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

Salmon recently discussed with AdExchanger.com his latest analysis of the marketing ecosystem in a research piece titled, "The Race For The Digital Marketing Hub: Version 1.2." Download it (PDF).

AdExchanger.com: From your analyst point-of-view, what's the biggest surprise as it relates to your Digital Marketing hub thesis this year?

DS: I think the Digital Marketing Hub idea is playing out largely as expected, but if there's one thing that surprised me, it's been the new ways in which marketing and commerce are being linked and how quickly it's happening. Certainly, the two have always been closely tied, particularly through shopper marketing and CPA affiliate network models for example. And companies like GSI Commerce have been innovating in this area for some time. But in the last 12 months, there have been a lot more new ideas than I expected. Sapient is a company that's pushing the boundaries and doing some particularly interesting things around iPads and touch-screens at retail, and a large element of MDC Partners highly lauded work for Domino's (from Crispin, Porter + Bogusky) centered around a re-build of their e-commerce capabilities. And we're only just starting to digest the marketing opportunities around the launch of mobile payment systems in the US.

Beyond convergence, can you discuss a bit more why you think enterprise software companies will become more active acquirers of "Digital Marketing Hub technology"? Any timing for this?

In addition to the convergence of the three traditional CRM buckets -- marketing, sales and customer service -- it's the broader theme of "more data, more analytics" that CEOs of all stripes are preaching across their entire companies. As data and technology help inform and automate marketing spending more and more, many companies will look to use that data to accelerate performance across the full enterprise, not just in the marketing department. And one of the more straightforward ways to do that is to integrate it into a broader enterprise software platform where other departments can access it in appropriate ways. As for timing, we've seen IBM be very acquisitive already as you know, and I think the likes of HP, SAP and Oracle are watching closely. My colleagues Keith Bachman (who covers Apple, HP and IBM) and Karl Keirstead (who covers SAP, Oracle and salesforce.com) would have a better idea of how those specific companies view the timing of the ad tech revolution, but I'm sure they're watching closely. Acquiring into this space can be a challenge from a valuation perspective, as there are many other suitors including Google, Yahoo, Amazon and the like. And it's still very early innings, and companies of that size can often afford to wait and then buy into the market in a large way once it's developed further.

How much of a risk do you see to industry ad players with the discussion around privacy, advertising and legislation?

Ultimately, I think we'll arrive at sensible and more transparent uses of consumer data to inform marketing and increase relevance. To me, the risk is not so much around a certain piece of legislation "changing the game" though it's hard to imagine certain practices won't be curtailed or modified. To me, the risk is more about how long this will take. There won't be any definitive legislation after which everyone can say "OK, we've got the rules straight...let's get back to business." Rather it's going to be an iterative process for the next 20-30 years as digital natives make up a larger and larger portion of society. That group has a very different sense of privacy, though attitudes can certainly change as they get older too. But in the end, the biggest risk is that this going to take a long, long time.

Do you think Wall Street "gets" the transformation in advertising?

Yes and no. Yes, in that everyone knows that technology innovation can have a dramatic effect on media business models and that advertising must follow audiences and audiences normally follow new consumer technology. Where the gap remains is not so much because Wall Street doesn't "get it" -- as a group, it definitely does, Google made sure of that -- but more because many individuals have a specific focus that limits their ability to explore the links between technology and marketing to its fullest. For example, if you're a consumer/media analyst at a large pension fund, your coverage responsibility could be 100 companies that run the gamut from Proctor & Gamble to the New York Times and your responsibility is to know those 100 companies cold. There's only so much time to think about how Adobe buying Demdex might marginally affect some of your companies, especially if your fund holds a position for, say, a year on average. So in the end, it's not that there's a gap in the knowledge on Wall Street as a whole, but there can often be a gap for individuals when their responsibility doesn't lie at the nexus technology and advertising. That's where I try to help.

Can you visualize how you see an IBM and Google existing together in the same ad ecosystem someday? Or will they be direct competitors?

I can definitely see them co-existing. The vast majority of Google's revenue is derived from selling ads on its own proprietary properties, most importantly the search engine. While Google is a technology company at the core, the revenue model is a media one. IBM, while also a company with technology at the core, does not own proprietary media and is instead a services and hardware vendor. Google also offers marketers services, but tends to give them away for free, while IBM is a premium, paid provider and only a small portion of its business is specifically marketing related. A helpful example is how Google Analytics has continued to co-exist with paid web analytics services like those form Coremetrics and Unica, both of which IBM acquired. In fact, the relationship may be more symbiotic than many people perceive; when I covered Omniture before its acquisition by Adobe, management would often remark how Google's spreading of the analytics gospel through its free product actually helped them in many ways by educating the market and priming those users that would eventually be ready for more sophisticated, paid solutions.

What's your take on the current debate around holding companies' Agency Trading Desks and their potential conflicts of interest?

It's an important conversation. But there is an angle which I don't think is being fully appreciated. I understand why some may view the ATDs as helping holding companies "double dip" on fees for both their advisory services and the media buy. But to me, this is not terribly different from the distinction between holding companies' creative services and their media buying agencies. One helps create the campaign, the other executes it, and they both earn revenue for doing their part in the campaign. And many companies use separate creative and media agencies owned by the same holding company, while many others use one from holding company A and the the other from holding company B. And so I think it's far more likely that we start see brands use one holding company for digital creative (mostly display today) and another for its ATD services before we see ATDs spun off into independent units. It's important to remember that ATDs aren't media properties and neither are ad networks or exchanges. The media properties are the individual websites and apps onto which networks, exchanges and ATDs place ads. It may not always seem that way to a media buyer who allocates budget to both a network and directly to several publishers. And after all, networks, exchanges and ATDs all earn revenue from participating in the media buy, be it through a revenue share or "arbitrage." But the difference between earning revenue in those ways versus the commission charged on an offline media buy is a far smaller one than the difference between a media business and a marketing services one. And so I'd like to see the debate instead shift slightly, away from the "double dipping" conversation and instead focus more on the classic agency versus principal positioning. It's a subtle point, but an important one in my opinion.

By John Ebbert