1. Display Advertising 2.0:
New Perspectives on a Changing Landscape
July 18, 2011
Joshua Wepman
GCA Savvian Advisors
2. 2
Creative
Optimization
Targeted Networks / AMPs
Video / Rich Media
SSPs
Ad Networks
Vertical Custom
Performance
Mobile
P
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E
R
S
Ad
Exchanges
DSPsMedia Buying
Desks
Agencies
Publisher
Tools
Ad Operations
Ad Servers
Ad Servers
Sharing Data/
Social Tools
Data Suppliers
DMPs and Data
Aggregators
Media Planning
and Attribution
Media Mgmt Systems
Verification
Retargeting
Measurement
and Analytics
Where We Are Today
3. 3
Targeted
Video / Rich Media
Horizontal
Yield
Optimization
Ad Networks
Vertical
Performance
Mobile
P
U
B
L
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S
H
E
R
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Data
Exchanges /
Aggregators
Creative
Optimization
Data
Optimization
A
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Ad
Exchanges
DSPsMedia Buying
Platforms
Agencies
Publisher
Tools
Data Suppliers
Ad Ops / Infrastructure
Ad Servers Ad Servers
Verification /
Attribution
Sharing Data /
Social Tools
Analytics
Trading Desk
Landscape Observations
Data Suppliers
4. 4
$0
$1
$2
$3
$4
$5
$6
$7
$8
($Bn)
Q1 2011 Was Highest Q1 Ever
$7.3 Bn
The display advertising market is forecast to grow over 30% more
than the overall online advertising market from 2009 to 2014
Notes:
Source: Interactive Advertising Bureau (IAB).
Online Advertising Accelerating …
5. Creative
Optimization
Targeted Networks / AMPs
Video / Rich Media
Yield
Optimization
Ad Networks
Vertical Custom
Performance
Mobile
P
U
B
L
I
S
H
E
R
S
A
U
D
I
E
N
C
E
A
D
V
E
R
T
I
S
E
R
S
Ad
Exchanges
DSPsMedia Buying
Desks
Agencies
Publisher
Tools
Ad Operations
Ad Servers
Ad Servers
Sharing Data/
Social Tools
Data Suppliers
DMPs and Data
Aggregators
Media Planning
and Attribution
Media Mgmt Systems
Verification
Retargeting
Measurement
and Analytics
$10.0
$12.3
$0.7
$1.4
$0.0
$2.0
$4.0
$6.0
$8.0
$10.0
$12.0
$14.0
2010A 2011E
($Bn)
Display Advertising Exchange-Based Buying
Exchange-Based Buying Market
Despite doubling YoY, exchange-based ad buying is expected to
continue to be a small part of the overall display ad market
5
… But Exchange-Based Buying is Still a Small Market
6. 6
Brands increasingly moving their ad spend
online
The rise of private exchanges, proprietary
data sets and premium ad networks
Brands fully embrace digital video and
social
Google (and others) continue to march
across the display advertising landscape
Agencies and ad networks recognize the
challenges and respond
Appearance of comprehensive marketing
solutions providers
Notable Trends
7. High impact formats (video, rich
media and new, engaging formats)
Increasing transparency and
sense of brand safety
Following the audience (time
spent)
Real ROI
DRIVERS:
Brands Moving Online …
7
9. Awareness
Opinion
Consideration
Intention
Sales
9
Brands focused here
Brand Awareness
Favorability
Current metrics and new
technologies focused here
Clickthrough
Time spent
Interaction
Conversion / sales
The metrics that brands care about correspond to “top of funnel”
activities rather than conversion and click throughs
Brands Care About the Top of the Funnel
10. By buying on longer tail sites, audience targeting exposes brands
to the potential to advertise against questionable content
10
Brands Care About Inventory Quality
11. High quality
properties
Brand-safe
inventory
Engaging formats
Premium Networks
Professional video
content
In-stream ad units
Access to inventory
at scale
Video Networks
Leading publishers
and advertisers
RTB capabilities
Proprietary,
differentiated data
Private Exchanges
11
Brand-Oriented Solutions Offer Quality and Safety
12. Premium publisher
inventory & data
Optimized Pricing
Real time biddable
inventory
Transparent
“Category 5” Private Exchange
12
Private exchanges enable brands to buy safe, targeted inventory while
enabling publishers to enter RTB market and protect CPMs
The Rise of Private Exchanges
13. 13
US Online Video Ad Spending ($Bn) (1)
Format
2010 Ad
Spend ($Bn)
2015 Ad
Spend ($Bn)
2010 ~ 2015
CAGR
Search $12.0 $21.5 12%
Banner Ads 6.2 11.7 14%
Classifieds and
Directories
2.6 4.3 11%
Rich Media 1.5 1.7 2%
Video 1.4 7.1 38%
Lead Generation 1.3 1.5 3%
Sponsorships 0.7 1.5 15%
Email 0.2 0.2 2%
Total $26.0 $49.5 14%
$1.4
$2.2
$3.1
$4.2
$5.6
$7.1
$0.0
$2.0
$4.0
$6.0
$8.0
2010 2011 2012 2013 2014 2015
Video is Growing and Outpacing Other Formats
US Online Ad Spending Growth by Format (1)
Notes:
Source: Wall Street Research.
14. Delivery / Content
Management EnablersContent Creators MonetizationPublishing Tools
Aggregation /
Portals
Like display, there are several areas across the video value chain
that will benefit from the growth in online brand advertising
14
Video Value Chain Fragmented Like Display
15. vs.
15
Audience viewing habits changing; moving to time-
shifted media consumption
Video streaming represents 32% of time spent online
Online video advertising more engaging than TV
Video advertising promotes greater brand recall
Beginning to draw from TV budgets
Improved targeting technology
Online Video Growth Drivers
16. Awareness
Sales
16
Social is a key component of online brand advertising campaigns
Social media is altering the purchase
funnel and creating a closed loop
between awareness & branding
Data from Facebook, Twitter, reviews,
comments and other social platforms
being used by marketers to drive
branding and conversion
Building a social presence is of
increasing importance to brands
Impact of Social Media
Consideration
Intention
Opinion
18. 18
Creative
Optimization
Targeted Networks / AMPs
Video / Rich Media
SSPs
Ad Networks
Vertical Custom
Performance
P
U
B
L
I
S
H
E
R
S
A
U
D
I
E
N
C
E
A
D
V
E
R
T
I
S
E
R
S
Ad
Exchanges
DSPsMedia Buying
Desks
Agencies
Publisher
Tools
Ad Operations
Ad Servers
Ad Servers
Sharing Data/
Social Tools
Data Suppliers
DMPs and Data
Aggregators
Media Planning
and Attribution
Media Mgmt Systems
Verification
Retargeting
Measurement
and Analytics
Mobile
Google Gets It
19. Networks creating new offerings, pivoting or
acquiring businesses that bring desired
capabilities
Some ad networks have attempted to transform
their core business models to address new needs
Others have acquired desired capabilities
Networks need to evolve to survive and succeed
19
Targeted Networks / AMPs
Video / Rich Media
Ad Networks
Vertical Custom
Performance
Mobile
Media Mgmt Systems
So Do Ad Networks
22. CMO
Focus has moved from CTO’s office to CMO’s
office in quest to grow business while maximizing
ROI
Ever increasing options for the CMO across
multiple channels (TV, radio, print, online display,
digital video, search, etc.)
Increasing complexity and proliferation of
technologies designed to drive “efficiency”
Ever-evolving landscape with alphabet soup of
vendors
In today’s constrained environment, the CMO is tasked with finding
creative ways to grow top line while maximizing bottom line
22
Decade of the CMO
23. 23
Marketers are demanding
comprehensive solutions to managing
their online marketing spend
Current landscape is too fragmented
and confusing
New entrants, such as large cap
enterprise software providers and ad
networks, are becoming more active in
ad tech M&A
Large technology companies have
record amount of cash on balance sheet
and are looking to deploy it for growth
$0
$2,000
$4,000
$6,000
$8,000
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q
2009 2010 2011
DigitalMediaDealValue($MM)(1)
Notes:
(1) GCAS database.
Digital Media M&A Transactions
Consolidation is Inevitable
25. 25
Recently, there has been an up-tick in private-to-private M&A
deal activity
Larger private companies using M&A to:
– Increase scale in advance of IPO or other event
– Broaden suite of product offerings to meet needs of advertisers
– Evolve business
– Take advantage of price capitulation
Acquired
October 2010
Acquired
October 2010
Acquired
July 2011
Acquired
February 2011
Acquired
December 2010
Acquired
November 2010
Acquired
November 2010
Acquired
November 2010
Acquired
February 2011
Acquired
April 2011
Private-to-Private Transactions Increasing
26. Billions invested in ad tech landscape over last few years
Focus on investment returns may drive near-term consolidation
Time is important element of determining investment returns
Return
n( )
- 1
1
d
=
t
26
Return Formula … More Important Now
28. Ability / Willingness to Pay
Strategic Fit
28
Diverse Strategic Interest in Demand-Side Ad Tech
29. 29
Exchange-based buying will be an important component of display
… but only a component
Real revenue will continue come from direct buys and brand-
oriented solutions
Private exchanges and programmatic premium buys will continue to
proliferate and grow
Video and social will become dominant branding markets
Maybe agencies and networks will be okay
The CMO needs help and comprehensive solutions
This will continue to be a strategically important market
Thank You
Key Takeaways
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31. 31Offices in San Francisco, Menlo Park, Chicago, New York, London, Mumbai, Shanghai and Tokyo
Preferred Equity
Investment and
Credit Facility
$75MM
$500MM
Acquired by
$448MM
Acquired byAcquired
by
$5.9Bn
to
$493MM
Sold Stake
in Acquired by
$1.3Bn
Acquired by
$300MM
Tender Offer
$9Bn
TOB of Common
Stock of
$10.8Bn
Acquired by
$747MM
Formation of
JV with
Acquisition of
Semiconductor Business
$522MM$150MM
Divestiture of
U.S. Venture
Portfolio
Acquired by
$1.6Bn
Acquisition
of
GmB H –
Automotive
ATE Operations
Acquisition
of
$400MM
Acquired byAcquired by
Formation of
JV with
$690MM
Selected Cross-Border Transactions
Acquisition
of
$1.1Bn
Acquisition of Acquisition of
Next Gen. Mobile Comm.
Systems Assets
Select OP-1 Assets &
Manufacturing Facility
Acquisition of
Acquisition of
PVOH Business
Acquisition
of
Acquired by
$125MM
Yamakawa Trading Co.
Over 50 successful cross-border transactions
representing nearly 15 different countries
Leading Global Independent Advisory Firm
32. 32
Acquired By Acquired By Sale of Subscription Acquisition of JV from Sale of Business Unit Secondary Preferred Stock Acquired by Acquisition of
Music Service to Mogae Consultants Six Apart KK to Sale
We Advised the Seller We Advised the Seller We Advised the Seller We Advised the Buyer We Advised the Seller We Advised the Founders Financial Advisor We Advised the Seller We Advised the Buyer
May 2011 April 2011 March 2011 January 2011 January 2011 January 2011 December 2010 December 2010 November 2010
Preferred Stock Acquired by Acquisition of Preferred Stock Acquired by Acquired by Acquired by Acquired by Acquired by
Financial Adviser We advised the seller We Advised the Buyer Financial Advisor We Advised the Seller We Advised the Seller We Advised the Seller We Advised the Seller We Advised the Seller
October 2010 October 2010 October 2010 August 2010 July 2010 June 2010 June 2010 June 2010 January 2010
1UP Digital Network
Sold Stake in
Preferred Stock Acquired by Preferred Stock Preferred Stock Acquired by Minority Preferred Preferred Stock Preferred Stock
a Subsidiary of Investment in
to
Financial Advisor We Advised the Seller Financial Advisor Financial Advisor We Advised the Seller Financial Advisor Financial Advisor We Advised the Seller Financial Advisor
October 2009 April 2009 February 2009 January 2009 January 2009 November 2008 November 2008 October 2008 August 2008
Preferred Stock Preferred Stock Preferred Stock Preferred Stock Preferred Stock Acquired by Preferred Stock Preferred Stock Acquisition of
& Recapitalization
Mobile Services Business
Financial Advisor Financial Advisor Financial Advisor Placement Agent Financial Advisor We Advised the Seller Placement Agent Placement Agent We Advised the Buyer
July 2008 July 2008 June 2008 April 2008 March 2008 February 2008 January 2008 January 2008 December 2007
Acquired by Acquired by Acquired by Acquisition of Acquired by Senior Credit Facility Preferred Stock Merger with Minority Investment
in
We Advised the Seller We Advised the Seller We Advised the Seller We Advised the Buyer We Advised the Seller Financial Advisor Placement Agent We Advised INTAC Financial Advisor
December 2007 December 2007 December 2007 October 2007 October 2007 October 2007 October 2007 October 2007 August 2007
FRONTLINE
MANAGEMENT
Proven Leadership in Digital Media Transactions
Notes de l'éditeur
Let’s look at a few of the notable developments in the past year. I’ll go into more detail on each of them. [Click]First, we’ve seen a clear increase in brands spending money online. As I’ll discuss, they are looking to the online channel for messaging rather than direct customer acquisition. But there are challenges, as we’ll discuss [Click]Second, we’ve seen the rise of private exchanges and premium networks that help premium publishers maximize the value of their inventory while creating brand friendly enviroments. [Click]Third, digital video and social seem to have found their groove. People are watching an ever increasing amount of video and becoming more social – and the brands are following them. As a result, these markets are taking off [Click]Fourth, large players such as Google, Yahoo and Aol are looking for ways to meet the needs of brand advertisers, whether through internal development or M&A [Click]Fifth, agencies and ad networks are responding to market dynamics and staying relevant. [Click]Finally, we’re seeing companies trying to become comprehensive marketing services providers, whether through internal development or by acquiring capabilities. In particular, we’ll touch on the spate of private to private mergers we’ve been seeing
Let’s start with the brands. As you can see, the online brand advertising market is expected to grow from just $6B in 2009 to $22 B in 2015, a nearly 25% compound annual growth rate, and a rate in excess of the overall online advertising market.What’s driving this growth? [Click]Introduction of engaging and impactful formats. Think Project Devil and Pictela from Aol, as well as the growth in in-stream video advertising [Click]Rise in amount of quality content on the web, as well as the introduction of private exchanges that give a sense of brand safety and security [Click]Following the audience. You go where your audience goes. [Click]Increased efficiency: reaching the right audience – leads to increased ROI. Don’t mean targeting for a click, but making sure you find relevant viewersBut what factors may hold this movement back?
The quest for relevant metrics and measurement has been a difficult issue for brands. They are looking for metrics that measure awareness, purchase intent and other top of the funnel metrics. These, historically, have not been what has been tracked by web analytics and measurement companiesThey are less concerned with the metrics mostly tracked to date: click through, uniques, impressions, etc.
The metrics brands care about correspond to awareness rather than conversion within the purchase funnel. However, many of the technologies within the landscape designed to push toward sale. This is what is generally tracked today.
In response, various ad tech vendors have come up with attempts to help advertisers find brand-safe inventory.First, there are the premium networks such as Undertone and Brand.net. In addition, larger digital media companies such as Aol have re-positioned their marketing services offerings to address the needs of brand advertisers. For example, Aol has positioned Advertising.com to be a premium, brand-safe network, and Yahoo acquired 5to1 to get access to premium quality inventory. These networks have [click]premium sites [click] brand safe inventory, and [click] brand friendly, engaging formats. Next, there are the pure-play video ad networks. These companies aggregate [click] high quality video inventory, [click] creative in-stream ad units and [click] access to sufficient video inventory to run a targeted branding campaignFinally, there are the private exchanges, often set up by [click] leading publishers in partnership with an SSP or other ad tech providers. Many of the private exchanges offer [click] RTB capabilities, [click] optimized pricing and [click] proprietary and differentiated data for targeting. While open exchanges optimize for direct response priorities, like audience targeting and performance, private exchanges optimize for brand priorities by ensuring access to safe inventory.
Let’s dive a little deeper. Private exchanges allow publishers to make their inventory available via RTB without degrading pricing or losing control over the inventory. Can set rules on pricing, availability, advertisers, etc. As I mentioned, they also allow brands to confidently buy real time inventory without worrying about quality or context. Both publisher and advertiser win.Private exchanges often allow publishers to attract higher CPMs (as much as 5x greater according to Forrester) than on traditional networks and exchanges due to transparency, proprietary data, quality of inventory and transparency offered to advertisersIncreasingly being adopted by publishers such as Forbes, CBS, Weather Channel and NBC InteractivePrivate exchanges helping bringing brands online, especially to exchange buying world and programmatic ad buying, while at the same time unlocking the inventory of leading publishers that was previously only available direct
Turning to video, the digital video ad market is on fire. I’ll get into what’s driving the market, but needless to say both audiences and brands recognize the value of digital video.Audiences are increasingly getting used to watching video on their PC or mobile device and their video consumption habits are rapidly changing.On the marketer side, there is a recognition that digital video is an excellent advertising medium with significant brand and message recall. As a result, as brands move online, they are sinking a lot of dollars into video, making it by far the fastest growing segment of online advertising. [click]
But like display, there is a lot of complexity throughout the landscape. That said, there are a lot fewer acronyms!!This is an area of intense scrutiny among buyers and investors and one in which we are spending an increasing amount of time. Last year, we sold BBE to SpecificMedia and we saw a number of additional video deals including Undertone / Jambo and Aol buying StudioNow, GoViral and 5min. Let’s see what happens with Hulu!
What’s driving the growth in the digital video ad market? [click]First, the shifting of audience viewing habits; moving to time-shifted media consumption [click]Second, a growth in the amount of time spent watching video. Now nearly a third of time spent online! [click]Third, several studies have shown that digital video advertising is viewed as more engaging than TV advertising [click] and promotes greater brand recall and message recall [click] Next, it’s capturing TV rather than online budgets. This is significant since this is a much larger pool from which to draw. As the two markets converge, this has the potential to make digital video advertising among the largest [click]Finally, improved targeting and technical standards have made this a more viable and efficient place to run large scale advertising campaigns
Social has also begun attracting serious online brand advertising dollars [click]Social media is altering the purchase funnel and creating a closed loop between awareness and branding. [click]Audiences are seeing what friends are buying or saying and moving to sales. Sales data is also being taken and driving additional social sales [click]Because of this, building a social presence is becoming of increasing importance to brands. They see the multiple benefits associated with social, including customer insight and engagement based on how customers interact with brand pages . They see the potential for social to build brand awareness and loyalty, as well as drive product development and create new consumers.
Agencies are getting the message that the world is changing and new capabilities are required to stay relevant. Last year, I said that agencies would be the biggest losers in the new display advertising world. I still think things are difficult for them. Their trading desks run the risk of being disintermediated. However, firms such as WPP with Xaxis and Dentsu with IgnitionOne have set up entities to maintain relevance. These are departures since they have a greater technology underpinning than traditionally found in agencies. We think that M&A will be an important part of the agency toolkit to stay relevant.
Several of the other digital media players have also made moves in the display and video ad tech world. Aol has been busy and its moves are consistent with its latest positioning as a premium content provider [click] (with its increased focus on editorial and its acquisition of HuffPo), [click] with a premium ad network and its acquisitions [click] Pictela and several video assets [click] back this upYahoo has made some moves too by acquiring 5to1 and is premium alliance, as well as the technology provided by Dapper. Will Yahoo be the Hulu suitor? [click]Microsoft has decided to outsource its capabilities by investing in Appnexus. [click]A couple of notable exclusions here are eBay and Amazon. eBay acquired GSI and its ad tech capabilities but has spent a lot of time focused on eCom and payments.Amazon recently partnered with Triggit to create an ad network with DSP capabilities. However, it has yet to buy a company in the ad tech space. Come back next year and let’s see what’s changed!
Why is this Important? Because the ultimate customer, the CMO, is looking for comprehensive solutions to their marketing challenges. They want providers that stretch across the various marketing and media silos. This simplifies the CMOs job and, with one check to write and one accountable party, will drive efficiencies
We are in the decade of the CMO. [click] If the last ten years were about the CTO, building out the technology infrastructure and controlling expenses, the next ten will be about attracting customers, building the topline and maximizing ROI [click]Because of this focus on topline growth, customer relationships and sales, it also draws in the CEO who has a vested interest in the outcome [click]The CMO has increasing options across multiple channels to help her achieve her goals [click] with ever increasing complexity [click]However, this landscape is evolving with an ever-increasing number of vendors. This all makes her job extremely difficult and makes consolidation and the emergence of comprehensive provider inevitable
There are a number of factors that will lead to increasing industry consolidation: [click]-As mentioned, CMOs want comprehensive solutions providers. They need someone that will make their job easier, not increase the complexity. [click]-Related to this is the fragmented landscape. There are a lot of features out there but not a lot of companies. Many are small and have been unable to reach any level of revenue scale or profitability. As these companies are acquired or combine, there are any number of cost and revenue synergies that should improve performance and build “companies” [click]-There are a lot of new potential buyers out there. For instance the software companies are realizing that many of these ad tech businesses are software companies. In addition, as mentioned earlier, the ad networks have become active buyers. They are some of the only scale businesses and recognize the need to transform to stay relevant [click]-Tech companies generally have a lot of cash and are looking to use it to grow [click]