Location, location, location (data)

by Scott Denne

Marketers are experimenting with a variety of applications for consumer location data, which is expanding the supply of potential acquirers for a set of startups that was once relegated to a niche corner of the mobile ad sector. The abundance of early-stage startups in this space will likely keep exit sizes modest for now, benefiting companies that need an early exit. Yet vendors that are able to successfully transition from ad-tech suppliers to core elements of the marketing stack could see large exits in another year or two.

Location data was initially gathered in two ways – through beacon deployments at retail locations and via data shared in advertising exchanges. As we detailed in an earlier report, the methods for gathering and managing this data have since expanded and the applications have moved beyond showing mobile ads based on device proximity. That has led to a growing interest among marketers to employ location data for multiple applications, such as behavioral targeting, ad attribution, loyalty programs and competitive intelligence. In a survey from 451 Research’s Voice of the Connected User Landscape, more than half of respondents said this data was ‘very important’ to gaining insight into customer experience.

While the uses of location data are largely experimental today, more marketers are faced with a mandate to meld their physical and digital operations. Location data helps bridge those two by linking digital identity with physical movements. As location data becomes a pervasive part of customer analytics, marketing measurement and campaigns, businesses that can build relationships with brands that encompass multiple parts of the advertising stack will be well-positioned for a bigger payday.

While the exits have been few, they have come at enviable multiples. The most notable of late are Snap’s acquisition of Placed – a supplier of location-based attribution services – and Ericsson’s purchase of Placecast, a developer of white-label advertising software that provides telcos and others with consumer location data to monetize those signals. We estimate that both sold for north of 5x trailing revenue. Each of these deals hits on a theme that we expect to drive future M&A in this market.

Although initially divided between beacon management and mobile advertising firms, we now see five distinct product segments emerging in this market. For a discussion of those segments, along with potential targets in each, read our full sector IQ report on the topic.

Omnicom nabs consulting shop Credera

by Scott Denne

Omnicom comes out of hibernation with its reach for customer experience consultancy Credera Technologies. Today’s announcement marks the ad agency holding company’s first tech deal in almost three years. The purchase comes amid a series of stinging earnings reports by Omnicom and its peers as they struggle to keep up with the evolving needs of marketers – needs that have helped large consulting shops gain ground in Omnicom’s market.

Credera brings to Omnicom a set of consulting services that encompass management consulting, user experience, product development and other disciplines that help businesses deploy digital technology for customer engagement. While it’s common for ad agencies to own firms that specialize in digital commerce, web development and other specialties that are closely linked to marketing, they don’t often acquire service providers that help clients make changes to the business itself. That Omnicom has done so speaks to the current struggles of ad agencies and the new types of competitors they face.

Omnicom lost more than 10% of its value after reporting just 2% organic revenue growth, with a decline in its North American advertising business dragging down results. (It wasn’t alone: a few days afterward, WPP disappointed investors with its first-half report.) With the growth of data-driven digital advertising, ad agencies face clients that now want to roll advertising into a larger digital transformation strategy.

The capabilities needed to pull off those projects – change management, software buying and data integration – are often beyond an ad agency’s expertise. That has helped Deloitte, Accenture and other consulting shops with technology chops to take a chunk of the agency market over the past few years. In our surveys, we see those types of digital transformation projects accelerating. In 451 Research’s VoCUL: Corporate Mobility and Digital Transformation Survey at the end of last year, 40% of respondents told us their company has a formal digital transformation strategy, up from 30% in the first half of the year.

Buyers tune in to TV deals

by Scott Denne

As TV audiences scatter across media devices, video services and formats, advertisers need to put them back together. While television content doesn’t seem to have lost its appeal, where viewers watch has grown more diverse. With that change, advertisers and content creators need software and data to buy and sell access to those audiences, leading to a jolt of deals in the space.

AT&T’s acquisition of AppNexus and Amobee’s purchase of Videology are two of the most significant. Driving both transactions is the idea that telcos can match their consumer data with content to improve the pricing and discovery of video and TV ad inventory by owning the technology for buying and selling digital ads. A deal today sees VideoAmp, a maker of software for TV media buying and planning, acquiring a boutique audience analytics firm, IronGrid, to help integrate data from different sources.

TV advertisers always purchased space on a show to reach the audience tuning in. As more TV is broadcast digitally, there’s an opportunity to reach desired audiences with greater precision. Yet, unlike in the past when viewing happened only through the TV set, people now use different devices and services to watch. According to a December survey from 451 Research’s Voice of the Connected User Landscape, 62% of cable and satellite TV customers also pay for online video streaming.

Telcos such as AT&T and SingTel (owner of Amobee) will likely continue to be acquirers here because internet and broadcast viewership data can link households with viewing behavior, helping to overcome the challenge of audience data spewing from different sources for the same or similar content. The shift to digital also provides broadcasters with a direct link to audiences for the first time, so we expect broadcasters like Sinclair and Meredith to seek acquisitions in this category. Alongside them, we anticipate tuck-in purchases from data providers and ad-tech vendors trying to expand their data sets and buy capabilities as they, like consumers, tune into an ever-expanding number of channels.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

AT&T ties data to content with AppNexus buy

Days after refashioning itself as a media company with the close of its Time Warner acquisition, AT&T has inked a deal to help connect its new business with its old. The telecom giant has purchased AppNexus, one of the largest independent ad-tech vendors, as it seeks to use its data-rich telecom networks to bolster ad prices for the richly funded content produced by Time Warner.

AT&T’s legacy business and its newly acquired content arm are menaced by the increasing reach of online video services and the consolidation of digital advertising among a handful of tech providers. As audiences flow online, AT&T’s wireless and satellite TV services face subscriber churn. Meanwhile, its Time Warner business must fend off Google and Facebook, which continue to syphon advertiser budgets through data-driven offerings. The acquisition of AppNexus could make AT&T competitive with those firms through ad sales tools that enable it to develop new, data-driven advertising products.

Although terms of the transaction weren’t disclosed, the target likely fetched north of $1bn. In addition to media reports of a $1.6bn price tag, AppNexus has raised venture capital above that level since 2014. And although ad-tech vendors haven’t been the most richly valued assets of late, AppNexus is a unique company in that the business is larger than most, if not all, independent ad-tech providers and it has a suite of tech products that cater to both advertisers and media companies.

As a wireless carrier and TV service provider, AT&T has an immense stock of data about media consumption habits, location and customer demographics, but few paths to monetize those assets. By owning AppNexus, AT&T can use its data to improve the value of the ads it sells via additional audience data, slice up its ad sales into more nuanced segments, and extend audience-based ad sales across AppNexus’ ad exchange.

We’ll have a more detailed report on this deal in tomorrow’s 451 Market Insight.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Valassis sees discounts in MaxPoint acquisition 

Contact: Scott Denne

Coupon distributor Valassis Communications has taken another step in its transition to digital with the $95m acquisition of location-based ad-tech vendor MaxPoint Interactive. In addition to getting Valassis another marketing product to sell to consumer goods providers, the target’s technology could plug a substantial weakness in RetailMeNot, a digital coupon firm that Valassis’ parent company, Harland Clarke Holdings, bought in April.

The sale ends a turbulent and short run as a public company for MaxPoint, which debuted in April 2016 with a stock price that’s more than 3x what it’s getting in today’s deal, which values it at a paltry 0.6x trailing revenue.

MaxPoint enables advertisers to run national campaigns for consumer goods that target prospects at the local level, based on a mix of proximity to retail locations and digital demand signals from particular neighborhoods. As one of the world’s largest distributors of coupons, Valassis hands MaxPoint’s media services business a new avenue for growth. But the larger opportunity is in integrating the underlying technology with its recently acquired online coupon business.

RetailMeNot built a business by distributing digital coupons for retail locations. The problem it’s always had is proving to its retailers that those coupons work – did the coupons drive people to the store or did the store just give discounts to people who planned to come anyway? To operate its media business, MaxPoint developed technology that predicts demand for products within the market area for a physical retail location. RetailMeNot could deploy such demand analysis to optimize when and where it launches campaigns and use it to measure the impact.

Moreover, a partnership between the two companies could enable MaxPoint to deliver coupons to RetailMeNot that are tied to a retail location but funded by product vendors and in doing so provide both retailers and consumer products companies a way to navigate a market that’s rapidly shifting to digital with a shared marketing strategy that they’ve employed for decades.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Tremor Video shakes off its ad network roots with $50m divestiture

Contact: Scott Denne

The dizzying number of vendors and dozens of subcategories of advertising technology have had many predicting for several years now an imminent wave of consolidation. Yet for the ad-tech vendors trading on US exchanges, specialization – not consolidation – has become the chosen strategy. Tremor Video has become the latest to adopt such a strategy by selling its video ad network to Taptica for $50m in cash.

Tremor, like Rubicon Project, which earlier this year divested its $100m acquisition of Chango, sees more opportunity to expand its relationships with ad sellers, rather than buyers, although the resemblance ends there. Rubicon is a longtime player in supply-side platforms (SSPs) and generates most of its revenue from that business. Tremor will shed most of its revenue with this deal – its remaining assets accounted for $29m of its $167m in 2016 sales.

While Tremor’s business with buyers has declined, its burgeoning SSP – a video ad exchange – expanded its top line by 84% in the past 12 months to $34m in trailing revenue. Without the weight of its buyside business, Tremor can leverage its newfound capital to invest in an anticipated growth in the supply of video advertising coming through over-the-top and connected TV channels.

That Tremor shed almost all of its revenue with little impact on its stock price – it was up about 2% at midday – speaks partly to the opportunities investors see for it to expand with a business model with software-like margins. It also speaks to just how little value investors place on ad networks that sell services to both sides of an ad sale.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Advertisers continue to fly from Twitter

Contact: Scott Denne

Earnings calls this week from Google, Facebook and Twitter highlight how far the latter has fallen behind those two giants. While advertisers flocked to Google and Facebook, they fled from Twitter. Although its results were dismal, the onetime contender for Facebook’s social media crown seems to have correctly identified its differentiator and is building – slowly – a strategy to capitalize on that.

Twitter’s top line dropped 5% to $574m in the second quarter, a decline that would have been more dramatic without a rise in its data-licensing business. An 8% slide in its revenue from advertisers mixed with a 12% jump in daily active users points to the shrinking price of Twitter’s ad impressions. Facebook, by comparison, experienced a 25% boost in its revenue per user on its way to a 45% increase in revenue in Q2.

In an attempt to get sales growing once again, Twitter’s management has focused on the appetite of its audience for real-time information and embraced video partnerships in verticals with a similar focus – music, sports and news. Yet its drooping ad rates attest to the slow burn of such efforts: declining ad rates amid an environment of rising prices for digital video inventory.

To raise its ad sales, Twitter could pursue a media rollup in verticals that match its strengths. The $4bn it has in the bank, along with a stock that still trades near 5x TTM revenue, gives it the flexibility to pursue a series of modest-sized targets as well as larger digital media properties. For example, music video site VEVO would complement its existing streaming partnership with Live Nation and get Twitter one of the most trafficked video sites on the internet.

Twitter’s platform will never have the scale and reach of Facebook, whose monthly audience is six times larger and increasing at a higher rate. But it can expand its reach into the audiences it has by leveraging its real-time strength and extending them off its platform. As a social media company, Twitter’s a runt. But as a digital media company its open, conversational platform gives it a way to engage audiences in ways that aren’t available to other digital media firms.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.

Adobe’s search for markets beyond the web 

Contact: Scott Denne 

Adobe is extending its ambitions beyond the website. Having thrived in the first iteration of digital marketing, the vendor is turning its attention to the next one – where software has a role in all of a business’ customer interactions, not just those coming in through the homepage. It needs a wider set of software to capture that larger market opportunity and fend off old adversaries in web marketing, as well as new ones in segments such as mobile marketing, e-commerce software and customer service that are eyeing the same prize.

Today Adobe opens Summit, its annual marketing conference, with the theme of building customer experiences. It’s roughly the same theme as last year’s show, with the subtle shift that much of the content has a more instructional bent, whereas last year Adobe was more intent on convincing marketers that customer experience matters in the first place. In the intervening time, there’s been a correspondingly subtle shift in the company’s M&A strategy. Its most recent acquisition wasn’t just a bolt-on to sell into its existing sales channel like past deals. It was an attempt to open up a new path to market for its products.

Adobe entered digital marketing almost eight years ago with the $1.8bn purchase of website analytics company Omniture and followed that, according to 451 Research’s M&A KnowledgeBase, with $2bn worth of M&A that took its capabilities beyond the website, but always with an eye toward adding products that it could upsell to web-oriented digital marketers. In the last quarter, its marketing unit grew 26% year over year to $477m in revenue.

Its latest acquisition, TubeMogul, stands out not so much for its size ($540m) as for the fact that its video media-buying software is built for brand managers and TV media planners – a group with far different priorities than digital marketers, and access to larger budgets. The deal, along with Adobe’s messaging, show that it’s ready to start exploring purchases that will enable it to sell to marketers that don’t have a website-first bent and to other customer-facing parts of a business.

Increasing its appeal to mobile app developers and app-centric marketers would be a logical next step from Adobe’s roots in web marketing. Both mParticle and TUNE would serve as a cornerstone acquisition in that space – the latter for its breadth of mobile analytics and marketing tools, the former for its customer data platform that plugs into most mobile app tools. Adobe may also look to add to its e-commerce capabilities by reaching for a larger social media management product or even expanding into customer service software. Whatever its next move, Adobe seems intent on doing more these days than refreshing its website-based marketing business.

‘Eyeballing’ the farcical Snap IPO

Contact: Brenon Daly 

It might seem a bit out of step to quote the father of communism when looking at the capital markets, but Karl Marx could well have been speaking about the recent IPOs by social networking companies when he said that history repeats itself, first as tragedy and then as farce. For the tragedy, we have only to look at Twitter, which went public in late 2013. The company arrived on Wall Street full of Facebook-inspired promise, only to dramatically bleed out three-quarters of its value since then.

Now, in the latest version of Facebook’s IPO, we have last week’s debut of Snap. And, true to Marx’s admonition, this offering is indeed farcical. The six-year-old company has convinced investors that every dollar it brings in revenue this year is somehow three times more valuable than a dollar that Facebook brings in. Following its frothy offering, Snap is valued at more than $30bn, or 30 times projected 2017 sales. For comparison, Facebook trades at closer to 10x projected sales. And never mind that Snap sometimes spends more than a dollar to take in that dollar in revenue, while Facebook mints money.

Snap’s absurd valuation stands out even more when we look at its basic business: the company was created on ephemera. Disappearing messages represent a moment-in-time form of communication that people will use until something else catches their eye. (Similarly, people will play Farmville on their phones until they get hooked on another game.) Some of that is already registering at the company, which has seen its growth of daily users slow to a Twitter-like low-single-digit percentage. Any slowing audience growth represents a huge problem for a business that’s based on ‘eyeballs.’

And, to be clear, the farcical metric of ‘eyeballs’ is a key measure at Snap. In its SEC filing, the company leads its pitch to investors with its mission statement followed immediately by a whimsical chart of the growth in users of its service. It places that graphic at the very front of the book, even ahead of the prospectus’ table of contents and far earlier than any mention of how costly that growth has been or even what growth might look like in the future at Snap. But so far, that hasn’t stopped the company from selling on Wall Street.

Snap’s debut through a TV lens

Wall Street investors seem to think social media will be a winner-take-all game. Our view is that just as there were many TV shows vying for audiences in the last era of media, there will be many new-media ‘shows’ such as Twitter, Spotify and Tinder where audiences divide their time. Snap, the maker of the popular Snapchat app, priced its offering Wednesday night at $17 per share and jumped more than 50% by Thursday afternoon, giving it a market cap of $29bn, or 72x trailing revenue. Snap is a show that’s valued as a network.

The company builds social media apps focused on the smartphone camera. It was founded around the idea of sending photos to individuals that would vanish and has since built out other capabilities such as filters and lenses to augment the pictures and stories to share with larger groups. Those features have made it popular with 18-34 year olds in North America, a demographic that’s highly coveted by advertisers and increasingly hard to reach as they spend less time on TV than older audiences. That demographic, mixed with ad offerings such as sponsored lenses and other nontraditional, interactive products, has led to scorching revenue growth.

Snap only began to generate sales from its ad offerings in mid-2015 and annual revenue grew almost 7x to $404m in 2016 (its losses are even larger thanks to hefty IT infrastructure costs). Early signs suggest that revenue will continue to grow rapidly – at least in the short term. High-ranking advertising executives have publicly lauded the company and the results that it generates for their clients. And Snap had an ARPU of just $2 last quarter for its 68 million North American users. By comparison, Facebook generates about $20. Yet Facebook trades at just 12x revenue, meaning that Snap’s newest investors have priced the company as if it has already closed that gap. Facebook took more than four years to grow its North American ARPU by that amount.

The key nuance for us is that where Facebook offers a broad identity platform that touches most of the US Internet population, Snap is limited to a single (albeit valuable) demographic. Facebook has a platform that can (and does) bolt on other social networks (or shows, to stick with the analogy). And Facebook is protected by a network effect that Snap doesn’t benefit from.

Snap’s pitch that it could be an Internet powerhouse is built on the assumption of continued growth of revenue and audience through new product development (both new ad offerings and new consumer products). Its total daily average users grew just 3% over the fourth quarter to 158 million. Compare that with its quarterly growth rate of 14% a year ago and it looks like Snap is running out of steam. By contrast, Facebook put up 9% quarterly user growth leading up to its own IPO (off an audience that was then three times as large as Snap’s current count).

A broken promise to be the third leg of the Google-Facebook digital media stool led Twitter’s stock to shed two-thirds of its value since its 2013 IPO once it became obvious that its audience size had plateaued. Snap could be setting itself up for the same trap. Twitter currently trades at 3.5x trailing revenue. Snap’s coveted demographic and unique ad formats give it better growth potential than Twitter, even if audience expansion does indeed stall. Yet Snap’s current valuation forces it to chase an audience with Facebook-like scale and the window for it to be a solid but not dominant media company has now disappeared.

For more real-time information on tech M&A, follow us on Twitter @451TechMnA.