Where Does M&A Opportunity Lie in 2011?
The global economy continues to face uncertainty, but despite this, many technology companies have cash on hand in the tens of billions of dollars and are opting to spend it on mergers and acquisitions. In a new GigaOM Pro report, I examine the tech M&A landscape in 2011, using data provided by TheStreet.
Five large-cap, tech-rich companies are particularly likely to engage in M&A this year: IBM, Oracle, Microsoft, Cisco and Hewlett-Packard. Here are a few thoughts on how each of these companies’ M&A strategies might play out:
IBM
IBM has completed 17 acquisitions since the start of 2010, including its purchase of Netezza for nearly $1.7 billion, a 33 percent premium to the market price.
IBM’s ambitions to expand into mobile software and services could require the company to improve its storage and delivery solutions. Publicly traded storage and data management companies like NetApp and EMC could be interesting targets, although NetApp’s recent market cap of $20 billion would be easier to integrate than the larger EMC, whose market cap is above $57 billion.
Read More: Gigaom
Internet Advertising Revenues Hit $7.3 Billion in Q1 ’11
Highest First-Quarter Revenue Level on Record According to IAB and PwC
23% Year-Over-Year Increase Demonstrates Growing Importance of Digital Marketing & Advertising
NEW YORK, NY (May 26, 2011) — Internet advertising revenues in the U.S. hit $7.3 billion for the first quarter of 2011, representing a 23 percent increase over the same period in 2010, according to figures released today by the Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC). This marks the highest first-quarter revenue level ever for the industry and a significant increase over last year’s first-quarter revenue level, which had been the highest on record to date.
“The consistent and considerable year-over-year growth we’re seeing demonstrates that digital media is an increasingly popular destination for ad dollars, and for good reason,” said Randall Rothenberg, President and CEO of the IAB. “As Americans spend more time online for information and entertainment purposes, digital advertising and marketing has emerged as one of the most effective tools businesses have to attract and retain customers.”
“The year-on-year 23 percent increase in first quarter revenues is not just impressive in its own right, but especially so when you take into account the fact that 2010 was a record-breaking year itself for Internet advertising revenue,” said David Silverman, a partner at PricewaterhouseCoopers LLP. “These numbers indicate that the interactive advertising field hasn’t simply bounced back since the recession; it’s growing with dynamic energy.”
Read More: IAB
VideoEgg to Buy Six Apart, Rebrand as Say Media
Ad network VideoEgg will acquire Six Apart, owner of the MovableType and TypePad publishing platforms as well as a sizable social media ad network, and rebrand as Say Media. The combined company will boast 345 million monthly global unique users.
For VideoEgg, the new company name will emphasize its focus on social media and will dissociate it from the video ad space in the minds of media buyers.
“It pigeonholed us,” said VideoEgg President Troy Young. “People thought we were a streaming media network, which we weren’t. And VideoEgg, while a spirited name, didn’t feel like the mature media company we wanted to be.”
Six Apart CEO Chris Alden will step down when the transaction is completed in approximately 60 days, but most of the firm’s other senior management will transition to roles at Say Media. Say Media’s total headcount after the sale will be over 200, and its base of operations will be in San Francisco. Financial terms were not disclosed.
The main driver of the acquisition was scale in social media. Six Apart’s ad network reached approximately 90 million U.S. unique users on thousands of sites in April, according to comScore. In May the company unveiled an ad product, TypePad Conversations, that uses sponsored questions to help brands leverage that audience in meaningful ways.
Read More: ClickZ
Digital Ad Agencies Attract Interest of Would-Be Buyers
The deal-making in online advertising continues, as talks over the sale of two ad firms heat up.
Private-equity firm General Atlantic LLC has held preliminary talks with several companies over a possible sale of AKQA Inc., one of the U.S.’s largest digital ad shops, according to people familiar with the matter.
Meanwhile, New Jersey-based Rosetta LLC, another large digital ad firm, is in talks to buy Level Studios, a 15-year-old interactive marketing firm, according to a person familiar with the matter. Terms of the deal could not be determined.
General Atlantic, which took a majority stake in AKQA in 2007, hired Morgan Stanley to explore a possible sale after it received an unsolicited bid for the San Francisco-based agency, according to one of the people familiar with the matter. One company Morgan Stanley has approached is Dentsu Inc., Japan’s largest ad company, the people familiar with the matter said.
Dentsu hasn’t made a formal bid for AKQA but has made an “expression of interest” and suggested AKQA is valued at about $500 million, one of these people said. Two people familiar with the matter say that General Atlantic is seeking at least $600 million for AKQA.
AKQA, which has more than 800 employees, has long been an attractive acquisition target because of its ability to attract big brand advertisers, including Coca-Cola Co., Microsoft Corp. and Unilever PLC. A person familiar with the matter says early financials on AKQA shows the firm had about $120 million in revenue last year and is expected to have $150 million in revenue this year.
Tom Bedecarre, AKQA’s chief executive, has long wanted to take AKQA public. Mr. Bedecarre declined to comment.
A U.K. blog reported Dentsu’s interest in AKQA. A spokeswoman for Morgan Stanley declined to comment.
Dentsu has been on an aggressive buying spree, snapping up ad firms such as McGarry Bowen in New York, as it seeks to become less-dependent on its homeland for revenue.
Chris Kuenne, chief executive of Rosetta declined to comment on talks to buy Level Studios, except to say, “We are always looking at possible acquisitions.” Executives at Level couldn’t immediately be reached for comment. Level Studios, which is based in San Luis Obispo, Calif., has worked on half of marketers such as Hewlett-Packard Co. and Research in Motion Ltd.
Digital ad firms—which help companies pitch their products on the Internet and through mobile devices—are of particular interest to ad and media companies as online ad spending continues to grow and other mediums struggle. ZenithOptimedia, a media-buying firm owned by Publicis Groupe SA, predicts global online ad spending will rise 13% next year to $61 billion while global ad outlays in newspapers is expected to decline about 3% next year to $95 billion.
The pace of deal-making on Madison Avenue is accelerating as the recession begins to lift, ad executives say. Indeed, earlier this year newspaper and magazine publisher Hearst Corp. acquired iCrossing, a digital ad firm that specializes in search ads.
Read More: WSJ.com (Full Article Here)
Shaping Ads for Web-Connected TV
Technology companies racing to deliver video to the living room over the Web are exploring the idea of offering ads on their services, seeking to capture some of the billions of ad dollars that flow to television.
A few companies, including TiVo Inc. and Microsoft Corp., have released ad products tied to broadband-video services designed to be accessed on television sets, not computers. They include ads that can take a viewer to a movie trailer on YouTube when the viewer pauses a TiVo-recorded TV program, as well as ads that can be accessed by clicking a tile on the navigation menu of Xbox Live, the online gaming and video service for Microsoft’s Xbox game console.
Other efforts are also afoot. Google Inc. has been meeting with some of Madison Avenue’s biggest media-buying firms, exploring ways to sell ads through its Google TV software due out this fall. Sony Corp. and other hardware makers are launching TVs and set-top boxes equipped with the software, which allows users to search and watch Internet programming.
The Internet giant has told ad executives that it eventually plans to sell ads that appear in search results when consumers search for what they want to watch, some of those ad executives say. But those spots won’t interrupt the ad stream that appears during a program.
The company has told media-buying executives that it doesn’t plan to put ads on its service for at least a year. A Google spokeswoman says the company has been approached by advertisers about Google TV, but it is “solely focused on launching a quality experience for users, and does not have any specific plans for advertising” at this time.
Sony, meanwhile, is considering selling video ads that play before premium programming that consumers can access through its Internet-connected TVs, Blu-ray players and PlayStation 3 video consoles, says one person familiar with the matter. The person says these ads could be available in coming months. Sony declined to comment.
At the same time, traditional online-ad companies like Yahoo Inc. are adapting their Internet-ad technology to display ads that run alongside Web video displayed on TV screens.
This isn’t the first time that tech companies have sought a foothold in the TV-ad market. In recent years, Google and Microsoft launched television-ad services seeking to sell commercials targeted to specific kinds of consumers and measure those ads’ performance based on data from set-top boxes. But analysts say those businesses have remained modest, in terms of revenue, constrained by the type and amount of inventory TV networks and satellite companies have given them to sell.
A Google spokeswoman its TV-ad business has grown “significantly.”
This time around, tech companies are looking for new ad possibilities created by delivering video directly to TV sets over the Web. The software for doing so offers them new screen real estate for showing ads and the ability to target ads based on what viewers watch and the Internet services they access. Analysts say such ads could chip away at the market for conventional commercials over time.
TV ads are a massive business. Last year, TV accounted for nearly 36% of the $148.3 billion U.S. advertising market, according to ZenithOptimedia, a media-buying firm owned by Publicis Groupe. The firm predicts the U.S. TV-ad market will grow 3.8% to $55.8 billion in 2010.
Cable and satellite companies, too, have been testing new technology to target ads more precisely, along with new ad formats that let consumers respond to an ad through their remotes.
TiVo Chief Executive Tom Rogers says that since cable operators use differing set-top-box technology, the cable industry doesn’t have the ability to sell targeted ads on a mass scale, leaving an opening for tech companies. Cable and TV networks haven’t moved fast enough to promote new formats, he says. “The old models, with the amount of commercial avoidance, just aren’t going to hold up.”
This summer, PepsiCo‘s Mountain Dew brand launched its first campaign with Xbox Live. Unlike traditional TV commercials, the ads, which prompted Xbox users to vote for a new flavor of the soft drink, allowed users to engage with it when they were interested, Brett O’Brien, director of marketing for Mountain Dew.
But many advertisers remain skeptical. For one thing, it isn’t clear which ad formats will work best on broadband-connected TVs, says Tracey Scheppach, senior vice president and video-innovations director at Publicis’s Starcom MediaVest Group.
Tech companies not only have to win over advertisers, but also those who create video programming. While a growing number of TV and movie studios are offering content through new Internet-video services designed to be accessed directly from TVs, many are doing so on a paid basis. That approach is less likely to upset partners like cable operators who pay networks to carry their programming.
“In order For there to be a viable alternative model for distribution, a majority of media companies are going to have to be in a place where they can stomach the shift from subscription to advertising,” says Scott Ferris, general manager of Microsoft’s TV media advertising business group. He says that in the short term he thinks ads on broadband-video services will be confined largely to inside software applications on the services.
But, Mr. Ferris adds that, over time, a broadband-based video services target at TVs will gain national scale and “an advertising model will creep in there.”
Read More: WSJ.com (Entire Article Here)
interCLICK Prez Katz On Strong Q2 Results
Online advertising network InterCLICK announced its second quarter 2010 earnings on Wednesday. According to the release, “Revenue was $21.7 million in Q2 2010, a 103% year-over-year increase. (…) Gross profit was $9.6 million in Q2 2010, up 102% year-over-year.” Read more.
AdExchanger.com: Looking at InterCLICK’s 100% year-over-year Q2 growth and projected 2010 revenues of $90 million + , are there any observations you can share about how clients are spending?
MK: Delivering the most effective audience-centric campaigns is dependent on our ability to properly value targeting data and solving the operational challenges associated with running data enabled campaigns. We won a record amount of new business this past quarter and client retention reached a new high watermark. This is a hyper competitive space and I believe that our investment in our technology and our team has paid off tremendously, as evident in our results.
What about data? Has using data exchanges and other third-party providers been a key part of your offering? How do you see this playing out for InterCLICK?
The challenges in display advertising require effective supply chain management. The goal is to find the optimal alignment among data, inventory, and creative. Quality inventory has been accessible for quite some time, and through data exchanges like BlueKai, rich targeting data has been made quite accessible. So data exchanges allow for easy access and implementation. The real challenge is in the execution, which is what we have invested significant capital and resources in addressing.
Read More: AdExchanger.com
Inside the Numbers: How Demand Media Will Pitch a Billion Dollar IPO
Demand Media is a money-losing company. How will it convince Wall Street to value it at a billion dollars or more? By directing investors’ attention to a set of numbers which say it’s a very profitable company. The official term for these numbers are “non-GAAP financial measures”. In English, that translates into “accounting you can’t try at home, but which shows off our company in the best possible light.” And it does! Depending on which set of numbers you want to look at, Demand lost either $4.3 million or $22.3 million on revenues of $114 million in the first half of this year. But Demand’s “Adjusted OIBDA” numbers show a company that made $25.6 million on revenue of $108 million. Much better! Some investors may balk at these non-GAAP numbers, but Demand, Goldman Sachs (GS) and its other underwriters clearly think there’s a market for them. And there’s certainly a hunger in the tech world for a big, brand name IPO to break the dry spell. You can feel people willing this thing to work. If Demand did, say, $55 million in OIBDA this year, it would need a multiple of 18 times trailing 12 months earnings to get to a $1 billion valuation. It would need 27x to get the $1.5 billion number that people are whispering to reporters. Another way to get to $1.5 billion: Project OIBDA of $100 million for 2011, and ask for 15 x on that number. Reminder: $1.5 billion would make Demand worth more than the New York Times (NYT).
Read More: AllThingsD.com
Adapt.ly to Manage Ads Across Multiple Social Networks
As advertisers begin to run ads across an increasing number of social networks and sites, startup firm Adapt.ly has developed technology to help manage those campaigns from a single platform, and to help digest and evaluate the resulting performance data more easily. As Adapt.ly co-founder Nikhil Sethi points out, most social networks offer self-service ad platforms, which exist in complete isolation of their competitors’. As a result, advertisers are forced to manually construct individual campaigns on each, despite the fact they’re attempting to reach essentially the same audience. “Managing all these campaigns by hand is a pain in the ass, and analyzing the data from all the different platforms becomes a nightmare,” Sethi said. It’s that heavy lifting that Adapt.ly is attempting to relieve, providing a service that will handle campaign creation, targeting, and optimization automatically, and from a single point of entry. “We’ve built a system that allows us to take creative and to normalize it across a range of networks. We ask advertisers two simple questions: What are you advertising, and who are you trying to reach? The system will then optimize targeting across the networks,” said Sethi, adding that users are given the option to specify creative for individual platforms if they wish, or to simply let Adapt.ly take care of it.
Read More: ClickZ
Are Marketers Really Spying On You Online?
The ongoing “What They Know” series in The Wall Street Journal is drawing needed attention to some of the ways web analysts and marketers gather and track information about people online. As part of the series, they visualized the types of cookies and tracking files used by 50 top websites, including their own. However, the WSJ failed to fully explain what type of information is being collected about visitors and what marketers do with the data. Rather, they left the public to wonder if online marketers are actually spies. I don’t deny that I use cookies and tracking pixels to gather a variety of details about you if you visit my site. However, most of the data I have is anonymous and the details exist across multiple systems, not aggregated in one tidy personal profile. Rarely do I feel like I have pieced together enough details to be considered a spy. But with all that data, what do I really know about you?
Read More: AdAge
