iMedia: In general, how do the top online media and marketing services transactions in 2008 reflect broader trends within the interactive media marketplace? Are there any common threads running through some of the deals?
JEGI: There are a few common threads through these transactions, as well as other noteworthy 2008 deals. First is the continuing push to make interactive advertising more efficient and impactful. The awkward family secret is that online ad formats are by and large rather ugly compared to their offline brethren, and the process of planning, implementing and reporting an online ad campaign is still far too labor intensive and unwieldy.
Google/DoubleClick, and Microsoft/Atlas both aim to bring massive scale efficiencies, and they will succeed to a degree. But at the same time, the monoliths are always less nimble, and mid-tier alternatives will continue to thrive and trade.
It's also interesting to note that five of the top 10 marketing services transactions land squarely in the research and insights sector. Ongoing shifts in media spending and marketing mix represent sizable investment decisions, spawning demand -- and M&A activity -- in the insights and measurement fields. Thematically, online customer acquisition is also well represented in the top 10 deals, validating its efficacy and confirming expectations for high rates of growth in this sector.
Lastly, as the U.S. market matures, every company -- large and small -- is looking overseas, and a number of 2008 deals demonstrate that.
iMedia: In 2008, were there highly anticipated M&A transactions in the online media and marketing services sectors that were expected to come to fruition but didn't? If so, what were they and why did they fall through? Are they likely to be resurrected in some capacity in 2009?
JEGI: The biggest deal that didn't come through was, of course, the sale of Yahoo to Microsoft, and it is highly likely that this transaction will come back around again with the compelling commercial logic of creating a scale rival to Google. Yahoo will hire a new CEO to get ready for sale, but the likely outcome is that Microsoft will acquire the search business, leaving Yahoo a smaller pure media play with a broader set of potential buyers.
iMedia: How do you expect 2009 M&A activity in the online media and marketing services sectors to compare to 2008? What new factors will be at play in 2009?
JEGI: Among the sectors JEGI covers, we're especially bullish on marketing services. We anticipate that an advertising slowdown will dramatically alter marketer spending patterns and surface many viable and compelling M&A opportunities. We expect CMOs to funnel leaner budgets away from "above the line" brand awareness to "below the line" marketing to drive leads, directly impact sales and quickly shift market share.
Technology will play a decisive role -- such as multi-channel integration and automation for efficiency, analytics and optimization for measurement and targeting, and interactive video for impact. In the current M&A environment, recurring revenue models will prevail, and we expect keen interest and increased M&A activity in such sectors as customer contact, loyalty and CRM, and interactive advertising optimization, as well as marketing research and information solutions.
At the same time, diversified media companies will be challenged to continue to grow their offline and online audiences, and media models that generate large audiences at an efficient cost will also be in demand.
iMedia: Going into 2009, where are we likely to see the greatest amount of consolidation within the online media and marketing services sectors? And why?
JEGI: While the transactions may not be of size, we expect to see a flurry of consolidation in the social media arena -- sites, tools and services. The field is completely overbuilt based on waves of VC spending over the last three years. In the current environment, many will have to seek the safe harbor of a corporate owner, while continuing to look for a revenue model.
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Lori Luechtefeld is editor of iMedia Connection. Tolman Geffs and David Clark are managing directors with The Jordan, Edmiston Group Inc.
