A lot of people may want to get in on the business of dot coms but most aren’t really interested in the people behind the founding – particularly the most promising young ones.
That’s changing over the next couple of years, however, when investors will be digging into the map and even the content area to determine whether there’s really a strong future ahead for the sector as a whole.
That’s according to online ad network Ketchum, a well-known media channel in the advertising industry that also publishes industry news. Mark Beasley, Ketchum’s chief marketing officer, detailed the company’s online advertising strategy at a luncheon sponsored by Search Engine Land in New York on March 26.
Ketchum has long had an industry knowledge base. However, when it teamed up with Sealy to use and analyze online ad networks data through the age-old concept of Top 100, it was able to identify a company and an industry with strong potential.
“The velocity [of the industry] is rising and we believe that there’s going to be a tipping point,” said Beasley. “We can confirm that when things are left in terms of growth, the companies really haven’t fully learned how to monetize.”
While some dot coms – particularly those that took off very early – have noticed a decline in growth because of the industry consolidation of the past few years, companies like Overstock have remained strong.
Ketchum is changing this dynamic by pointing to recent M&A activity that shows that online advertising may not be that far off from the level that it was in the late 1990s. On March 29, Overstock announced a deal to acquire a Seattle-based alternative medicines seller called Vitacost for $189 million in cash and stock.
The acquisition gives Overstock another out-of-the-box and ad-savvy channel to get its message out, the best of which, the company says, is much more than a stack of money. “We view that as complementary to what we’re doing today in our business with Amazon.com,” Overstock’s founder and CEO Patrick Byrne told Reuters. “We want to take Overstock and put it into warehouses, into liquidation space, and put it in nutritional supplements.”
Last year, Ketchum spent $10 million on online advertising for the Internet industry, up significantly from the previous year. The company would not reveal how much it’s spent in the industry so far this year, citing competitive reasons.
While in the past, companies like Amazon would rather team up with established portals such as Yahoo! or Amazon.com, this year’s M&A deals will be based on the real opportunity in the sector, not short-term deals.
Google, the leading incumbent player in the sector, said at its Code Conference that it wanted to focus on acquiring companies with a strong technology to transform what it does to their online presence – a move that should make them more attractive to advertisers. Facebook, meanwhile, agreed to pay $550 million for a 30 percent share of the newly created social networking advertising exchange, AdClick. That’s an injection of cash to stoke growth, a move that should help reassure many advertisers about the viability of the industry for another year.
While Ketchum’s number one competitor, AOL, is stepping up its business in the online advertising space with new offerings such as Facebook Credits and the integration of its AOL.com site with Google search and a new advertising unit called Adserv, other players are leaving the industry behind. Indeed, Google itself announced plans to buy some 70 digital ad providers over the next three years.
eBay is planning to put its money where its mouth is by creating an “advertising network” that will open up the flow of online advertising to third parties, giving advertisers more bang for their buck. A company such as Apple, which is looking to develop a new platform and get into the increasingly lucrative online advertising market, is planning to explore similar moves.
With the newfound focus in online advertising, companies like those that became traditional dot coms could have trouble reaching their big potential.
“The early companies like Microsoft and the dot coms like Yahoo! and Google, those two most dominant stocks … dominated the initial pricing, so you’re going to see a bigger shift to you know, a pretty significant open up of the business,” said Beasley.
“It’s a new economy. The way to get those secondary players in the game is to bring all the stakeholders together,” he said.
One name that seems to be getting some media attention is Pandora, a company that’s started its business since 2005.