Digital media, information & technology spotlight on digital data
In advertising and marketing data is fundamental. The mission is always to optimize spend by identifying and targeting those potential customers with the greatest propensity to purchase with the most effective message delivered through the most cost effective media. Advertising has always been about reaching “the right person at the right time with the right message”. Consumer behavior data is the essential ingredient to digital advertising and marketing. As consumers spend increasing time online, each of our digital presence and individual footprint produces increasingly valuable digital data. Every click we make is tracked and utilized as digital data to enable more targeted, personalized and effective digital advertising and marketing. The substantial growth in internet usage over the past 20 years has resulted in a rapidly growing and significant digital advertising market. In fact, in 2013 the digital advertising market grew 17% to nearly $43 billion, now the largest ad medium, eclipsing advertising on broadcast TV for the first time.
The rapid growth of mobile advertising is the story in the advertising world. Despite its complexities and relative immaturity the market grew 110% in 2013 from $3.5 billion to $7.1 billion while the rest of the digital advertising market increased by 8%.
One of the uniquely attractive attributes of the digital advertising market relates to the generation of trackable consumer behavior data and its real-time usability.
Cookies and Consumer Data
A cookie, also known as a web or browser cookie, is a small piece of data sent from a website and stored in an internet user’s web browser while the user is browsing that website. Every time the user loads the website, the browser sends the cookie back to the server to notify the website of the user’s previous activity. A tracking cookie takes the regular cookie process one step further and sends a log of one’s online activities, usually tied to an Internet Protocol (IP) address, to a remote database for analysis. Many tracking cookies use this information, along with the data of millions of other anonymous users, as essential consumer behavioral data to power more accurate and relevant advertising.
The consumer behavioral information gathered by tracking cookies from an advertiser or website owner is called first-party data. Both advertisers and website publishers collect first-party data from their direct relationships with customers and readers, respectively. Third-party data is gathered through “third party cookies” placed on individual browsers when users visit a website owned by a seller, advertiser or other first party that has provided permission to the “third-party” to place the cookie. Third-party cookies record non-personal information, such as when an internet user views an advertisement and clicks on an advertisement, where a user is located, how many advertisements the user has seen and browser or device information. Both first and third party tracking information can help website owners and advertisers reach the right consumer with the most relevant message at the right time.
Specialist digital advertising data and technology companies collect and aggregate the online behavior of millions of individual consumers across many websites from third-party tracking cookies. Ultimately, this information is utilized to create audiences or consumer segments with similar profiles (sports enthusiasts, frequent travelers, auto purchase intenders, and many others) and then sold to advertisers and their agents for ad targeting and to optimize the performance of a digital ad. Further, third-party data and ad tech companies use cookie data to help buyers of digital advertising decide whether to bid on, and how to price, the opportunity to place an advertisement in a certain location on a website or app, at a given moment, in front of a particular Internet user.
The use of third-party cookies for advertising targeting in real-time, while prevalent today, is not without some controversy, particularly around privacy. In addition, cookies are not as effective on mobile given the wide variety of devices and mobile browser policies and technical limitations in mobile apps. As the mobile advertising market continues its rapid growth new technologies are being developed to track online consumer activity in addition to, or as a potential replacement of, third-party cookies.
The Digital Advertising Ecosystem
In the early days of the digital advertising market, advertisers, the producers of goods and services, and web properties, the sellers of advertising inventory, effected purchase and sale transactions directly with one another or through a small number of intermediaries, as much of broadcast and print advertising is still bought and sold today. With the dramatic growth of internet usage, websites and mobile apps have proliferated resulting in an explosion in digital advertising inventory. In this environment it has become increasingly difficult for sellers to effectively monetize their inventory and for advertisers to effectively target and reach consumers. An entire industry has been created to address these challenges.
From a digital consumer’s perspective, while we visit websites and mobile apps to obtain information we also understand that most owners will provide viewable space for advertisements (“impressions”) to be delivered during our visits. These impressions can be sold to buyers either in advance via manual or automated direct sales efforts (the preferred method for premium inventory), or in real time on an impression-by-impression basis via a third-party. Website and app owners (“sellers”) often sell some significant portion of their digital advertising inventory through a third party sell-side platform (“SSP”), a digital advertising technology platform that helps sellers offer and optimize their advertising inventory in real time. Sellers also use ad servers to display advertisements received from buyers and to track the delivery of advertisements to consumers. Typically these ad serving platforms integrate with SSPs and act as the last link in the chain between advertisers and internet users.
The advertiser is on the other side of this transaction. The largest advertisers engage advertising agencies to help plan and execute their digital advertising campaigns, generally employing three strategies. The largest agencies have created their own in-house agency trading desks to plan and execute media purchases in order to better optimize advertiser campaigns and digital media purchases. Typically the agency trading desk will interact with a demand-side platform (“DSP”) to purchase advertising inventory from sellers on an automated, impression-by-impression basis. DSPs may earn revenue through arbitrage or they may charge fees for their services. DSPs generally use real time bidding (“RTB”) to effect their transactions. Advertisers also utilize ad networks to help optimize campaigns. Ad networks may choose to make money by arbitraging the purchase of advertising inventory from sellers with the intent to sell it to advertisers at higher prices.
Finally, buyers and sellers sometimes come together through a digital advertising exchange, which matches and presents available impressions to buyers. Once the impression has been matched, the exchange enables the advertisement to be served and manages the financial aspects of the transaction. Exchanges can enable increased liquidity and transparency in transactions between buyers and sellers.
According to advertising technology company Rocket Fuel, there are tens of billions of daily trades across all digital advertising exchanges, thousands of times more than the number of daily trades executed by NASDAQ and the NYSE combined. These trades occur with lightning speed, enabling the delivery of highly targeted digital advertising within milliseconds of a specific consumer landing on a specific website or app. This requires substantial algorithmic and computational capabilities, complex cookie and other data integration and advanced dashboard analytics.
Ad Targeting in Real-Time
The automation of the $16 billion online display advertising market is well underway.
Real-time Bidding (“RTB”), in which online buyers and sellers participate in programmatic auctions to trade and clear digital display advertising inventory in real-time (the time it takes your browser to load a website), has grown from 4% of all online display advertising in 2010 to 19% in 2013.
Digital advertising inventory traded via RTB also includes user data, such as online consumer behavioral data obtained through tracking cookies and demographic data, which enables improved ad targeting and greater overall advertising effectiveness.
In October 2013 IDC released its latest view of the size and growth of RTB projecting CAGR of 48% over the next 5 years, from $2.0 billion in 2012 to $14.4 billion in 2017. If this outlook proves accurate, real-time bidding as a percent of all online display ad buys would grow from 19% in 2013 to 41% in 2017.
The growth in the digital advertising market in general, the emergence of these robust advertising technology platforms and the availability of increasingly nuanced consumer behavioral data real-time and at scale is driving considerable revenue growth among a number of digital advertising/marketing technology platform providers. As a result, there has been considerable capital markets and M&A activity in the digital advertising/marketing technology sector and among its participants.
IPO Activity in Digital Advertising/Marketing
Within the last year there have been seven IPOs of digital advertising/marketing companies raising approximately $2.5 billion of gross proceeds. Although each company offers a different solution, they all are capitalizing on the growth in the digital advertising market.
Other companies that have announced or signaled IPO intentions include TubeMogul, PubMatic and Matomy while Adroll just announced an additional $70 million private capital raise and DSP Turn raised $70 million privately at the end of 2013.
Recent Digital Data M&A
At the same time, the M&A market for digital data and advertising/marketing technology companies has also been quite active in recent years. Just in the last nine months Adobe, AOL, Apple, IBM, Oracle, NeuStar, Salesforce.com and Twitter have all acquired digital data or digital advertising/marketing firms for an aggregate purchase price of approximately $6.2 billion.
Of course, each buyer has unique reasons for making the acquisition of any given company. At the moment the leaders in enterprise marketing technology software and services are Adobe, IBM, Oracle and Salesforce.com. Acxiom, a leader in offline data, analytics and solutions, is also a company to watch in the digital arena with the introduction of its Audience Operating System (AOS) last fall.
M&A remains a critical component of the strategy to maintain market leadership among the big-four as the digital advertising/marketing market continues to evolve. After acquisitions of email and cross-channel marketing firms ExactTarget, Neolane and Responsys by Salesforce.com, Adobe, and Oracle, respectively, it is not surprising that IBM finally made its move (at a substantially lower rumored purchase multiple) for Silverpop.
Another interesting recent M&A transaction is Oracle’s acquisition of BlueKai, a market leading DMP, for a reported $350-$400 million and an estimated 10x net revenues. With this purchase transaction Oracle will have spent more than $3 billion acquiring marketing and advertising technologies to enhance its marketing stack offering. To quote from Oracle’s press release announcing the transaction, BlueKai provides “the industry’s leading cloud-based big data platform that enables companies to personalize online, offline and mobile marketing campaigns with richer and more actionable information about targeted audiences”.
Finally, the acquisition of Gnip by Twitter has interesting implications for the social media data and analytics sector. Gnip filters, packages and sells data from social media streams and is one of only four companies with access to Twitter’s stats firehose and the right to resell the data. The others are Topsy Labs, acquired in December 2013 by Apple for $200 million, NTT Data, owned by Japanese telecoms giant NTT, and private company Datasift.
Taking back control of its own data may imply that Twitter is now prepared to offer its data more broadly in support of targeted advertising while not having to compete with another data seller on price.
2013 M&A in Digital Media, Information & Technology
At the beginning of 2014 we published our annual review of 2013 M&A deal activity in Digital Media, Information & Technology. According to our analysis, deal activity in our targeted segments increased approximately 66% in 2013 compared to 2012 while the dollar value of M&A transactions increased 43%.
Coady Diemar tracks M&A deal activity in eight sectors of the Digital Media, Information & Technology market. Agency & Marketing has been the most active sector in terms of number of M&A transactions with 285 transaction in 2012 and 422 in 2013. Ad Tech & Services had the largest percentage increase in aggregate deal value.
The digital advertising market continues its rapid growth (+17% in 2013) to nearly $43 billion in the U.S., fueled most recently by very strong growth in the mobile and video advertising channels. At the same time, the number or inventory of advertising impressions available for sale and purchase has also expanded substantially.
For the foreseeable future large publishers will likely continue to choose to sell their premium inventory directly with a dedicated sales force. But for smaller publishers and for the sale of non-premium inventory by large publishers the automation of the market for digital advertising is a requirement. Further, with the help of tracking cookies, advertisers and publishers are able to gather and make actionable considerable information about our online behavior allowing for enhanced targeting. Finally, all of this digital data (# of impressions, device, demographics, our individual preferences as evidenced by our online behavior, and more) is applied billions of times a day real-time when each of us lands on a web page and views a highly targeted ad that has been bought, sold and delivered in that instant.
Advertising and marketing technology which automates and facilitates the efficient functioning of the digital advertising market has grown dramatically in its complexity and necessity. The technology will continue to evolve as new data sources and advertising channels emerge such as mobile and social.
A $43 billion digital advertising market in the U.S. alone represents a big opportunity for emerging and established advertising/marketing technology and service providers. We expect more capital to be attracted to this market and also continued M&A transaction activity.
More broadly, M&A in Digital Media, Information & Technology will likely remain robust for some time driven by factors unique to each acquirer and seller and also by competitive dynamics including fundamental shifts in consumer behavior associated with internet usage, mobility and the adoption of social media.
–Colin Knudsen, Managing Director, Coady Diemar Partners, with help from Chris Ensley, Coady Diemar Partners Director.
Coady Diemar is a leading boutique investment banking firm providing mergers and acquisitions, private capital markets and strategic advisory services to growth companies in digital media, information & technology and other industries. We offer a breadth of transaction experience and expertise, industry knowledge and institutional relationships and provide clients creative solutions and unparalleled access to ideas and capital. We are acutely sensitive to the specific and unique requirements of each client and opportunity. Visit our website www.coadydiemar.com to learn more about Coady Diemar Partners and to download presentations on digital and traditional media and technology and also the M&A and private capital markets. Contact Colin Knudsen at email@example.com or Chris Ensley at firstname.lastname@example.org for additional information or to arrange a meeting.