So, will the increasingly gloomy economy put a damper on rush to buy online ad networks? Not so much — at least not this year — according to a group of industry execs and observers at AlwaysOn Media NYC.
– You need scale: David Morgan, EVP-global advertising strategy for AOL (NYSE: TWX), made a sales pitch for co-existence between ad networks, and why traditional shops would still need to add the capabilities of digital nets: “You need major scale to handle marketers’ increasing requests for consumer insights and behavioral targeting. The marketers want to divide among different ad networks — 30 percent here, 40 percent there, another 30 percent here. At AOL, we’re fortunate to have a network that has a portal can deliver 40 billion ad impressions and ad network can deliver 80 billion.” And ad agencies aren’t in the business to do that. Jim Spanfeller, president of Forbes.com, acknowledged the role of ad networks but expects a quick evolution as marketers become more certain of their online advertising needs: “As the overall apparatus of buying gets better, the advertisers not going to be looking for raw tonnage; they’ll demand measurement of results. They want to be able to move their brand from X to Y; they are not going to settle for impressions. I don’t think the CPM model will go away. There’s a lot of levers that go into placing and pricing advertising. Driving the cost per action creates an enormous burden on the media buyer that doesn’t get passed along the chain. That’s something that needs to be dealt with better.” Morgan added that ad networks do more than provide “tonnage,” saying that ad networks sift through the mass of data and help advertisers and agencies “find the needle in the haystack.”
– Is the party over?: The big question that’s been asked a lot today at the conference: will ad networks continue to be bid up? JP Morgan analyst Imran Khan offered a qualified “yes.” The top internet companies: Google (NSDQ: GOOG), Microsoft,Yahoo (NSDQ: YHOO), AOL – all still have lots of free cash flow. And there are a lot of needs that have to be filled, which make it imperative that companies bring on additional units. “Traffic is crucial. Technology is critical. Getting the traffic and transferring it into ad revenue – you can still do it.” As for the stormy economy, Joshua Tanzer, managing director, Revolution Partners, provided a timelime for where M&As stand within the chilly economic environment: “We are eight seconds into a 30 second-ride. So we’re just starting to experience it.”
– New combinations: The pending merger between Google and DoubleClick has frightened a lot of people, noted David Moore, CEO of 24/7 Real Media. It wasn’t lost on the panel that 24/7 was acquired by WPP Group last year, in reaction, partly, to the race to purchase ad nets by Google and Microsoft (NSDQ: MSFT). “There are no real barriers to entry to the online ad business. But the purchase of DoubleClick will galvanize other companies to partner,” and will continue to spur acquisition activity.
– Deep enough pockets?: Agencies tend not to have the kind of cash flow that Google and Microsoft have. That won’t stop agencies from competing in the M&A race to own ad networks. Spanfeller: “It’s difficult to be profitable in the digital age. One answer for ad networks could be to take themselves private. The big ad networks aren’t all going to be bought. You have hundreds of ad networks and a dozens of agencies, they can’t all fit. And agencies don’t pay cash. they pay earn-outs. They will have to do these two-three year earn-outs. Next year, all these networks will be looking for a place. We’ll see what happens after that.”