Tolman Geffs is co-President of Jordan Edmiston Group, which offers independent investment banking services to companies within the media and information industries.
AdExchanger.com: Do you think the ad tech ecosystem is too crowded?
TG: Is it crowded? Absolutely. Will every company that gets funded give a decent return to its VCs? No way. In fact, I think you could take segments of it, and if it was possible to collectively short the segment, you probably would.
There is a real race for scale going on now where you’ve got a few large players in each major segment, a lot of middle tier players, and many more early entrants. Some of those early entrants will have amazing innovations that will propel them to the top; most won’t. Consolidation is now happening at a really fast pace, because it’s a race for scale.
Last year we handled Hearst’s acquisition of iCrossing, one of the largest interactive ad deals of last year. What Hearst ultimately was buying there was scale. iCrossing had to do a lot of things right for its clients in order to get to that scale, but ultimately it was because they were the scale leader in the space that they were attractive for a large, extremely well run group like Hearst to acquire.
To put it another way, iCrossing could have been doing all the things that they were doing right, but if they were half their size, this wouldn’t have been nearly as attractive an acqusiton.
What’s not getting addressed by the ad tech ecosystem?
I can point out a few areas where there still feels like the business opportunity is large relative to the numbers of companies going after it. One is data management, particularly on behalf of publishers. Again, the little old lady walking down the street with dollar bills fluttering out of her purse.
A few good companies are focused on this such as pure plays like Demdex, Red Aril, BrightTag and Krux. And players who started in other parts of the chain, like eXelate, Collective and AudienceScience, have made a major commitment to providing data management functionality for both the buy side and the sell side, mainly the sell side.
So a few groups are moving into this space, but it’s still such a large opportunity. All that user data is originated by publishers. Because of cookie deletion, it needs to be constantly refreshed and re‑originated. And those publishers aren’t, in many cases, aware of what’s going on or needed to manage their own user data. That’s big opportunity number one.
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Big opportunity number two is in the whole Facebook ad‑buying ecosystem, where it was 13% of display ad revenue last year and will attain 21% this year, according to eMarketer.
But in terms of the number of companies that are effectively addressing media buying in the Facebook world, it’s a much less dense population than the open‑web world. You’ve got a few companies like Spruce Media here in the U.S. or Techlightenment, which just got bought by Experian, in the U.K. who are doing it. Other players like Efficient Frontier are rolling out their tools for buying display on Facebook.
But still, a relatively small number of independent companies are helping marketers advertise in the Facebook ecosystem, compared to the volume of large and small marketers buying directly from Facebook via their sales team or DIY using the Facebook advertising self-service tools.
That said, Facebook does not allow anyone else to leverage their data for ad targeting, and the data can’t be used for ad targeting off the Facebook site. It reminds me of the early days of AOL, when AOL was a walled garden. I remember being a young McKinsey consultant in the early ‘90s doing these studies that earnestly considered whether the closed approach of AOL and Prodigy would win or the open approach of this thing called the Web would win. In hindsight, those studies are mildly embarrassing.
Facebook for now is keeping the cookies to themselves. But I think an interesting dynamic will play out as the biggest competitive battle right now is Google versus Facebook in terms of direct response ad dollars. Competition between those two will heat up. Google has also been in effect a walled garden. Nobody else can use Google data to target; you can only use Google to do it.
I’d be really curious to see if competition between Google and Facebook edges them toward making their data available for targeting off of their own platforms and their own properties.
Should smart publishers start thinking about bringing agency services in‑house if they haven’t already in order to capture marketing dollars?
Absolutely, and almost all of them are. They will be careful they don’t get into an overtly conflicted position where they’re on the buy and sell side for their core media business. So if you’re Meredith, you don’t own a marketing services business that’s buying magazine pages. But you’re very happy to own a CRM business that’s expanding into areas like social and mobile where you don’t compete as a publisher at scale.
Many publishers are thinking like that. One great example goes back five years ago when we sold PointRoll to Gannett, which at the time had folks scratching their heads. It’s been an absolute home run for Gannett.
Publishers all know that there is a secular shift going on — dollars are moving to more‑targeted media and below the line. Publishers know that just selling display isn’t enough anymore; they need to offer their larger customers a broader suite of services for acquiring and holding onto consumers.
Interestingly, just as publishers are looking at agency services, the big data players are looking at this, as well. Groups like Epsilon and Experian and Axiom are thinking hard about how do they become larger contributors in customer acquisition for their clients rather than primarily stewards of the customer retention database. There’s quite an interesting competitive dynamic playing out now in interactive marketing services.
Do you see a talent shortage anywhere in digital?
There’s a huge squeeze in sales talent, and especially sales management talent – CRO, regional director of sales. Secondary squeezes are for really capable CFOs, execs about whom a board can say, “OK, this is a guy who can take us through either a sale or an IPO.” I know a lot of companies looking for that level of a player.
What is the most important role that any investment banker can play for their clients?
The role is making a market for the company, because you usually only sell a business once and you want to get a fair price and terms. Offers sometimes show up in a vacuum – every so often lightning strikes – but even then most of the time you don’t have full confidence it is the best price available. So the function we perform is making the market. And you don’t need that many data points. Two can do it. Five is better. Ten is better, but two can do it.
And human nature is such that competition brings out everyone’s best behavior. Acquirers often don’t realize how much they truly love a company and a team until they feel the nudge of the target possibly going to their competition.
So, that’s what we do. Of course, there are many other things we do such as helping a company prepare for sale, managing a tight process, watching out for the landmines that we’ve all seen a thousand times, and being very creative on potential buyers. A healthy proportion of our deals close with acquirers who were not on the A‑list of likely buyers. Like when we sold Acerno, nobody had guessed Akamai would be the buyer for a behavioral targeting group.
And, it’s important to have that creative thinking. Sometimes there are only two logical buyers for a company, but more often there’s a larger number of potential buyers. The only way to find out is to be creative and go talk to them.
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