Ecosystemopoly

LUMA Partners amusing “Adtechopoly” game

DIGIDAY: Target, New York, 5 May 2011 – If you work for one of the companies within the famed Kawaja logo vomit map, the only place to be today is at DigiDay Target. The event, in which every single presentation referenced or displayed the famous slide in question, is the nexus point for ad technology executives, publishers, advertisers, and investors looking to understand—and profit from—an increasingly volatile industry.

“The Ecosystem Map is a DR game” – Terence Kawaja, LUMA Partners

From the top down, the digital display advertising ecosystem map may actually look like a Chinese menu from which large, SaaS model companies can select best-of-breed players to consume. Over the coming months and years, most of the companies within the map will either become profitable or (better yet for the acquirer) battered down in valuation, and subject to an exit scenario. The slightly profitable ones will become features of larger platforms. The fun new twist on the LUMA map is the recently unveiled “Adtechopoly,” in which companies appear as Monopoly board game properties, and the players traversing the board are Google, Yahoo, AOL, Microsoft, IBM, and Adobe.

Most properties will leverage themselves and go bankrupt (do not pass go, do not collect $200M exit). Many will be acquired, and few will exist as independent businesses. So, what is the prognosis? Here is what I heard this morning:

–  Bubble: What bubble? Just because VCs are pouring lots of risk capital into questionable businesses, doesn’t mean we have a bubble. After all, a VC has to have a fairly low success rate to return value to investors. Unfortunately, according to Kawaja, “over half of the 35 deals in the last year didn’t produce a return on capital.” Kawaja expects that number to increase over time. But bubble? Not really. According to Kawaja, based on 2007 levels, multiples are not nearly where they were, so “it doesn’t feel like a bubble” to him. Unfortunately, it may feel that way for many of the ad technology folks in the room.

–  Who’s going to Take Over: The general consensus has been that Google is going to own most of the decent technology powering the advertising ecosystem, but Kawaja admits to “spending lots of time with IBM, SAP, Adobe, and Oracle.” For big SaaS companies, advertising is just one more industry to power with technology. That being said, “there are some really cool companies trying to piece together a stack” that will aggregate and organize the disparate technologies in the space.

–  Agencies: The holding companies on the new Ad Monopoly map cleverly appear as the railroads. Big, entrenched, and monopolistic, holding companies continue to command the lion’s share of advertiser budgets, but struggle to continue to be relevant to their clients. Agency trading desks were somewhat derided for having nothing more than “pretty logos,” instead of pure play technologies. Clients are looking to their agencies to be system integrators, and evaluate and deploy new technologies on their behalf but…they are agencies. In other words, agencies are not the first thing that comes to mind when you hear “systems integration.” Companies like SAP are. When the SAPs of the world are in the game, and having “big company to big company” process discussions with advertisers, do you think Omnicom will not be in the room? Me neither. As Kawaja correctly notes, “inertia is the agencies’ friend” but things are moving pretty quickly.

–  Remarketing: As for this highly popular and effective part of the ecosystem, “these companies only work because of failure.” In other words, according to Kawaja, remarketing to consumers only has to occur because advertiser sites are so non-engaging that the marketer has to pay (again) to bring that consumer back to the site. As advertisers work with their technology and agency partners to build more compelling online experiences, this need will shrink. For me, these companies suggest more of a feature, than a business onto themselves.

–  Where’s the Beef? For Kawaja, “the meat in the sandwich is the intelligence layer.” If we believe that advertising will continue to be more science than art going forward, the companies that win will be those that build the engines that decide “if this, then that” and create performance. Right now, the technologies in the industry are focused on direct response advertising, which provides a hyper intense proving ground for the technologies that purport to inject performance into campaigns, and get data insight out of them. The future, however, will depend on how those technologies adapt to the premium brand advertiser.

–  Creative: There’s been a lot of talk about the need to transfer the rich experience of magazine reading (beautiful photos and design) to cluttered online pages, filled with flashing, annoying, interruptive ads. Project Devil is leading the way in bringing an “engaging, beautiful” experience online, so look for more entrants who can migrate truly interactive (rich media and video) experiences online at scale.

I will have more to come on a very exciting and high quality seminar…including what seems like some virulent industry backlash on 3rd party data and RTB players.  For now, industry players should spruce their properties up as the players warm the dice in their hands, and get ready to traverse the board. The moves your ad technology company makes in the next few months may make the difference between being located at Boardwalk…or Baltic Avenue.

[This post was referenced on the 5/10/11 edition of AdExchanger and published in  Business Insider]

PS: Does anyone else find it hilarious that AOL is the dog?