BMO's Salmon Reviews An Update To His 'Digital Marketing Hub' Thesis

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Dan SalmonDan Salmon is an equity research analyst at BMO Capital Markets and covers advertising and marketing services.

Salmon recently discussed with AdExchanger.com the latest industry events as well as an update to his ongoing analysis of the marketing ecosystem titled, "The Race For The Digital Marketing Hub: Version 2.0." Download it (PDF).

AdExchanger: In this 2.0 version of the Digital Marketing Hub, what was the biggest surprise for you?

DAN SALMON: I think it was less about being surprised and more about the fact the Hub is really starting to happen. That wasn't the case four years ago when I started to write these reports. Then, it was largely about web analytics tools like Omniture, the beginning of programmatic buying and RTB in display, and the continued use of basic enterprise marketing software suites, which were more about marketing mix modeling and asset management. And these things tended to be dispersed around the enterprise, rather than weaved together to present a holistic view of marketing spending and the related data.

Today, however, major brands are beginning to get very active in combining tools and creating dashboards for the CMO, their in-house staff and their agency partners. If I had to point to one thing that has accelerated this, it would be the rise of the data management platform concept. While it's not exactly new -- companies like Acxiom and Alliance Data Systems' Epsilon have been doing similar things for years under the name of "database marketing" -- the increased attention to leveraging a brand's 1st party data for more than just traditional direct marketing has definitely helped brands accelerate their creation of Hubs.

Given the Hub thesis, what's your take on Google's announcement last month to more tightly integrate their ad tech platform?

It seems like the rollout of the DoubleClick Digital Marketing suite represents the end of a multi-year strategy at Google to build the complete end-to-end technology platform for the future of internet protocal (IP) marketing. No doubt there will be lots more innovation, but when I look out at the marketplace now after the acquisition of AdMeld, there are really no major point solution categories where Google/DoubleClick is absent, at least in display. Where I think it has implications for the display ecosystem is in the form of pricing pressure for intermediares. Google often speaks of the the $0.28 of each display dollar that goes to intermediaries and with its full end-to-end solution in place, I'd expect the company to get more aggressive on pushing that down, which can have the effect of creating better yield for both buyers and sellers.

The thing that is most exciting to me about the new suite is how it could begin to move further beyond what we call "display" (there is already an increasingly strong mobile and online video element within Google/DoubleClick's services) to over-the-top and addressable television, digital out-of-home and in-store (among other "channels"). In the future, I believe most advertising will be delivered over IP networks and DoubleClick is the dominant player in doing just that. The company's management often talks about a $200 billion opportunity in "display" and I believe it's this wider view that frames that number. And it's probably also a conservative estimate too.

Among the models that are "'Twists' on the Basic Ad Network Model", which is the strongest or most long-lasting and why?

Affiliate Marketing. So many "twists" on the ad network model are simply plays on buying traffic at a low price, and then selling it for a higher price (what many call arbitrage, though I prefer "making a spread"). The risk, however, is that your supply of traffic changes all of sudden and the cost to acquire it jumps. Because Affiliate Marketing doesn't rest solely on the playing the spread game, I think businesses like ValueClick's Commission Junction -- which has been the company's most consistent business over the past 4-5 years -- have many good years in front of them.

With Facebook's apparent plunge into the exchange space, do you expect them to stay there?

Definitely. Facebook Exchange has added a new way to buy ads on Facebook.com and I think it's a great move to bring more buyers and demand to their ad platform. While it appears to have a few quirks that make it a bit different than typical exchange-based-buying, I expect the approved demand-side platform and agency trading desks are find making adjustments for Facebook.

What brings brand dollars online -any trends to report?

Two things are bringing brand dollars online. The first is free earned and owned media impressions in places like Facebook's brand pages or free mobile apps in the Apple and Android app stores. However, in these cases, it tends to be business services providers (like agencies or social software-as-a-service companies or independent developers) that capture the spending around these opportunities, as the cutomer-brand impressions are typically free to acquire. So beyond paid media spending to help drive customers to visit or download these, this doesn't do a whole lot to increase "online advertising" as we think of it in the sense of the figures reported by the IAB each quarter, which is paid media of course. But the second thing bringing brand dollars online certainly does impact those figure, and that's online video. While there's certainly more data and feedback loops around branding today versus 20 years ago, the practice continues to be rooted in creating an emotional connection between the user and the brand, whereas direct marketing -- the foundation of "online advertising" -- is about driving a customer further down the marketing funnel and ultimately to a sale. And while there are certainly earned and owned opportunities around the use of video online, what I'm most interested in is its impact on paid media spending as the buying of TV (the 800 lb gorilla of branding budgets) and online video really start to be integrated. That's what moves the needle on those IAB figures.

If you would, please put your "macro view" glasses on. Where do you think innovation needs to occur next, the most?

Two things stick out to me. The first is transaction data and its role in marketing. Transactions represent the very tip of the marketing funnel and knowing what a person buys is obviously very valuable to a CMO. And so while non-traditional companies like Accenture and Adobe are getting a lot more attention in the marketing world these days (and rightfully so), I'm as interested to see what a company like American Express can do. The second area of innovation that interests me is one I first noted in the Hub reports four years ago that finally seems to be coming to fruition. And that's the "Digital Customer Hub." Marketing is only one of the three classic phases of customer relationship management -- the other two are sales and customer service -- and I've always figured that ultimately the "Digital Marketing Hub" will be part of a broader "Digital Customer Hub." And so when you see companies like salesforce.com and Oracle joining IBM in building out marketing technology offerings, it seems like the Digital Customer Hub is gaining momentum.

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