The long-awaited ad tech consolidation picked up its pace this week, as four online ad companies -- retargeting firm Criteo, ad targeter Media6Degrees, ad buying company X+1 and Yahoo -- each acquired a mobile ad tech startup over the course of three days.
Mobile ad tech acquisitions aren't an altogether new trend. Google picked up mobile ad network AdMob in 2009, and Apple followed suit in buying rival ad net Quattro Wireless in 2010. But those deals were largely about being able to run ads on mobile. The recent spate is about getting closer to targeting mobile ads as though they were desktop ones.
"Every ad tech company that's good at the web has to get good at mobile," said David Pakman, a partner at VC firm Venrock and investor in Media6Degrees.
Criteo, Media6Degrees and X+1 in particular have built businesses on the ability to target people online with ads based on their browsing behavior. To do so they largely rely on cookies that can be dropped on a browser and track the kinds of sites someone visits in order to build an audience profile and target ads accordingly.
Problem is, cookies don't really work on mobile. That means these companies may not get a slice of the growing mobile ad pie and be left fighting over desktop advertising's shrinking crumbs.
Desktop ad spending is expected to plateau at $35.4 billion next year then proceed downhill, according to eMarketer estimates. Mobile display ad spending, meanwhile, is on a steady upswing. U.S. mobile ad revenues increased by 111% in 2012 to hit $3.4 billion, according to the Interactive Advertising Bureau, and eMarketer expects mobile display ad spending to rise by 100% in 2013 and 54% in 2014.
Mobile advertising remains a nascent business, but mobile ad tech is beginning to mature. Asher Delug, CEO of mobile ad network Airpush, looked to mobile ad network Millennial Media's recent stock turnaround as boosting financial interest in the sector. "While [Millennial's stock] was so low, it kind of put a freeze on mobile ad tech IPOs that were in the pipeline as well as mobile ad tech private funding deals."
The warming interest has enabled an overcrowding of companies focused on automating mobile ad buying. Mr. Delug said Media6Degrees' purchase of EveryScreen Media "is indicative of the fact that a lot of these mobile [ad buying companies] are about to start consolidating by going out of business or getting acquired."
Many may fold, but not all as their online counterparts seek to pick up mobile skills.
"Because big companies have not invested adequately to be the leaders they all want to be, now is a good time for them to acquire companies to allow them to catch up, particularly when they don't have to pay huge numbers to get in the game," said Jeff Green, CEO of online ad buying company The Trade Desk.
Yahoo's mobile problem
Yahoo is perhaps the best example of a company in need of better mobile ad tech. The company attributed its flagging second-quarter display advertising revenue to consumers' migration to the portal's less lucrative mobile properties and ad buyers' adoption of automated ad buying that lets them place auction-style bids for impressions tied to particular users in real-time that are typically cheaper than deals worked out with Yahoo's direct sales team, like booking a hotel room the day of your stay when the hotelier might be pressured to cut prices so as to not miss out on money from vacancies.
To help address its two pain points, Yahoo has purchased AdMovate, a virtually unknown ad tech company that is less than a year old and specializes in automated mobile ad buying (the company could have helped itself yesterday by announcing the AdMovate deal prior to earnings, which the company debated doing, said Yahoo SVP-display advertising and advertising technology Scott Burke). Mr. Burke said Admovate's team of five engineers -- a couple of whom had previously worked at online ad buying firm Turn -- will join Yahoo's Sunnyvale, CA-based display advertising team to focus on "how to make programmatic buying work well in mobile."
"They'll be kind of joining the core area where we're building out programmatic capabilities around [Yahoo's ad exchange] Right Media.," Mr. Burke said. "We're also looking now at investments for accessing programmatically all of our inventory, so not just non-guaranteed but exploring ways to do programmatic guaranteed or what the industry is calling programmatic premium is a related area of investment. And the AdMovate guys will extend a lot of that thinking into mobile."
Mr. Burke acknowledged the mobile ad tech acquisition trend but described it as another form of hiring. "We would have hired them individually off the street, but they weren't looking," he said, adding that Yahoo has hired more than 150 advertising engineers since Ms. Mayer charged him with rebuilding the display team last fall. Mr. Burke echoed Mr. Green's claim that mobile ad tech startups are relatively easy buys these days because of the pressure on the fledgling companies to scale with limited cash on hand.
"That's how these guys felt. They knew they'd have to go raise money, they'd have to invest in a lot of capital infrastructure to scale up a programmatic [business]. I've already got all that. It's essentially free for these guys to come in and exercise their skills at much larger scale," Mr. Burke said.
In particular the AdMovate team's skills center on mobile targeting, having spent the startup's short existence trying to figure out how to handle cookies and identify users on mobile devices without infringing on their privacy. "Especially for Yahoo, because we're such a big media property, we also have to invest in how we target users that aren't logged in," Mr. Burke said.
For now Yahoo's mobile focus is as much on mobile web as Yahoo's mobile apps, but Mr. Burke said the emphasis in the long run is on mobile apps. That's not surprising given Yahoo's aggression over the last year in acquiring mobile app companies like Summly and Stamped as well as the company's plans to develop new mobile ad products.
Apps eclipse mobile web
Consider how mobile app usage has eclipsed time spent on the mobile web. Of the more than two-and-a-half hours a day people spend on their smartphones and tablets, 80% is within apps versus 20% on web, according to mobile app advertising and analytics firm Flurry.
Online ad companies may be able to perform rudimentary ad targeting on mobile web sites, but "they're totally blind to the in-app market," said Mr. Delug. In-app ad targeting requires back-end technology to access an app's first-party data, such as users' device IDs, in order to recognize what apps someone uses and show them ads based on that behavioral information. Mr. Delug pointed to Criteo's acquisition of mobile app tracking company Ad-X as an example of "the ultimate Trojan Horse data strategy" because the startup's "data assets could be some of the best ones in the industry."
Part of the push to figure out mobile targeting may be how it can benefit companies' online advertising businesses. That is, if online ad companies are able to figure out how to target ads on mobile without cookies, they could apply that online and mitigate the doomsday scenario that looms as desktop browsers like Mozilla's Firefox seek to prevent the use of third-party cookies
"If you're good at anonymous targeting on mobile, which you kind of have to be, that technology is transferable back to the [desktop] web. It's a hedge against uncertainty around cookie-based targeting on the web," Mr. Pakman said.
A Yahoo DSP?
That could further explain why Mr. Burke sees AdMovate as strengthening Yahoo's buy-side capabilities. More than a few ears perked up when Yahoo CEO Marissa Mayer said during yesterday's earnings webcast that Yahoo has a programmatic buying service, or demand-side platform, and that the company is looking into "can we partner with other providers to be their DSP."
Asked about Ms. Mayer's statement, Mr. Burke said Yahoo has "historically" been providing buy-side capabilities "for key clients, and so it hasn't been the case where we've launched anything that we would call a DSP in market," though the size of Yahoo's ad tech business means the company wouldn't bucket a product or service as such.
"Nothing to announce as far as an overarching brand and name, but it's an active area and we're going to market with a more sophisticated buy-side and pitch it to key agency clients and trading desk partners," he said.