While many of us were not surprised to see another ad network being acquired, I for one was surprised that AOL was the acquirer. With Advertising.com clearly positioned as the largest and most recognizable ad network in the marketplace, the need to add another player to the AOL suite of brands did not seem like an obvious move. However, AOL/Time Warner has shown that owning two brands in the same category can work (think HBO and Cinemax).
AOL purchased Advertising.com in June 2004 for $435 million, and Advertising.com generated a reported $150+ million that same year in revenue. At a 3:1 multiple, AOL was getting a great deal back then and an even greater deal when you look at multiples today.
With TACODA projecting 2007 revenue to roughly be in the neighborhood of $40 million (unconfirmed), the multiple on this deal is roughly 7:1 based on a $275 million acquisition price. While we have all seen firsthand the growth and acceptance of ad networks, this is just another metric which further proves how hot the category is.
Recently, I was on a behavioral targeting panel which took place on the heels of this announcement. So, as you might expect, much of the discussion was focused on network consolidation and what impact these mergers will have on media planners and buyers. The questions mainly focused on CPM increases and/or decreases, network inventory fluctuations, and behavioral targeting. Regardless of the individual question, network consolidation is the best thing possible for the industry and for everyone involved in online media, whether you are on the buy or sell side.
With the New York Times reporting the number of networks at approximately 200, the market is clearly oversaturated. Agencies do not have the bandwidth, or frankly the interest, in constantly sorting out all the vendors, especially when there are so many similarities. And as a vendor, I don't blame them. If you want to reach a male audience on a sports site, ESPN and Sports Illustrated come to mind. When you want to reach users in the New York City DMA you may consider the New York Daily News, the New York Post or even the New York Times. But if you want to include a network on your media plan, which one do you use, and do you keep trying different ones as the phone calls and introductory emails mount up?
I have heard from many agencies that determining which network to use and why, in addition to explaining that rationale to a client, is a very time-consuming and oftentimes confusing task.
I continue to believe that consolidation is going to elevate the profile of certain key companies while making vendor selection a much easier process for clients. Fewer choices in the marketplace (at least, limited to qualified choices) will enable agencies to take more of a partnership approach with their networks and focus on scaling the relationship, not meeting with all 200 vendors. Agencies will be in a better position to capitalize on the innovation and collaboration that can lead to better campaign performance and an overall improved buying experience. On the publisher side, these changes will also help streamline how many networks a website will work with and enable them to have closer and more integrated relationships so they can drive higher CPMs and make sure their direct selling efforts are never compromised.
Michael Cassidy is president and CEO, Undertone Networks. .