Dan Salmon is an equity research analyst at BMO Capital Markets and covers advertising and marketing services.
AdExchanger.com: Please provide a bit of background on you and how you and Bank of Montreal got into the marketing services space.
DS: BMO Capital Markets is the investment banking arm of BMO Financial Group (aka Bank of Montreal) and it has been providing advisory and capital markets services in the media, advertising and marketing services industry for some time. However we increased our US focus in recent years including the creation of my role: equity research analyst. I began covering the industry for BMO in April 2008 and continue to add new companies to my coverage list. As for some background on me, I am a Canadian citizen and have worked in the equity research business since graduating from college. I began my career at Saloman Smith Barney on the Hotels and Casinos team from 2000-2003 and have been with BMO since 2004, where I began working on the Broadcasting and Internet Media team.
What has surprised you about the digital media space in 2010?
Slowly but surely, many people are beginning to expand their definition of “digital media” to include things like addressable IP-based television (IPTV) and digital-out-of-home (DOOH). For so long, the term was confined to lead generation, search, display and email, and then eventually rich media and mobile. It’s no secret that the media and marketing ecosystem is evolving into an all-digital one, but up until recently my discussions with “digital media” companies were normally confined to “the internet” and maybe mobile. Now when I ask if they’re beginning to think about evolving their offerings to handle DOOH and IPTV, the answer is increasingly ‘Yes!’
My research covers a wide swath of companies that ranges from ad agencies to direct marketers to interactive marketing services/technology and market research companies. To me, the point at which all of these sub-industries come together is a concept I like to call the digital marketing hub: it’s the point at which the buying and selling of media and marketing messages — traditionally a relationship-driven endeavour — meets technology platforms. It’s been underway for many years, but continues to accelerate and it affects nearly all companies I research, from the agencies of Madison Avenue to the start-ups of Silcon Valley. Whether you call it a dashboard, a hub, or an on-demand client, we’re moving to the point where marketers will have real-time data about the majority of their marketing spending pumped to their screen of choice and be able tweak bids and shift budget instantly and seamlessly. This will also help accelerate the breakdown of the three traditional silos of customer relationship management (CRM): marketing, sales and customer service. Eventually the digital marketing hub will be rolled into a digital customer hub.
Regarding M&A, do you see it taking place in 2010, 11, 12? What will be the key drivers?
We see it already underway in 2010, but expect it to accelerate and carry through 2011 and beyond. The key drivers include recovery of the global economy, actions taken by by the largest players (Google, Microsoft, etc.) and the anxiousness of venture and private equity investors to exit and monetize their investments. Importantly, with the stock market remaining volatile, M&A continues to appear more attractive than IPOs at the moment.
Is the value chain too cluttered? Are there too many players?
Yes, but that’s perfectly natural and to be expected. As value chain elements like creative optimization and data exchanges emerge, entrepreneurs are rushing to the opportunity, as would be expected. But eventually the equity returns will begin to be constrained and winners and losers will emerge (as they have in areas like ad serving). After that, consolidation begins in earnest and continues until dominant players and some amount of standardization emerge. A good sign that the process is approaching completion is when we begin hearing complaints about a monopoly somewhere in the value chain. This is the natural cycle for any new innovation that is added to the ecosystem and I expect many more to come, so there will always be new, cluttered areas emerging.
In regards to your upcoming BMO conference on June 10, what makes an effective conference from your research POV?
The key for our conference is the same key for my research: at BMO, we make no distinction between traditional and emerging marketing services and we don’t believe investors should either. For many of your readers that will seem obvious, but my investor clients tend to focus on sector silos, in particular Media, Technology and Business Services, and sometimes that can limit their view to immediate competitors/opportunities but not more distant ones in emerging areas. I believe advertising and marketing services draws on elements of each of those traditional investment specialties and I enjoy breaking down those silos with clients. Our conference will be successful if we can demonstrate this concept to the investment community.
When will display advertising catch search in terms of total ad dollars spent, if ever? Why?
Display may catch search when we begin to expand its definition. What’s the difference between a banner ad shown at the top of my friend’s blog and the graphic prodding me to order Domino’s pizza via my TiVo? Or the digital sign above my subway stop that reminds me that the NHL Playoffs are on later that evening? Yes, the infrastructure is still different and those ads are certainly bought and sold differently today. But those boundaries will continue to fade and we’ll move on from narrow terms from like search and display, and focus more on where the ad is delivered and whether or not the marketing message is passively targeted around infotainment or actively sought out by the user.
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