Last week, a little-known French company called Criteo had a successful listing on NASDAQ. At last check the company was valued over $1.9B or about 9x net revenue. A nice multiple indeed! This comes on the heels of RocketFuel listing successfully last month and climbing to a valuation that currently exceeds 8x revenues.
In fact, in the last 18 months four other adtech companies have listed on NASDAQ (Tremor Media, YuMe, Marin and Millennial Media). 2013 may mark the most prolific year for adtech IPOs in a long time. Plus M&A activity seems to be picking up. AOL bought Adapt.tv for a reported $400M earlier this year and Twitter bought MoPub recently for approx $350M.
So what’s going on? Five years ago many VCs had written off adtech as a tough, crowded category with poor exit potential. This simplistic analysis failed to recognize the sea change taking place in how advertisers could reach their target customers. And yet a handful of “believers,” both entrepreneurs and investors ventured forth, taking advantage of the confluence of four major factors that spurred a period of adtech innovation that subtly changed the entire advertising ecosystem. Let’s explore each of these drivers.
Social: Sure Facebook is a social network, but it is also an advertising company. Similarly Twitter is not just a microblogging app, nor is Pinterest just an interest pinning site — they’re advertising companies as well. As these and other upstarts capture more attention from consumers, they create a massive “inventory” of web and mobile “real estate” on which advertisers can reach audiences in a highly targeted way. This new real estate has proved to be fertile grounds for innovation on the advertising buy side and the sell side. Many of these social apps have created APIs to allow advertisers to access the social inventory with targeting based on user profiles or interests. A host of companies, including Nanigans and Ampush Media, have been built targeting social users via these APIs. Other companies such as Criteo can retarget users on the broader web once they have been targeted on Facebook or other sites.
Mobile: The massive proliferation of mobile app ecosystems has also created a large category of inventory in which advertisers can target users based on their “presence” information, such as location and context. Mobile ads introduced a whole new set of challenges because many of the web-based tracking techniques (“cookies”) do not work on mobile devices, giving rise to a new wave of innovation — ad exchanges such as MoPub, analytics companies such as Flurry, mobile ad networks such as Millennial Media, and native mobile ad companies such as Namo Media.
Video: Online and mobile video advertising has proven to be one of the fastest growing ad categories in the past five years. As brand advertisers saw audience attention shifting to the web and mobile, online video became the obvious place to invest brand advertising dollars. With the popularity of YouTube, Hulu, and other video sites, video ads have become a very effective brand-building channel, so much so that demand for video advertising created shortages of inventory over the past few years. Beneficiaries of this rapidly growing market include companies such as TubeMogul, YuMe, and Tremor.
Programmatic buying/selling: Perhaps the most dramatic development in adtech over the past few years has been the accelerated move towards programmatic buying. With so many channels available to advertisers, marketplaces with real-time auction capability have become a must for managing the buy and sell sides and of the advertising ecosystem. Much like the stock market, programmatic ad buying allows each ad impression to be offered up by the sell side so that the buy side can bid on the impression in real time based on the information both sides have about the impression. Just like the stock market, data plays a key role in the bidding process. Many companies have built large businesses in this category — RadiumOne with its social data, TubeMogul with its programmatic video platform, Turn with its programmatic display platform, and Pubmatic with its sell side platform.
As is evidenced by some of the observations above, a tremendous amount of innovation has happened in the ad ecosystem in a relatively short time period. While not overnight, most of the companies mentioned as well as many others hit their stride within the last three years. So now the contrarian adtech investors and entrepreneurs are beginning to enjoy the fruits of their bet on adtech.
Disclosure: I am an investor in TubeMogul, RadiumOne and Namo Media.
Ajay Chopra is general partner at Trinity Ventures, where he has developed a reputation as an entrepreneur’s coach. His passion is helping entrepreneurs execute their Big Idea. He has over 20 years of operating experience at the senior management and board level with startups, private companies, and public companies. Prior to joining Trinity Ventures, Ajay cofounded Pinnacle Systems, a seminal media technology company that pioneered consumer-generated media creation. During his tenure at Pinnacle, the company grew from startup stage to a global $350M public company, won several Emmy awards, and completed over a dozen M&A transactions before being acquired by Avid Technology. Previously, Ajay was with Mindset Corporation, a computer graphics startup. Before Mindset, he held various technical and management positions at Atari Corporation, a video games company, and Unisys Corporation, an IT services company. He is a charter member of The Indus Entrepreneurs, an active group providing support for entrepreneurs and is on the Board of Trustees of the Harker School in San Jose.