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

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)

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

Part of the magic of real-time bidding is found within machine learning. This involves using sophisticated algorithms to “learn” complex patterns based on large amounts of data in order to make optimal advertising decisions. The importance of machine learning is cost avoidance and value creation. Cost avoidance is simple to understand: data-driven optimization strategies help reduce waste by identifying the most relevant impressions while selecting the best ads (better creative message, better offer, etc.), which in turn improves performance and ROI (define). Value creation, on the other hand, happens when buyers and sellers of commoditized offerings are more efficiently brought together for a transaction.  To create machine learning magic, two ingredients are required: scale and prediction. Scale speaks to the need to make more users/impressions available through the auction marketplaces, and increase the number of advertisers bidding on these users. The bigger the scale, the more sophisticated the data-driven prediction can be. The second ingredient refers to the idea that prediction needs to be “accurate enough.” Amazon and Netflix have demonstrated that when you provide an accurate prediction of what consumers want, the business grows in two ways:

1. Better inventory control and more purchases/utilization.
2. Better targeting becomes a custom delight feature when it’s perceived to be quite accurate by average consumers.

The ability to deliver relevant choices in real time based on what consumers reveal about themselves creates a virtuous cycle: 

Ads/recommendations become more accurate → consumers are willing to share additional information about themselves → the machine learning algorithm for ads/recommendations becomes even smarter

In digital advertising, the machine learning prediction ultimately boils down to two parts: identifying your target audience and reaching them efficiently. The first part requires machine learning at the user level to learn the most optimal audience segments to target; the second requires machine learning to drive real-time bidding strategy with precision. For instance, demand side platform technology allows advertisers to have global control over how many times each user sees the ads (i.e., frequency capping) and how they see them. This begs the obvious question, “what is the optimal number of ad repetitions?” The answer might be an average of five times over a period of seven days. Problem solved? Not quite.

Read More: ClickZ

BrightRoll Launches Video Ad Exchange

Earlier this year, video ad company Adap.tv launched a video ad exchange in partnership with Gannett Co. and Publicis Groupe’s VivaKi digital unit. Now, its OneSource platform will have some competition from a rival video ad marketplace started by video ad network BrightRoll.  As with the online exchanges that have emerged in recent years for display and other types of advertising, the goal is to bring increased efficiency to the video sector by giving publishers a way to unload unsold inventory and media buyers an automated system for reaching particular audiences across a wide range of sites.  “What we’re essentially releasing is a video advertising business in a box for buyers of online advertising,” said BrightRoll CEO Tod Sacerdoti, who added that the new exchange dubbed BRX is an outgrowth of the company’s efforts to further automate its own ad network over the last 18 months. BrightRoll is the third-largest U.S. video ad network based on streaming video ads viewed — at 333,492 in June, according to comScore.  “We realized everything we were building was applicable to other media buyers and sellers,” said Sacerdoti. A BrightRoll study earlier this year found that half of publishers surveyed reported that at least 20% of their online video advertising inventory is never sold, suggesting the potential for an automated, auction-based marketplace for pre-roll ads.

Read More: MediaPost

Forbes Sells Investopedia To ValueClick For $42 Million

After less than two months on the block, Forbes Media has sold financial education site Investopedia to lead gen provider ValueClick (NSDQ: VCLK) for $42 million. In June, Forbes retained the Jordan, Edmiston Group, Inc. three years after it bought the Canadian-based site.  The announcement comes a few weeks after Forbes purchased freelance journalism site True/Slant, which was shut down last week and will remain live as an archive site only.  Forbes had been an investor in True/Slant and before the purchase, it had hired site’s founder, Lewis DVorkin, as consultant to help restructure its digital offerings. The quick sale of Investopedia is a the first step in the struggling publisher’s latest digital reinvention. Despite the fact that Forbes was eager to sell the Edmonton, Alberta-based Investopedia, the company claimed that the site’s profits and users have grown in the past three years since it was acquired.  In a release, ValueClick CEO Jim Zarley said that Investopedia gives the company “great content, organic traffic and established advertiser relationships in the important financial services advertising vertical.” He also believes that the addition of Investopedia will be able to help build up its ValueClick Brands and ValueClick Media offerings.

Read More: PaidContent.org

AdMeld, a New York City based ad inventory optimizer, just closed on a $15 million round of venture funding, in the latest sign that the real-time bidding (RTB) market for display advertising is on fire.  Last month, Google paid a reported $70 million for demand-side platform Invite Media. And just a few weeks ago, brand safety startup AdSafe, which will increasingly work with RTB platforms, raised $7.5 million.  The rise of RTB is the biggest story of 2010 in online advertising, and has been written about extensively in ad industry publications. But people outside of advertising don’t seem to know anything about it.

Read More: BusinessInsider

A Peek Inside the M&A Playbooks of Technology’s Top Acquirers

Last night a group of M&A gurus from the corporate development teams at top tech acquirers Google, Microsoft, Yahoo, Cisco, Facebook and Twitter gathered to share insights into their business with a group of startups at a fancy-pants Los Altos Hills, Calif. mansion. Though Facebook and Google might have been the most notable active acquirers lately, everyone on the panel said they are out shopping. They each have a bit of a different style, and a bit of a different target startup. Below are the most notable bits from each participant:

Google‘s Amin Zoufonoun said that he looks at three types of acquisitions: a proven product and team, an uncertain big bet, or market and tech leadership (like YouTube and DoubleClick). He said recent acquisitions by Google and other companies like Apple point to the fact that mobile is not a core part of the DNA of many tech giants. As for advice, he warned startups that they always underestimate how long it takes to close an acquisition; for Google, deals usually take three to four months. As for areas he’s interested in, Zoufonoun said he thinks music is overhyped (an interesting comment given Google is reportedly looking to make a play in this space), and mobile user interfaces are underhyped.

Cisco‘s Derek Idemoto talked up the value of post-acquisition integration. His company has been incredibly acquisitive, with 140 deals in the last 20-odd years. Idemoto bragged that 75 percent of acquired employees are still at Cisco after four years. He said he thinks video is underhyped, and that he’s particularly interested in data. “The most, and most relevant data might win,” he explained.

Read More: Gigaom.com

Why Agencies Must Lead The Technology Charge

Countless articles have been written in recent years putting agencies in the hot seat to adapt their business models or die. Why? Never-ending budget cuts and the digitization of the marketing landscape have produced two key trends currently threatening the livelihood of the traditional agency:

• Media has become digital, multi-channel, multi-platform, and decentralized. These elements are forcing media publishers to be more creative in how inventory is packaged and sold (e.g., bundling offers cross channels from print, online, to mobile). Furthermore, media companies are tired of losing revenue to agencies for the production of creative assets and are thus building and buying their own capabilities in house.
• Innovations in technologies, from brand monitoring, audience targeting, and media planning and buying technologies, to social media and mobile content solutions, drive when and how brands connect with consumers. Many of these technologies are being developed outside of the agency ecosystem.

Read More: iMediaConnection

The banner ad is the Web’s original advertising format, but many have viewed it as a disappointment. Prices for display ads quickly tumbled, and marketers fell in love with targeted search options.  That’s not to say display units are on their way out. On the contrary, tens of millions of dollars in venture capital is flowing into ad technology. Investors are betting that a market the Interactive Advertising Bureau pegged at $8 billion in 2009 can quickly grow five times or more with the help of better machinery. (See also: “Display Ads Aim for a Banner Year.”)   “If you take the logic behind targeting to the extreme, it’s all about discovering hidden tier-one inventory,” said Terence Kawaja, managing director of GCA Savvian Advisors. “There’s a lot of inefficiency in inventory pricing.”  Inventory aggregator AdMeld is the latest company to benefit from this belief, closing a $15 million Series C round of funding that brings its backing to $30 million. Norwest Venture Partners led the round, which included AdMeld’s previous VCs as well as a strategic backing from Time Warner Investments.  AdMeld operates a tech platform that publishers use to maximize the amount of money they make from display ads. Publishers like Discovery, Fox News, Reuters and Pandora use its yield-optimization software to determine how best to package display ad inventory for audience-based buys.

Read More: AdWeek

Simplifying The Narrative

Josh Chasin of comScore can definitely count me among his fans.  He wrote a great article late last year on the limitations of CTR as a metric.  A couple weeks back he wrote another great one that I have been looking for a moment to comment on.  Between the upcoming product launch and the 1 year old I finally found a little time, somewhat belatedly.  As I read it, the main theme of Josh’s most recent article was that as an industry we have inhibited the migration of brand-focused budgets online with complex and conflicting narratives, which cause advertisers essentially to throw up their hands and look for reasons not to spend.  I couldn’t agree more.  In fact, I don’t think Josh would object to framing this as a different angle on the same idea I discussed in a post last year (Josh – feel free to comment if I am taking your name in vain).  Regardless of the angle we each take on the story, we’re clearly in violent agreement that the narrative needs to be simpler.  Josh is also quite correct that the 30-spot is an extremely compelling creative format, next to which a hastily-assembled static banner can look, well, flat.  However, as I have previously noted, within 5 years about 80% of households will have the capability to fast forward through that compelling creative.  Online creative formats get more compelling every year – it’s not hard to imagine a well-made pre-roll, rich media or even animated flash creative execution comparing favorably to a TV ad that is watched at 10X normal speed with no sound.  Even before DVRs reach their inevitable tipping point, the research shows that online advertising drives sales at least as well as TV.

Read More: Brand.net

The Web’s New Gold Mine: Your Secrets

Hidden inside Ashley Hayes-Beaty’s computer, a tiny file helps gather personal details about her, all to be put up for sale for a tenth of a penny.  The file consists of a single code— 4c812db292272995e5416a323e79bd37—that secretly identifies her as a 26-year-old female in Nashville, Tenn.   The code knows that her favorite movies include “The Princess Bride,” “50 First Dates” and “10 Things I Hate About You.” It knows she enjoys the “Sex and the City” series. It knows she browses entertainment news and likes to take quizzes.  “Well, I like to think I have some mystery left to me, but apparently not!” Ms. Hayes-Beaty said when told what that snippet of code reveals about her. “The profile is eerily correct.”  Ms. Hayes-Beaty is being monitored by Lotame Solutions Inc., a New York company that uses sophisticated software called a “beacon” to capture what people are typing on a website—their comments on movies, say, or their interest in parenting and pregnancy. Lotame packages that data into profiles about individuals, without determining a person’s name, and sells the profiles to companies seeking customers. Ms. Hayes-Beaty’s tastes can be sold wholesale (a batch of movie lovers is $1 per thousand) or customized (26-year-old Southern fans of “50 First Dates”).  “We can segment it all the way down to one person,” says Eric Porres, Lotame’s chief marketing officer.

One of the fastest-growing businesses on the Internet, a Wall Street Journal investigation has found, is the business of spying on Internet users.  The Journal conducted a comprehensive study that assesses and analyzes the broad array of cookies and other surveillance technology that companies are deploying on Internet users. It reveals that the tracking of consumers has grown both far more pervasive and far more intrusive than is realized by all but a handful of people in the vanguard of the industry. 

• The study found that the nation’s 50 top websites on average installed 64 pieces of tracking technology onto the computers of visitors, usually with no warning. A dozen sites each installed more than a hundred. The nonprofit Wikipedia installed none.

• Tracking technology is getting smarter and more intrusive. Monitoring used to be limited mainly to “cookie” files that record websites people visit. But the Journal found new tools that scan in real time what people are doing on a Web page, then instantly assess location, income, shopping interests and even medical conditions. Some tools surreptitiously re-spawn themselves even after users try to delete them.

• These profiles of individuals, constantly refreshed, are bought and sold on stock-market-like exchanges that have sprung up in the past 18 months.

The new technologies are transforming the Internet economy. Advertisers once primarily bought ads on specific Web pages—a car ad on a car site. Now, advertisers are paying a premium to follow people around the Internet, wherever they go, with highly specific marketing messages.  In between the Internet user and the advertiser, the Journal identified more than 100 middlemen—tracking companies, data brokers and advertising networks—competing to meet the growing demand for data on individual behavior and interests.  The data on Ms. Hayes-Beaty’s film-watching habits, for instance, is being offered to advertisers on BlueKai Inc., one of the new data exchanges.  “It is a sea change in the way the industry works,” says Omar Tawakol, CEO of BlueKai. “Advertisers want to buy access to people, not Web pages.”  The Journal examined the 50 most popular U.S. websites, which account for about 40% of the Web pages viewed by Americans. (The Journal also tested its own site, WSJ.com.) It then analyzed the tracking files and programs these sites downloaded onto a test computer.  As a group, the top 50 sites placed 3,180 tracking files in total on the Journal’s test computer. Nearly a third of these were innocuous, deployed to remember the password to a favorite site or tally most-popular articles.

But over two-thirds—2,224—were installed by 131 companies, many of which are in the business of tracking Web users to create rich databases of consumer profiles that can be sold.  The top venue for such technology, the Journal found, was IAC/InterActive Corp.’s Dictionary.com. A visit to the online dictionary site resulted in 234 files or programs being downloaded onto the Journal’s test computer, 223 of which were from companies that track Web users.  The information that companies gather is anonymous, in the sense that Internet users are identified by a number assigned to their computer, not by a specific person’s name. Lotame, for instance, says it doesn’t know the name of users such as Ms. Hayes-Beaty—only their behavior and attributes, identified by code number. People who don’t want to be tracked can remove themselves from Lotame’s system.  And the industry says the data are used harmlessly. David Moore, chairman of 24/7 RealMedia Inc., an ad network owned by WPP PLC, says tracking gives Internet users better advertising.  “When an ad is targeted properly, it ceases to be an ad, it becomes important information,” he says.  Tracking isn’t new. But the technology is growing so powerful and ubiquitous that even some of America’s biggest sites say they were unaware, until informed by the Journal, that they were installing intrusive files on visitors’ computers.

The Journal found that Microsoft Corp.’s popular Web portal, MSN.com, planted a tracking file packed with data: It had a prediction of a surfer’s age, ZIP Code and gender, plus a code containing estimates of income, marital status, presence of children and home ownership, according to the tracking company that created the file, Targus Information Corp.  Both Targus and Microsoft said they didn’t know how the file got onto MSN.com, and added that the tool didn’t contain “personally identifiable” information.  Tracking is done by tiny files and programs known as “cookies,” “Flash cookies” and “beacons.” They are placed on a computer when a user visits a website. U.S. courts have ruled that it is legal to deploy the simplest type, cookies, just as someone using a telephone might allow a friend to listen in on a conversation. Courts haven’t ruled on the more complex trackers.  The most intrusive monitoring comes from what are known in the business as “third party” tracking files. They work like this: The first time a site is visited, it installs a tracking file, which assigns the computer a unique ID number. Later, when the user visits another site affiliated with the same tracking company, it can take note of where that user was before, and where he is now. This way, over time the company can build a robust profile.

One such ecosystem is Yahoo Inc.’s ad network, which collects fees by placing targeted advertisements on websites. Yahoo’s network knows many things about recent high-school graduate Cate Reid. One is that she is a 13- to 18-year-old female interested in weight loss. Ms. Reid was able to determine this when a reporter showed her a little-known feature on Yahoo’s website, the Ad Interest Manager, that displays some of the information Yahoo had collected about her.  Yahoo’s take on Ms. Reid, who was 17 years old at the time, hit the mark: She was, in fact, worried that she may be 15 pounds too heavy for her 5-foot, 6-inch frame. She says she often does online research about weight loss.  “Every time I go on the Internet,” she says, she sees weight-loss ads. “I’m self-conscious about my weight,” says Ms. Reid, whose father asked that her hometown not be given. “I try not to think about it…. Then [the ads] make me start thinking about it.”  Yahoo spokeswoman Amber Allman says Yahoo doesn’t knowingly target weight-loss ads at people under 18, though it does target adults.  “It’s likely this user received an untargeted ad,” Ms. Allman says. It’s also possible Ms. Reid saw ads targeted at her by other tracking companies.  Information about people’s moment-to-moment thoughts and actions, as revealed by their online activity, can change hands quickly. Within seconds of visiting eBay.com or Expedia.com, information detailing a Web surfer’s activity there is likely to be auctioned on the data exchange run by BlueKai, the Seattle startup.

Each day, BlueKai sells 50 million pieces of information like this about specific individuals’ browsing habits, for as little as a tenth of a cent apiece. The auctions can happen instantly, as a website is visited.   Spokespeople for eBay Inc. and Expedia Inc. both say the profiles BlueKai sells are anonymous and the people aren’t identified as visitors of their sites. BlueKai says its own website gives consumers an easy way to see what it monitors about them.  Tracking files get onto websites, and downloaded to a computer, in several ways. Often, companies simply pay sites to distribute their tracking files.  But tracking companies sometimes hide their files within free software offered to websites, or hide them within other tracking files or ads. When this happens, websites aren’t always aware that they’re installing the files on visitors’ computers.  Often staffed by “quants,” or math gurus with expertise in quantitative analysis, some tracking companies use probability algorithms to try to pair what they know about a person’s online behavior with data from offline sources about household income, geography and education, among other things.  The goal is to make sophisticated assumptions in real time—plans for a summer vacation, the likelihood of repaying a loan—and sell those conclusions.  Some financial companies are starting to use this formula to show entirely different pages to visitors, based on assumptions about their income and education levels.  Life-insurance site AccuquoteLife.com, a unit of Byron Udell & Associates Inc., last month tested a system showing visitors it determined to be suburban, college-educated baby-boomers a default policy of $2 million to $3 million, says Accuquote executive Sean Cheyney. A rural, working-class senior citizen might see a default policy for $250,000, he says.  “We’re driving people down different lanes of the highway,” Mr. Cheyney says.  Consumer tracking is the foundation of an online advertising economy that racked up $23 billion in ad spending last year. Tracking activity is exploding. Researchers at AT&T Labs and Worcester Polytechnic Institute last fall found tracking technology on 80% of 1,000 popular sites, up from 40% of those sites in 2005.

The Journal found tracking files that collect sensitive health and financial data. On Encyclopaedia Britannica Inc.’s dictionary website Merriam-Webster.com, one tracking file from Healthline Networks Inc., an ad network, scans the page a user is viewing and targets ads related to what it sees there. So, for example, a person looking up depression-related words could see Healthline ads for depression treatments on that page—and on subsequent pages viewed on other sites.  Healthline says it doesn’t let advertisers track users around the Internet who have viewed sensitive topics such as HIV/AIDS, sexually transmitted diseases, eating disorders and impotence. The company does let advertisers track people with bipolar disorder, overactive bladder and anxiety, according to its marketing materials.  Targeted ads can get personal. Last year, Julia Preston, a 32-year-old education-software designer in Austin, Texas, researched uterine disorders online. Soon after, she started noticing fertility ads on sites she visited. She now knows she doesn’t have a disorder, but still gets the ads.  It’s “unnerving,” she says.

Tracking became possible in 1994 when the tiny text files called cookies were introduced in an early browser, Netscape Navigator. Their purpose was user convenience: remembering contents of Web shopping carts.  Back then, online advertising barely existed. The first banner ad appeared the same year. When online ads got rolling during the dot-com boom of the late 1990s, advertisers were buying ads based on proximity to content—shoe ads on fashion sites.  The dot-com bust triggered a power shift in online advertising, away from websites and toward advertisers. Advertisers began paying for ads only if someone clicked on them. Sites and ad networks began using cookies aggressively in hopes of showing ads to people most likely to click on them, thus getting paid.  Targeted ads command a premium. Last year, the average cost of a targeted ad was $4.12 per thousand viewers, compared with $1.98 per thousand viewers for an untargeted ad, according to an ad-industry-sponsored study in March.  The Journal examined three kinds of tracking technology—basic cookies as well as more powerful “Flash cookies” and bits of software code called “beacons.” 

More than half of the sites examined by the Journal installed 23 or more “third party” cookies. Dictionary.com installed the most, placing 159 third-party cookies.  Cookies are typically used by tracking companies to build lists of pages visited from a specific computer. A newer type of technology, beacons, can watch even more activity.  Beacons, also known as “Web bugs” and “pixels,” are small pieces of software that run on a Web page. They can track what a user is doing on the page, including what is being typed or where the mouse is moving.  The majority of sites examined by the Journal placed at least seven beacons from outside companies. Dictionary.com had the most, 41, including several from companies that track health conditions and one that says it can target consumers by dozens of factors, including zip code and race.  Dictionary.com President Shravan Goli attributed the presence of so many tracking tools to the fact that the site was working with a large number of ad networks, each of which places its own cookies and beacons. After the Journal contacted the company, it cut the number of networks it uses and beefed up its privacy policy to more fully disclose its practices.  The widespread use of Adobe Systems Inc.’s Flash software to play videos online offers another opportunity to track people. Flash cookies originally were meant to remember users’ preferences, such as volume settings for online videos.

But Flash cookies can also be used by data collectors to re-install regular cookies that a user has deleted. This can circumvent a user’s attempt to avoid being tracked online. Adobe condemns the practice.  Most sites examined by the Journal installed no Flash cookies. Comcast.net installed 55.  That finding surprised the company, which said it was unaware of them. Comcast Corp. subsequently determined that it had used a piece of free software from a company called Clearspring Technologies Inc. to display a slideshow of celebrity photos on Comcast.net. The Flash cookies were installed on Comcast’s site by that slideshow, according to Comcast.  Clearspring, based in McLean, Va., says the 55 Flash cookies were a mistake. The company says it no longer uses Flash cookies for tracking.

CEO Hooman Radfar says Clearspring provides software and services to websites at no charge. In exchange, Clearspring collects data on consumers. It plans eventually to sell the data it collects to advertisers, he says, so that site users can be shown “ads that don’t suck.” Comcast’s data won’t be used, Clearspring says.  Wittingly or not, people pay a price in reduced privacy for the information and services they receive online. Dictionary.com, the site with the most tracking files, is a case study.  The site’s annual revenue, about $9 million in 2009 according to an SEC filing, means the site is too small to support an extensive ad-sales team. So it needs to rely on the national ad-placing networks, whose business model is built on tracking.   Dictionary.com executives say the trade-off is fair for their users, who get free access to its dictionary and thesaurus service.  “Whether it’s one or 10 cookies, it doesn’t have any impact on the customer experience, and we disclose we do it,” says Dictionary.com spokesman Nicholas Graham. “So what’s the beef?”

The problem, say some industry veterans, is that so much consumer data is now up for sale, and there are no legal limits on how that data can be used.  Until recently, targeting consumers by health or financial status was considered off-limits by many large Internet ad companies. Now, some aim to take targeting to a new level by tapping online social networks.  Media6Degrees Inc., whose technology was found on three sites by the Journal, is pitching banks to use its data to size up consumers based on their social connections. The idea is that the creditworthy tend to hang out with the creditworthy, and deadbeats with deadbeats.  “There are applications of this technology that can be very powerful,” says Tom Phillips, CEO of Media6Degrees. “Who knows how far we’d take it?”

Read More: WSJ.com (Entire Article Here)

AppNexus, the real-time advertising platform tapped by many of the leading ad networks, and Collective, a leading media and technology solutions company for display advertising, today announced that they are working together to expand real-time advertising opportunities on the Web for Collective’s brand advertisers and agencies.  Collective will now leverage AppNexus’ advanced ad platform, data management, and proprietary inventory monitoring tools for executing and optimizing real-time media buys using Collective’s industry-leading audience targeting and robust inventory protection.  In addition, Collective’s commitment to detect and target audiences across a premium ecosystem will be significantly enhanced by the single-point integration offered by AppNexus with the largest sources of inventory including the major ad exchanges like Google’s DoubleClick and Microsoft’s AdECN.  “At Collective, we have always had a laser-focus on audience; delivering the perfect ad, to the right person, in the best environment which is why the partnership with AppNexus, the most sophisticated real-time ad platform available today, is a natural fit for us,” said Jerome FitzGibbons, EVP, Collective.

Read More: CentreDaily.com

Foursquare’s New $20 Million Means More Hiring, New Offices and Much Investor Confidence

The $20 million of second-round financing secured by the mobile networking service Foursquare will go toward staffing up on engineers, getting offices that can accommodate expanding staff and supporting its rapidly expanding audience of users. Oh yeah, and it’s got a revenue model to work out too.  The New York company, which was only founded in March 2009, allows its users to “check in” to locations, such as the local Starbucks, via their mobile phones and see other members who have checked into the same location. Virtual rewards, such as badges and mayorships, are awarded for frequent visits. Foursquare currently has 1.8 million registered members and draws in 10,000 new members daily, according to the company.  Companies such as PepsiCo and Starbucks have enthusiastically engaged the service. “From a broad strategy point of view, there’s a huge potential with the ability to connect people to promotional experiences,” Bonin Bough, PepsiCo’s global director of digital and social media, told Ad Age in February. “We know where people are and can talk to them from a geo-located perspective — that’s a huge opportunity.”

Read More: AdAge

Report: M&A Market Hits $21B, Deal Values Up 291% 

Led by digital and tech-driven businesses, the M&A market for media, information, marketing services, education and related technologies rebounded strongly in the first half of the year, according to a new analysis from Jordan, Edmiston Group.  During the period, 445 transactions — with a total value of $21 billion — were announced, reflecting a 52% increase in deal volume over the same period last year, and a 291% surge in deal value.  The sharp rise in market deal value was driven by several multibillion-dollar transactions, including Madison Dearborn Partners’ acquisition of credit and information management company TransUnion for an estimated $2.5 billion, and the acquisition by Silver Lake Partners and Warburg Pincus of financial information provider Interactive Data Corporation for $3.2 billion.  Overall, six market sectors saw strong growth in M&A in the first half, including B2B online media; B2C online media, which was up 64%; B2B Media; database and information services; marketing and interactive services, which was up 96%; and mobile media and technology, which was up 188%.

Read More: MediaPost

Last month, the idea that Foursquare could exit to Yahoo! for $120+ million had everyone abuzz.  “This means NY tech has come to its own!” people exclaimed. Finally, we had a major player in the social web space. It was a company born here and grown here. Now it was on the brink of being sold for big money. It was a proof point that NYC could breed a serious batch of startups post-Web 1.0.  But if anything, the “Fourhoo episode” was also a scary wake-up call for those of us invested in the future of the NY tech ecosystem. If Foursquare sold — to Yahoo!, to Facebook, or to anyone else in the space — they’d undoubtedly end up in the hands of a Silicon Valley company, and its IP and (probably) leadership would be shipped out of town, taking any future value creation with it. (Sure, they may keep the jobs here, but the profit and reinvestment? Future product integrations?)  As it turns out, this whole exit scenario is a sham for the local environment, and here I thought exits were a good thing. What’s the matter with New York?! Here we are producing a fleet of World Class startups, and an exit for our startup scene means depleting its resources?  This sounds bad. And it is.

Read More: BusinessInsider.com

Futures, Forwards, Contracts Part 2

I was recently talking to someone in the industry I admire and we both started discussing the options, forwards and contracts of dispensable media. Ironically both of us have oil/gas history. He mentioned to me the context of the spot market and how in oil and gas – almost the majority of deals are done in advance and commodities trade in this manner and hedge where needed. The spot market is a residual market where it’s a lot less of the commodities that trade. Take the 80/20 rule – 20% is the spot market in oil/gas and 80% is the futures, forwards contracts market.  Let’s look at the premium and remnant market in digital – is it not the exact opposite? 20% of the market is secured guaranteed premium inventory and the other 80% is the spot market! Incredible – this means that the upside is greater and that digital is only at the start of its bell curve. While 20% has the bulk of the monetisation –we have an 80% pool of potential upside waiting in the wind. Technically, the spot market becoming competitive and working by market forces should only increase the guaranteed market.

Read More: AdSolver

Pay To Play: Is Hulu Plus A Step Away From An Ad-Supported Model Or The New Freemium Norm?

Beginning what some analysts see as the beginning of a slippery slide away from wholly ad-supported models, Hulu on Tuesday debuted Hulu Plus — its premium service that will charge consumers $9.99 a month for carte blanche content access over multiple platforms.  When Hulu debuted in mid-2007, it was viewed as a potential threat to cable and satellite providers that charge a premium for content — and in some cases ad-supported content.  Hulu Plus, which will include some advertising, could therefore be seen as an admission that advertising alone is not enough to support premium content online.  Not so, says senior eMarketer analyst David Hallerman. “It’s an expansion of Hulu’s business rather than a failure,” he says. “What they’re offering here is a deep catalog of content, and studies I’ve seen show that about a quarter of [consumer] respondents are willing to pay for that.”  Meanwhile, Hulu is positioning its subscription service as the perfect vehicle for marketers to target advertising across four screens. Initially, Hulu Plus is partnering with Nissan and Bud Light, and said it expects to include additional advertisers shortly.

Read More: MediaPost

Online display advertising — an $8.7 billion market in 2010 — is undergoing change at a pace not seen since Google transformed search and invented PPC advertising. The change is welcome, as display catches up to the market for search advertising in terms of efficiency and targetability. But, the transformation will bring a sharp struggle for margin in the online ad delivery chain, leading to a new wave of digital M&A. Online display, primarily a brand advertising medium (as measured by revenue), has traditionally been sold on the basis of sites and specific media placements, or via ad networks that aggregate sites into vertical channels. Now, with the evolution of online ad targeting techniques and the rapid growth of a market for consumer targeting data, it is increasingly common to sell advertising on the basis of audience, reaching individual web users based on specific data about that user. The data — behavioral, demographic, geographic and contextual — is generally persistent and useable across ad campaigns via a tracking cookie.

Read More: AdAge

Yahoo’s Interest In Foursquare Is Real

Yahoo is most definitely looking to buy a location-based startup like Foursquare, a CEO at one of Foursquare‘s many rivals tells us. He knows, because Yahoo (YHOO) approached his startup for acquisition too.  A source close to Yahoo confirms — kind of — telling us: “We talk to everybody.” Our startup source says Yahoo has made it clear that acquiring a company in this space was a top strategic priority. He says that he’s reached out to other executives in the space, and learned that Yahoo has been talking to everyone in the space for the past few months. If Yahoo can’t get Foursquare, he expects them to pay ~$25 million for a smaller player. But startups aren’t biting because Yahoo has a reputation for killing small companies it acquires. He says that startups in discussions with Yahoo learn that they’ll be slotted into Yahoo! Local, but still walk away confused about how their business would fit into the organization. In talks, he said “seven different people claimed” he would report to them.

Read More: BusinessInsider

An Open Invitation to Customize Ads

I’ll be the first to say that last week’s column painted a fairly rosy picture of the current state of online advertising: advertisers work hard to deliver relevant messaging and consumers respond positively, appreciative as they are for the more meaningful ads. Any digital marketer will tell you, however, that many consumers don’t feel advertisers are doing them any favors. If you can believe it, they’d just as soon not get advertising that’s relevant at all.  If that sounds crazy, you may be forgetting how strongly many Internet users feel about their privacy, and how they’re increasingly aware that relevant advertising generally can’t be achieved without following their online behavior. Late last year, researchers released the results of a study on consumers’ opinions about behavioral targeting. An overwhelming 66 percent of respondents said that they “do not want marketers to tailor advertisements to their interests.” That number climbs to between 73 and 86 percent when those surveyed are provided with further detail about how their data is collected for this purpose.

Read More: ClickZ

Michael Walrath is the former CEO of Yahoo!’s Right Media. I believe that there is a cycle of innovation at work in digital advertising.  Where we are in the cycle at any given time depends on many factors, including the economy, availability of capital, supply and demand imbalances, M&A appetite, etc. Let’s take a look at the cycle.  We’ve got to start somewhere, so let’s start with an ad recession. I think we can mostly agree that recessions suck, yet they also set the stage for periods of great innovation.  How? Recessions cause growth to slow, revenues to suffer and some really lackluster financial performance.  This is especially difficult for the large public companies that have to talk about how badly things are going…all the time. 

Read More: AdExchanger

What Online Slump?

There was a lot of bellyaching last year about an online advertising market meltdown. Most of it was justified, as many advertisers’ budgets seemed to involve money that jingles rather than the kind that folds. Research firm eMarketer reported that U.S. online advertising dropped by 4.6% in 2009, the first decrease since 2002. However, recent news coming from three Internet start-ups shows not everyone dependent on advertising shed tears on their financial statements. This week alone, local online advertising provider Yodle Inc. announced a $10 million funding round on the back of a 135% revenue climb in 2009; female-focused ad network Glam Media Inc. said it grew revenue by 35% and raised a whopping $50 million Series E; and online video ad network BrightRoll Inc. declared it doubled revenue and raised $10 million.

Read More: WSJ

5 Sign’s of Mobile Advertising’s Coming Dominance

Mobile ads might consist of only a tiny portion of digital advertising – but their potential looms large. Analysts such as Morgan Stanley are adopting bullish assumptions about mobile computing’s growing reach. The industry is not there yet, however. Ad platforms are still very fragmented, making it cumbersome to place ads across multiple devices or OS. Also the mobile ad technology itself is only advancing in fits and starts. But progress is being made. Following are five important signs that mobile computing is not far away from becoming a dominant access point to the internet, according to JiWire.

Read More: MarketingVox