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Wednesday, May 23, 2007

AQNT, TFSM, DCLK, and Chaos

Is is just me or do investment banking types like their summers off? There seems to be an uptick in massive mergers and acquisitions of late in general. In our online ad industry, four major unclaimed pieces of the ad services and ad inventory pie have been snapped up. Yahoo took control of Right Media; Aquantive, which owns Valueclick (which owns Commission Junction), agency Avenue A/Razorfish, and bid management tool Atlas, was bought by Microsoft for so much money ($6 billion) that it counts as Microsoft's largest ever acquisition; mega-agency WPP bought 24/7 Real Media (among other assets and agency services, it's owner of bid management technology Decide DNA); and starting the whole domino effect in the first place was Google's $3.1 acquisition of DoubleClick (which has a number of interesting assets in the ad serving and bid management field, but also owns an agency, Performics).

We're a long way from Google picking up tiny Sprinks (an ad system that mostly served customers placing ads on About.com) for low millions. But this example might help us better understand what's going to happen next. Google replaced Sprinks inventory with its own, eliminated Sprinks' unique methodology from the marketplace, and more or less gave the employees their walking papers (no doubt politely and amicably).

So my reaction to the recent acquisitions - particularly DoubleClick and Aquantive - was that it would throw our industry into short-term chaos, on a number of fronts. The diversified nature of the acquired companies meant that people and products would be moving around some more before they came to rest and re-formed altered relationships with customers.

In each case, I think the key question to ask is, what part(s) of the acquired company are the acquirers really buying? In spite of statements to the contrary, the acquiring companies do have plans to sell, eliminate, or drastically reorganize big chunks of the companies they've acquired. This is plain.

I checked out industry reaction, both by polling some industry insiders for their viewpoints, and by reading some of the commentary. Here's a selection:

  • In MediaPost, Mark Simon pointed out that a bid management tool like Atlas (remember, owned by Aquantive which is now going to be owned by Microsoft) is used to manage a large number of high-spend search accounts. Atlas has a lot of detailed data about search campaigns, particularly those run on Google. Great competitive intelligence, right? Too great. Simon followed the logic to argue that there's no way Google won't block API access from bid tools owned by major competitors. I would take this a step further to try to imagine exactly how Google will reorient its policies so they don't seem discriminatory. Let's make that the next bullet point...
  • I believe, along with some others, that Google will study and redesign some of what they've acquired from DoubleClick (the DART Search bid management system) to begin offering sophisticated bid management in-house. Listen, they were on a path to implementing this anyway, and it was going to hurt a lot of third-party bid management software firms because we'd be able to get this functionality free within AdWords. That now looks like a certainty within six to twelve months; as with Urchin-Analytics, improved versions likely hit the market (at no cost to you) in 18-24 months.
  • I'll shift gears and offer my take again. WPP and 24/7 is an odd one. They need the agency services side. The inventory and network parts seem out of place. The bid management tool will be ineffective or actively blocked by Google and Yahoo. So this means WPP drastically overpaid for an agency add-on.
  • Danny Sullivan told me that he sees conflict-of-interest problems:
    • "I simply don't see how either Google or Microsoft think they are going to be able to hang on to interactive marketing companies that are involved with gaining placement with their search listings. It is simply not compatible with trust for searchers or advertisers. Even if information isn't exchanged, the perception will be that it is.
      Overall, I feel like the acquistions are a grand rush to build up interactive ad networks to rival, in particular, the contextual ad network that Google has already built and is mining. I especially understand the desire with Google and Microsoft to gain better tools (Yahoo actually purchased a real network). But in the rush to get the tools, they've gained a lot of other baggage they'll have to deal with, whether they like it or not."
  • Richard Zwicky of Enquisite considers the WPP acquisition to be particularly notable because it's indicative of a belated (panicked?) acceptance by traditional ad agencies of the interactive ads space and even the search ads space. Richard also drew attention to the Interpublic acquisition of Reprise Media and the "outstanding team there." Looking to the future, Zwicky predicts a rise in M&A activity targeting boutique online services firms, especially in search. But he believes boutique agencies need to become diversified boutique agencies, not mere one-trick ponies stuck on, for example, SEM or SEO.
  • Matt Van Wagner of Find Me Faster thinks "Microsoft will have to spit Razorfish back out or they will be in conflict with many of their advertisers."
  • John Krystynak of GotAds told me that Microsoft's purchase of Aquantive was monumental stupidity. On his blog he pointed out that they paid 14X revenues for what is essentially an agency, and "agencies aren't exactly known for pristine revenue reporting." He says that if he were an Aquantive customer, he'd be looking for a new agency right now. (But John, what about Valueclick and Atlas? Those are the non-agency parts.)
  • In a detailed post too long to paraphrase, Linda Burlison outlines potential chaos in bid management and media buying across the various competitors; this is particularly evident especially now that so many conflicts of interest have been created by these various acquisitions.

Posted by Andrew Goodman




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