Fletcher: There are other buyers outside the US and we should look to other countries as potential acquires of ad networks.

—What would Yahoo (NSDQ: YHOO) do?: Yahoo just said that it’s not going to serve ads to RSS feed. Does that mean that business is a dead end. The panelists’ general response was “hardly.” Maerov: Trying to understand Yahoo in this environment is a little like trying to understand the Kremlin in the middle of the Cold War. Montgomery: I wouldn’t judge this business by what Yahoo does.

—Social media will drive M&A: There’s so much inventory out there on social networking sites, Maerov noted, someone has to come along and solve it. The companies that provide that answer, also provide the rationale for continued M&A activity. Still, as Rand asked, and then answered, when will more M&A deals happen? Like a fan whose team failed again, there’s always next year. Lead gen is another category that is ripe for acquisitions, as companies that can help drive more customers quickly are seen as more valuable—despite the disrepute lead gen had after a number of high profile cases of fraudulent marketing accusations.

—The early days: On WPP’s $25 million investment in analytics firm Omniture last week, Maerov said that the stake plays to where the ad industry is headed and represents the kind of deals it will pursue. Namely, companies that complement existing services—such as those offered by 24/7 Real Media, which it bought in May 2007 for $649 million: How many people click on a banner ad? It’s about 30 percent. We’re still in the early days, and all media will be primarily on a digital platform in the future. Companies like ours need to understand why advertising online is working and why it’s not. And that desire to understand that aspect of marketing will drive purchase decisions.

Posted in: Advertising, Marketing, VC+M&A, Mergers & Acquisitions, Conferences