"Today, we're starting to understand that the Internet is going to fundamentally alter the way businesses promote their wares to prospective customers. So the entire online ad business is getting snapped up at (literally) any price. Even though the buyers have no clue what it is they're trying to buy. All they know is that if they don't buy it, someone else will.
What they're really trying to buy into is the webification of advertising."
Phil rightly notes that before the Web came along, advertising was a totally disconnected activity. But now, the Web enables personalization of marketing messages and the ability to track the success of that. The companies that are being snapped up - DoubleClick, aQuantive and others - have built online advertising solutions that have achieved a certain amount of network effects. But Phil argues that they won't scale as much as the "over-inflated" prices that Google, Microsoft et al paid for them indicate.
]]> Interestingly, Phil points to a Read/WriteWeb post last week to hammer home his point:"There's value in interpreting the information, but to realize that value they have to share the information rather than walling it in. There was an insightful article on Read/WriteWeb the other day, discussing the potential to build an open ad network on the Web.
This is not only Google's vulnerability, it's the prick that is set to burst all the over-inflated deals of the past few weeks."
I think Phil has a point there. The Web has always been good at cutting out the middleman - and the likes of DoubleClick and aQuantive are quintessential middlemen, of the online advertising age. An open advertising network, such as Sean Ammirati suggested, is one way of routing around the middlemen.
Also let's not forget that online advertising is so far the only proven business model for most startups. That's no doubt fueled some of the recent feeding frenzy between Internet bigcos over online advertising companies. But the Web has yet to fully embrace alternative business models - subscriptions, micropayments, etc.
As for the big question, is the recent acquisition fever a sign of a bubble? There's definitely a whiff of panic about the recent deals - or more accurately, fear of Google (who started the feeding frenzy by buying DoubleClick last month). It also seems like a game of Follow The Leader, which is of course Google. As Sean suggested and Phil backed up, there is potential for an open network to disrupt the online advertising industry. And I wouldn't discount the rise of alternative online business models either, even though they haven't been successful so far. What do you think?
]]>Focus areas are:
- E-mail marketing solution providers
- Web survey lead providers
- Ad networks within/for iTV, smart phones, virtual worlds and games (e.g. Third Screen deal by AOL)
- eMarketing 2.0 solution providers (social media optimization, blog ads, RSS ads, tagvertising, social netwerks ads/buzz marketing (Facebook ?), wikis (SocialText by Google)
- eMarketing optimization companies like Memetrics
Interesting post.
Also, the comments from GJ van Engelen hit home to me. Very strong thoughts. I like his ideas on CMS, ISPs and Google hosting. In which ways is this latter idea different from Amazons initiatives on web scale computing (using processing power, storage, bandwidth, business processes/BPO) ? If you are right, Amazon and Google will compete in this area as well, on top of the A9 search engine and Google Search itself. And Yahoo and Microsoft build the same infrastructures it seems as we speak.
Furthermore, the closed loop marketing (or value chain) approach of Google is highly synergetic. See also my previous post on digital marketing trends and the Google-Doubleclick deal for more details on this issue:
http://yuri.typepad.com/yuri_blog/2007/04/googledoublecli.html
In this post I also mention the importance of other digital marketing channels like iTV, mobile and games. In my view the coming months and years we will witness increasing M&A activity in these three emerging channels as well as in the e-mail marketing space. It might even extend to the eMarketing 2.0 space with lots of different web 2.0 methods of advertising. See my elaborate post here on eMarketing 2.0:
http://yuri.typepad.com/yuri_blog/2007/05/how_does_market.html
Additionally, the automated dynamic optimization of this value chain is in scope due to solutions like Memetrics. Google might offer similar solutions someday and even extend it. Example, the synergies between different digital marketing tools is still a space left wide open. If you search on Google, go to a website, do not convert to sales, it might be of real value to integrate this particular used search keyword in the banner creatives targeting the same individual (while protecting privacy) afterwards.
Interestingly, the traditional advertising sector is fuelling this M&A activity. They acknowledge the importance of digital marketing now and they feel the sense of urgency to step in to stop the defection of key advertisers.
I also like the idea of an open ad network (open source) but it seems to me that this idea will only gain share if it can offer a similar value chain/closed loop marketing solution to Googles. In my view this will take considerable time.
Finally, can anyone explain to me what the real value is for Microsoft acquiring aQuantive ? Ok, ATLAS in interesting and its measurement capabilities. But the web design agency part of this deal is positioning Microsoft as a competitor for many different web agencies using Microsoft tools. This might fuel the already rising importance of open source alternatives to Microsofts offerings.
]]>Adding a single link will multiply the value, not only because of the value of the link itself, but also because the previous links in the value chain get a higher value, because of synergies.
If you look at Googles' actions from this value chain perspective their steps are very logical:
Currently their only real blind spot is reliable cross-site user tracking, which currently can only be done by ISP's and companies like DoubleClick. The next logical step for Google would be to offer free web-hosting to site owners and connectivity or proxy-services to end-users. This would lead to huge cost savings on one hand, because they already store the content of all sites on their servers (Google cache) but they would not need to crawl the sites anymore! On top of that they get extremely usefull statistics about general and individual interests and higher subscription rates to Google adwords and adsense. Also will they be able to take a percentage of all transactions generated via sites hosted by Google. Googles' more or less stealth
but billion dollar investments in bandwidth and storage, might lay the foundation for this. Next logical acquisition targets for Google might be content management vendors , proxy server vendors and ISP's.