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Real-Time Advertising

I attended the excellent AdMeld RTB (real time bidding) conference today.  The conference focused on the rapid movement of online ad inventory to real time bidding platforms.

For some time now I’ve been concerned that the glut of advertising inventory available on the web would drive the value of most of that massive long tail of impressions towards $0.

While there is certainly a degradation of value taking place given hugely increased supply, user data is fundamentally improving this problem by providing the ability to target at the user level (vs. impression) and thereby significantly increasing value.

The online ‘non-search’ ad space is (finally) starting to look more and more like an efficient market, where almost every piece of inventory has value to some advertiser because of the specific user it touches, the data on that user and how/when/where it touches that user.

The equation —> Real time inventory + Data = Value.

The key remaining question however is price — what is each impression worth at the end of the day?

Current real-time exchange impression value is certainly depressed versus artificial rate card CPMs, but largely higher than traditional run of network/remnant rates. Eventually though, this exchange inventory will likely increase in value as more and more useful data is appended.

How much more value?  And what does the composition of this market look like when it all shakes out?  Too early to tell definitively.

What’s clear though is that RTB is the future of online direct marketing beyond search.

A representative from eBay said today at the conference that real-time exchanges currently provide the best ROI of any platform across the board for them, and they are increasingly moving dollars to RTB from search.  This may be somewhat of a function of the artificially low-priced available inventory, but it is still incredible given where the market is starting from.

Branding dollars are increasingly moving to these platforms as well, as buyers continue to push for buying all types of media through this more efficient methodology.  To combat this, many publishers are now adding pricing floors for ‘premium’ inventory moving through exchanges to create scarcity value.  This feels like it will work for very unique inventory and audiences.  Although I’m not sure how sustainable it is for how much inventory over time.  It will certainly be interesting to watch and likely have massive impact on publisher top-lines.

What is clear is that a lot more inventory is heading to RTB platforms.  The shift from search will drive prices up for this display inventory, and prices will stabilize at some point much higher than today but perhaps less than historically achieved through direct sales.  And certainly advertising dollars will be more efficiently distributed across the web vs. concentrated in a few sites.

This is a fascinating market just beginning to unfold in front of us.  I’m curious to hear your thoughts and perspectives.

Take Advantage of Expensive Paper

We’ve recently seen a number of deals where founders/employees and in some cases early investors have taken money off the table in high priced late stage rounds.  Yelp - Elevation , Zynga - DST & Facebook - DST are the highest profile recent examples.

These are great deals for the industry, as they provide liquidity and/or growth capital at very attractive equity prices for companies not quite ready for the public markets (for many valid potential reasons).  We need more of this kind of liquidity in the marketplace.

Another very powerful way to take advantage of expensive equity is through acquisitions. The best time for a company to do deals is when they benefit from high priced stock.

This is effectively the opposite of taking money off the table — it’s increasing the capitalization base of a company by issuing new shares to targets that hopefully add more value to the overall enterprise than the equity given up for them.

The theory is that if you get a fair price for the assets you purchase and the value of your stock is fully priced by the market, the acquisition should be accretive and you should gain value.

Determining whether an acquisition is accretive or not is very tough to do when you’re dealing with companies that have little to no earnings.  But these deals can be very strategically accretive, especially when a larger company is acquiring a much smaller one.

A great example of this is the Google - YouTube deal.

Even though the YouTube deal looked incredibly expensive at first blush, Google got enough lift in their share price on the day of the deal announcement to entirely cover the cost of the acquisition.  This was the market applauding Google’s ability to use high priced stock to acquire a strategic asset by pushing that stock even higher.

Now there is always debate as to whether acquisitions are a good thing for companies or whether they are distracting, especially for earlier stage businesses without the ability to effectively integrate (hard for any company, let alone a young one).

My answer — like everything else, it depends on many factors.  But if done correctly, an acquisition strategy can be very powerful.

So what kind of deals should companies do?

The most interesting potential targets are those that provide a boost to R&D and/or HR, by bringing in great technology and/or great people to the organization.  Secondly are businesses that collapse the value chain, by either adding monetization capabilities to a business with a lot of user traction or adding a direct relationship with users (businesses or consumers) for companies with a proven monetization platform.

In terms of size, my general take is that businesses should look for smaller (~10% of total capitalization or less) strategic acquisitions.  Otherwise, things tend to get very messy with shareholder interests and governance on both sides.  Bigger deals are certainly doable, but need to be very strategic and are usually much more complicated.

We’ve seen Google being a very aggressive acquirer as a public company.  Twitter and Zynga have done a handful of smart strategic acquisitions in the private markets.  We’ve even seen Apple enter the fray recently, something we have not seen from them before.

I expect to see a bunch more of this.

Boiling The Ocean: Some Thoughts on Obama's First Year

It’s been a big political week, and I’ve certainly had politics on the brain myself.  As I’ve been reflecting on our current political situation, it strikes me that President Obama is making a classic first-time CEO mistake.

Very simply put: he’s trying to do too much.  He lacks focus, prioritization and discipline — the key elements of successful execution and the fundamental traits of outstanding CEOs.

This trend started immediately upon his taking office and it continues.  And though I was initially troubled by Obama’s approach, I bit my tongue thinking maybe the notion that many were purporting of this being a ‘reboot moment’ held water.

I was wrong.  There is no such thing as a unique time that allows you to take on everything at once.  A good CEO’s most important skills, in addition to fielding the best team available, are relentless focus on and prioritization of the most important issues at hand.

We need to start with the economy, and specifically job creation.  Our manufacturing economy for all intents and purposes is dead.  We don’t make anything anymore.  China has officially kicked our ass, and if we don’t step up they’re going to keep kicking it.

Government must invest to create jobs and she must do so in ways that spur private sector advancement in the areas that matter most.  This can and should include infrastructure projects, clean energy, health care initiatives and technology advancement.  But we can’t try and fix the entirety of these areas in one fell swoop.

Only once we have begun to make a dent in the devastating economic issues that face us can we then turn to an aggressive policy agenda to remake some of our more formidable institutions.  The best time to tackle tough issues is when things are going well, not when somewhere between 10% and 20% of the populous is out of work.

The President, for all his intelligence, good intention and natural ability to lead, is making rookie mistakes.