Merger Talk: Wise And Batson Talk MediaOcean, Google And The Agency OS Concept

mediaoceanOn Sunday, The Wall Street Journal’s Emily Steel reported that Donovan Data Systems and MediaBank have decided to merge into a new company called MediaOcean, as the new company looks to create what it calls an operating system for advertising while it looks to stave off formidable competition from Google. Read more on The transaction still must overcome regulatory hurdles with the U.S. Department of Justice that are standard for transactions this size.

MediaBank CEO Bill Wise and DDS Digital President JT Batson discussed the deal and its implications with What was the tipping point for deciding it’s time to merge and stop battling each other?

BILL WISE: I think we both came to the realization that the level of innovation that is happening on the digital side has increased at a rapid pace.  With more and more fragmentation and with more spend going toward things like real-time bidding, video and mobile, we need to invest significantly to keep up.   If we focused on the “knife fight” with each other on traditional systems, we both were going to miss the big battle where all the spend goes to a connection point – all media is connected to an IP address.

The tipping point was actually just JT and I connecting and we had a conversation. We quickly realized that we both need to invest heavily in digital to remain relevant. It was one of those things where you have two traditional companies, both with digital guys in senior positions, realizing what we need to do and it would be a helluva lot easier if we did it together.

JT BATSON:  Another thing that comes to mind is that in our conversations, we – DDS and MediaBank – realized that we both can bring a lot of the same ideas on innovations that we have in digital and bring it to the traditional media world.  When you have the digital perspective and a strong appreciation for the value of the traditional media channels, I think there are a lot of cool things that can happen and together I think we can do that. You’ve already told the Wall Street Journal that an IPO is at least a year-and-a-half away. Will you need to funding in the interim? How do you keep up with innovation pre-IPO?

BILL WISE: We’re going to be taking a different approach.  One of the things that was called out in the Journal article was the concept of the OS (operating system) project.   The OS project is really around creating an open, neutral operating system for all startups to plug into.  We don’t want to take a position,  we’re not representing inventory and we don’t want to necessarily create targeting. What we want to be able to do is interoperate with leaders across all mediums.  Now, some of those will be our own products – and actually the analogy I’ve used internally is what the advertising world needs is an open “app” store for advertising. We want to be that app store and encourage development on top of it.

If you look at the lifecycle of an ad tech, digital startup – there’s some angel money to prove out the beta case, a Series A to build out the technology and bring it to market, and then the Series B and C is really about building the sales team to create either supply or demand relationships. We believe we can host that environment to allow those point solutions to plug-in to an open platform and give them access to both supply and demand. Obviously, we represent a lot of demand in traditional systems, and we’re going to be very, very focused on what the agencies need, the technology they need, to interoperate and run digital campaigns successfully. So, it really becomes the open alternative to Google because what they’re doing is building a closed system around the full ad tech stack. JT, regarding the traditional media side that is so important to both of your businesses, do they really fit into this “operating system” strategy, which by the very nature of the phrase – it’s very much digitally focused?

JT BATSON: The traditional media side is a key anchor of the strategy. One of the things that we see as an opportunity for this is… how do you enable the same level innovation in digital media in traditional, but, at the same time how do you maintain the same low transactions costs that exist in traditional media today? So much of traditional is moving towards digital – we want to enable that innovation to happen in a way that allows the agencies to differentiate whether it’s on technology, solutions or data –we think a vibrant world can happen there.

BILL WISE: It is more automated to execute TV buys than digital buys. So another way to look at is – the companies that are currently processing that level of automation, we want to bring that to digital.  It doesn’t exist today. So, what about the combined companies working toward providing the “Holy Grail” of providing better attribution and media mix modeling?

JT BATSON: The goal here is to make it so that an agency is able to interact with any data type, to be able to write rules or programmatic ways to interact with those data types as well as state how they want to interact with any third party system. If you think about what a demand-side platform (DSP) is for a sliver of today’s ad spend, ultimately with this open platform we want to be able to enable agencies to be able to create that across any media type, across any region of the world.

As an example, let’s take a typical digital campaign which has anywhere from three to eight data sources associated with it. So you’ve got your ad server, rich media ad server or Google Analytics or Omniture tag. You’ve got an ad verification tag and some sort of sales data. You’ve got BlueKai or eXelate or something. You’ve got a host of data points. Today, none of those things can interoperate. None of those systems actually talk to each other. With what we’re focused on, we can enable those things to talk to each other so that you can start doing proper attribution for digital.  What we want to be able to do is expose the data for our clients and then process, synthesize and decide across all media. That data layer is missing today.

So, it’s not us designing that solution. It’s the agencies on behalf of the advertisers designing what’s relevant for that particular advertiser. There’s no one‑size‑fits‑all here. So, is it safe to say that MediaOcean will deliver the technology and agencies will deliver their core function – agent of the client?

BILL WISE:  We believe it’s really important for ad agencies to be able to create solutions that differentiate their media buying services. And what we want to do is enable that differentiation.

Today, the ad agency has a mixture of buy, partner, license approach – and build in certain cases. Everything from technology to data. So a lot of ad agencies are partnering. The digital example is many ad agencies are partnering with DSPs, building their own trading desks, and many partners are licensing data from third party sources.

That right now is a tangled web and it’s very difficult to be able to pick and choose which solutions work best for each campaign or for each advertiser. We want to be able to make that much more efficient for agencies. The example is digital, but we think that can apply to all media types.

And to a large extent we do it today for traditional. The beauty of traditional is there are standards. Those standards allow traditional media to be more automated. What digital is lacking is standards. So we believe that we can help create and drive industry standards. Without this, the easy thing to do is just to go to the player who has the largest automation across the most supply of inventory, across the most media types, which is Google. If you’re working at a trading desk or running a trading desk right now with one of the agency holding companies, should they feel threatened that you’re working on the technology innovation?

BILL WISE:  No, no. That’s like telling the contractor the plumber’s going to take over his business. We provide ad tech plumbing and think plumbing is critical. Without the plumbing, the house is nothing. What you have today is a bunch of houses without consistent plumbing. So all we’re trying to do is enable the pretty houses that sit on top, and the agency trading desks are those. What we want to provide is the plumbing across the whole industry.

I’d be willing to bet that as a result of [our plans], agencies will invest more in technology in the future because they will be able to actually align technology investment to business value – whereas, today it is very tough to draw a direct correlation between the two. Because the plumbing’s there, you get to build the house that’s actually a value to your client. That’s a big deal, and that’s what has our clients excited. Let’s talk about Google and where they fit in here. How much of a competitive threat really is there today from Google, as it relates to back office operations?

BILL WISE: Going back to why we did this deal, there is a shift towards digital and we’re seeing that shift happen. Over the next five to seven years there’s going to be a major shift in ad spending, and we’re starting to see that already.

The other piece is media is -there’s more fragmentation of supply, which means the importance of technology is greater. And then there are huge amounts of fragmentation in terms of point solutions, where there needs to be a common thread and standards to drive all those point solutions to be effective.

And all of a sudden more and more media types (TV, Out-of-Home) are being connected through an IP address, which means it’s digital, even though it’s a traditional channel. Then, when you start taking a look at the arsenal that Google’s put together – you look at a mobile, they have the largest operating system. You look at video – they’re the largest supplier of video inventory. Connected TV – you can take a look at the deal they did with Dish Network to give them access for Google TV.

Display – they now have DoubleClick, and, potentially, Admeld. They have Invite Media, And, they represent 70+ percent of every search dollar. What they’ve done is build a consistent ad tech across all those media types. Now are they in the back office? No, because they make so much margin being a network.

What we believe is with technology that gives agencies the ability to create connection points, create all those spot solutions on top of a consistent platform, the market becomes actually more efficient. When I was in digital the one thing I believed in strongly was huge amounts of innovation happening at the intermediary level. But, none of it had proven that value can be pushed to the principles of the business, which are advertisers, their agencies and publishers.

We’ve all seen the slide that says, “With real‑time bidding rates have gone up, but the publishers still make the same terrible yield on that.” Because all the margin’s going to the middle. The companies that are creating too much margin in the middle, it’s not viable. It’s not viable for the market. And we think the worst offender of that is Google. So, do you have a timeline for when the operating system or plumbing will be in place?

BILL WISE: All of this is subject to government approval, at which time the government approves, then we’ll be able to share and take a deeper look in terms of development needed, resources required and a timeline. Finally, what’s it going to mean for the employees of DDS and MediaBank? Will there be some overlap?

BILL WISE: Our thought there is that this acquisition is for growth. It’s not for cost cutting. We think there’s a huge market opportunity ahead of us. We are very relevant in traditional media and have a healthy business. We are “at risk” today in digital and want to apply the right resources to become relevant in digital. So, that’s our focus.

JT BATSON: Any time you put two companies together, there’s obviously some overlap. But, I’d expect a year-plus from now that we probably have more people in the company than we do today as a result of the growth we’re focused on – that is between international growth and different areas we’re focused on. I’d expect us to be in that spot.

BILL WISE: Yes, without a doubt, if you take a look at where we are and where we need to get to, not only do we need to invest in the business, but we need to invest in the right types of people. We’re looking forward to that.

By John Ebbert

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