Ad networks: What recession?

-by Thomas Rasmussen

Akamai just got serious about online ads. It acquired ad network acerno from i-Behavior last week for $95m in cash. (See my colleague Jim Davis’ report for more on this acquisition.) This marks not just a somewhat drastic change in focus for Akamai, but is also an encouraging sign for the remaining online advertising networks. Despite the current economic meltdown, and more specifically the declining revenue and abysmal forecasts from ad giants Yahoo and Google, everybody seems to want a slice of the multibillion-dollar online advertising market.

Including the Akamai transaction, a total of 23 online advertising deals have been inked this year. That is up more than 25% from 17 deals for all of 2007, and just four in 2006. This increase in M&A activity stands in stark contrast to the overall Internet M&A picture, where the number of deals has declined more than 10%.

Moreover, despite highly publicized warnings from VCs about the decline in available venture capital and possible exits, funding has been flowing freely and rapidly to online advertising startups. Some of the many to receive funding recently include mobile ad firm AdMob, which raised $15.7m last week for a total of $35m raised to date; Turn Inc., which raised $15m recently for a total of $37m; ContextWeb, which raised $26m in July for a total of more than $50m raised; social networking ad network Lotame, which raised $13m in August in a series B round for a total of $23m raised; and Adconion Media Group, which closed a staggering $80m in a series C round in February, bringing its total funding to more than $100m.

With IPO markets closed, these startups should all be considered M&A targets. Adconion in particular stands out because of its international reach and large base of 250 million users, 50 million of whom are in the US. It would be a nice fit for one of the large media conglomerates competing for online advertising dominance. And they have shown that they are not afraid of opening the vault to do so. VC and banker sources say funding is likely to continue for the near term since there is still a lot of buyer interest. It is unlikely to suffer the same fate as the social networking funding fad, because some online advertising companies actually make money. As this segment continues to consolidate over the next year, we suspect deal flow will likely eclipse that of the past 12 months. Mobile and video advertising ventures are likely to lead the next generation of online advertising-focused startups.

Select recent online advertising deals

Announced Acquirer Target Deal value Deal closed
October 15, 2008 Technorati AdEngage Not disclosed October 15, 2008
June 18, 2008 Microsoft Navic Networks $250m (reported) Not disclosed
April 29, 2008 Cox Enterprises Adify $300m May 2008
March 11, 2008 Qualcomm Xiam Technologies $32m March 11, 2008
February 5, 2008 AOL Perfiliate Technologies $125m February 5, 2008
November 7, 2007 AOL Quigo Technologies $346m December 20, 2007
September 4, 2007 Yahoo BlueLithium $300m October 15, 2007
May 18, 2007 Microsoft aQuantive $6.37bn August 13, 2007
May 15, 2007 AOL Third Screen Media $105m May 15, 2007
April 13, 2007 Google DoubleClick $3.1bn March 11, 2008
April 30, 2007 Yahoo Right Media $680m July 12, 2007

Source: The 451 M&A KnowledgeBase

3 thoughts on “Ad networks: What recession?

  1. Hi Thomas,

    Interesting post. The Wall Street Journal had similar thoughts about many of the networks you mention being M&A targets:

    I work with Adconion, which as you noted is the independent global network with a large international reach, and wanted to point out that according to the most recent comScore rankings Adconion reaches over 122 million uniques in the U.S. More info here:{4AAB2D7A-8CBE-4F5A-AD4D-F591ABA4DB33}&dist=hppr

    Thanks for your observations on the space!

  2. Scott – CEO of Veeple

    What we are seeing here is a classic transition. Once a market is proven, the larger, more established companies begin to swallow the smaller, more innovative. They, then, use their distribution mass to scale into the opportunity. Look for more of the same with acceleration in 2009.

  3. Alex and Scott,
    Thanks for your input.

    Mr Gordon: The 50m number was directly from adconion. Either way, impressive nonetheless. As for the WSJ post, thanks for pointing that out to me. I did notice its print article by Emily Steel that come out on the same day that I published this. If you haven’t seen it have a look. It predicts doom and gloom in the ad industry based on the death of two poorly run valley start ups. I 100% disagree with the author’s argument and it goes against its own blog post you pointed out. Consistency consistency.

    Mr. Broomfield: I agree completely agree. So when can we expect to see Veeple on the block? 🙂

    Thanks for reading,

    Thomas Rasmussen
    415-989-1555 ext 128

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