Alliance Data Systems’ (ADS) intent to acquire Conversant (formerly ValueClick) for its Epsilon subsidiary might seem like a change in direction. R Ray Wang, principal analyst and founder at Constellation Research, described the intent to acquire as “the right move” to make Epsilon “a legit…tech company.”
On a first gloss that seems like a pivot. Epsilon has until now considered itself a marketing services company with a strong partner ecosystem. Does integrating Conversant’s tech push Epsilon from services to tech provider, like what rival Acxiom is trying to do with its Audience Operating System (AOS) platform?
To Pivot, Or Not To Pivot
Not so fast, said Epsilon CEO Bryan Kennedy. “That might be a little bit of a mis-representation,” he told AdExchanger. Epsilon’s heritage, he said, is around managing data and databases and building multichannel marketing campaigns; Conversant’s tech will strengthen the company’s ability to execute. “This is less about getting into the ad tech sector and more about having scale and rich capabilities in display and mobile channels,” he said.
$2.3 billion might seem a lot to pay for enhancements, but for Dan Salmon, equity research analyst at BMO Capital Markets, it’s money well spent.
“Alliance Data Systems is a fairly disciplined company when it comes to valuation on acquisitions,” he told AdExchanger. Much of Salmon’s positivity revolved around the companies’ shared philosophies (ADS and Conversant both have services-oriented business models powered by first-party data) and strengths in common verticals like retail. Two other verticals with significant overlap, Kennedy said, are automotive and healthcare.
David Yovanno, CEO of Marin Software, also thought the deal was a good one. Yovanno held executive positions at Conversant (back when it was known as ValueClick) from 2000-2008, and again from 2011-2014.
“I was surprised by the company [that acquired Conversant]. I actually thought it’d be a private equity firm,” he said. “But this deal totally makes sense, all the way around. It helps ADS build on top of their incredibly successful direct marketing and offline services, combined with good digital execution.”
What The Future Holds
One reason the acquisition is particularly opportune for Conversant, Yovanno said, is an industry-wide trend in which margins are coming under pressure as advertisers demand more transparency from their ad platforms. Being absorbed by ADS could relieve Conversant of this burden since, as Yovanno pointed out, “ADS as a whole is kind of an agency for their clients.”
Salmon, however, wrote in a research note ADS might not entirely skate above this conflict: “ADS will need to manage the increased focus on transparency and pressure on take rates.”
Twenty-four hours into the announcement, it’s unlikely ADS or Epsilon have fully worked out these business details. But other logistical questions loom as well. For instance, what role does Epsilon’s partner ecosystem now play? Should Epsilon’s ad tech partners like MediaMath fret about this acquisition?
“I’d be a little worried,” said Salmon. “If I were [MediaMath CEO] Joe [Zawadzki], I’d be calling Bryan Kennedy today and having a little checkup call.” Of course, it might not be an either-or proposition. As Salmon pointed out, MediaMath’s self-service model is different from Conversant’s managed services model. “But anytime a big customer acquires a solution that doesn’t do exactly what you do, but certainly something similar, it’s a fair concern,” Salmon said.
Those conversations with partners, Kennedy said, haven’t yet occurred.
Another question is how ADS will package Conversant for Epsilon. Will it be a portfolio solution, a full suite sale, or a combination – an end-to-end solution with disaggregated components?
Elgin Thompson, managing director at Digital Capital Advisors, said it will ultimately boil down to a sales decision: “Do they see a better conversion rate or can they get more by selling point solutions or a more holistic product? It’s been proven out solutions have to work on their own.”
Salmon pointed out the ADS way has traditionally been to push an end-to-end sale, and while Kennedy said it’s unlikely Epsilon will prevent clients from buying ala carte, he said: “The goal will be to bring these services together. The more of that process [around building data-driven marketing programs] we can manage for our client, the better we can drive marketing return for them.”
Certainly there’s a lot inside Conversant that isn’t fully connected. Aligning its multiple technology assets was one of the company’s biggest initiatives since CEO John Giuliani came over following the Dotomi acquisition. “We view that transformation as still being in process today,” Kennedy said.
Commission Junction, What’s Your Function?
Conversant’s affiliate marketing programs through Commission Junction (CJ) made up roughly 30% of company revenues last quarter, but it seems like an odd fellow in the ADS-Conversant union.
Initially, Conversant wanted to unite CJ with Dotomi, but that vision never panned out. “We see [CJ] as quite simply another arrow in the quiver for our clients that need an effective acquisition strategy for different channels,” Kennedy said. In other words, Epsilon will continue to support the business as long as clients want it, but the deeper integration into the tech stack that Conversant once hoped for doesn’t seem to be in the cards.
“I don’t think you’ll see ADS do much there,” Salmon said, though the CJ client list of retailers and ecommerce companies might provide attractive cross-sell opportunities.
“If the market has an appetite for CJ, [ADS will] continue to offer it,” Thompson said. “It’ll be more of a pull as opposed to a push – pull instead of forced down the throats of their customers. It’s always been a nice business though, the core of what ValueClick was.”
The true bell cow for ADS in the Conversant stack is likely the Common ID initiative.
Common Likenesses
Conversant’s Common ID initiative is a cross-device matching capability, a functionality that is to ad tech vendors what One Direction concert tickets are to teenage girls.
“What we hear from clients on our side is cross-channel, cross-channel, cross-channel, cross-device,” Thompson said.
Conversant fields 128 billion monthly ad impressions, according to its website, and boasts “individual-level audience insights from across 20 billion monthly RTB impressions.”
“[Common ID is] a big data scale kind of play,” Kennedy said. “The more impressions you see, the more you can observe opportunities and link it back to consumers across devices, the better equipped you can be to make bidding decisions.” Epsilon can add to this power, he said, by bringing in its own massive first party data sets.
How mature is Common ID? Yovanno called it the core of Conversant’s offerings, and better than the cross-device capabilities of Tapad and Drawbridge. Unlike those pure play cross-device rivals, Conversant can create exact matches since it gets purchase data from retail clients (“Billions of dollars in actual purchase data,” according to Conversant’s site).
Conversant also claims it has 263 million records with 200 attributes per individual. Yovanno said each record has, on average, five IDs coming from different browsers, devices or cookies. “The goal is to match any number of IDs to an individual,” he said. “Conversant is very good at hard matches on cross-device.”
Basically, if you sign into The Gap’s site on a mobile device, that ID goes back to Conversant. When you make a purchase on a home work station, that ID also goes back to Conversant, which matches everything into a so-called Common ID.
How did Conversant get those exact matches? “You’ve got to have leverage,” Yovanno said. “If you’re one of 100 media vendors on a plan, you don’t have leverage to ask for that level of integration where you’re getting client IDs at scale.”
Conversant, Yovanno said, managed to get retailers to do a deeper integration, even to the point of onboarding store sales. It could then link offline store sales with an online ID. “Their whole sales pitch was return on ad spend,” Yovanno said. “Not just trying to drive metrics of media vendors on a plan…but driving business results and revenue: ‘We can show you offline sales that happened from the impressions we serve online.’”
