Winterberry group - 2014 annual outlook - direct and digital marketing--dmcny luncheon--9 jan 2014

2014 Annual Outlook: What to Expect in Direct and
Digital Marketing
Bruce Biegel
Senior Managing Director
January 9, 2014

About Winterberry Group
• Corporate Strategy
• Marketing System Engineering
• M&A Due Diligence Support
• Market Intelligence
• Investment Banking, through

2013 In Review
Forecast 2014
The Rise of Programmatic
10 for ‘14:Trends toWatch

2013 Was Not A Bad Advertising and
MarketingYear – Just Started Slow
Sources: Business Insider, Bureau of Economic Analysis
• No Stimulus from Politics & Entertainment
• GDP Growth Began Slowly (1.8% in Q1) but Increased Steadily
(to 2.5% in Q2 and 3.6% by Q3)
• Where did I put my device?

GDP Growth CameToo LateTo Drive Spend,
Holidays Were Short, Print Decline Slows
2013 U.S. “Measured Media” Spending: $123.5BB
Newspapers:
$18.7BB
3.0%
-5.1%
Television:
$66.4BB
Magazines:
$15.1BB
Outdoor:
$7.0BB
Radio:
$15.7BB
Cinema:
$0.6BB
Source: Winterberry Group analysis of multiple sources
Note: Arrows reflect percentage change in spend, by channel, from 2012 levels
4.5%
1.8%
0.0%
-0.6%
0.0%

2013 U.S. “Direct & Digital” Spending: $133.4BB
Note: Arrows reflect percentage change in spend, by channel,
from 2012 levels; Insert Media includes FSIs and statement inserts; Display and search
reflect spending on desktop and mobile
Teleservices:
$41.1BB
Direct Mail:
$44.0BB
Search:
$20.1BB12.9%
3.2%
Other:
$3.2BB
7.2%
Digital Captured Most, But Not All, New
Budget Money
1.0%
Insert
Media:
$0.8BB
Display:
$17.6BB35.4%
Other
Digital:
$6.6BB
22.2%
-11.0%
(Includes Mobile & Desktop)
(Includes Mobile & Desktop) 1.2%

Targeted Display and Mobile Ads Drove
Growth
50.0%
SocialTechnology
and Services¹:
$2.4BB
11.8%
Lead Gen &
Affiliate
Services:
$1.9BB
2013 U.S. Digital Advertising Spending: $44.4BB
Other
Mobile2 :
$.35BB
29.6%
Email:
$2.0BB11.1%
22.7%
Note: Arrows reflect percentage change in spend, by channel, from 2012 levels
¹Excludes social display and social search spend
2Excludes mobile display and mobile search spend
Search:
$20.1BB 12.9%
Display:
$17.6BB35.4%

=
Once Upon ATime, Buying and Placing
“Media” Was a Manual, Negotiated Practice
+

AndThen Came Search, Giving Us Auctions for
Media Inventory and Audience Impressions
Workflow automation
Behavioral algorithms
+
=
Machine-driven bidding
& price optimization

ButWhen It Came to Display,The Proliferation
of Formats Made Buying More Complex

Complexity that the AdTech Market Set Out
to Solve
• Massive investments in the development of media
and marketing automation followed
• Harnessing of “Big CRM” and online behavioral
data would be deployed to identify and message
unique individuals with relevant content and offers
• Decisioning engines and machine-driven analytics
moved beyond “trigger” marketing and into
biddable auctions and optimization models

And “Programmatic” Marketing Solutions
Began to Emerge
Audience Insight/
Segmentation
Media Operations
Execution
Content
Optimization
Auction-Based
Media Buying

Panelists: Has your
organization pursued a
programmatic approach to
media buying/selling? Are you
likely to do so within two
years?
Programmatic Buying Approaches in Media
Are Seeing Broad Adoption...
85%
72%
Advertisers
Publishers
Today
91%
83%
Advertisers
Publishers
In Two Years

0% 20% 40% 60%
What does “programmatic” mean to you?
Percent of panelists who mentioned each in their “top 3”
Auction-based approach to media buying
Machine-
driven
automation
Real-time
bidding (RTB)
And for Many Right Now, Programmatic is
About “Automated Auctions”

Though Other Programmatic Methodologies
are Quickly GainingTraction

And, “Direct”Transactions Still Account for the
Majority of Digital Display Spending
Direct transactions between advertiser and publisher
“Programmatic”
transactions
Unreserved
Traditional “Direct”
60% of display spending
ProgrammaticDirect
UnreservedFixedRate
OpenAuction(RTB)
Typical CPMsHIGH LOW
Invitation-OnlyAuction
40% of display spending
Of the 40% of display spending transacted
programmatically, the great majority is spent
through “open” auctions (or “RTB”—real-time
bidding)
Source: WG analysis of primary research sources

0% 20% 40% 60%
What objectives are driving your organization’s
interest in programmatic approaches?
Top responses among panelist groups
Advertisers /Agencies
Programmatic Adoption is Being Driven By
Two Discreet Objectives
Publishers
Improve
operational
efficiency
More effectively
target consumers
across digital
properties

Actionable Insight Development
63%
88%
Today
Intwoyears
Audience Segmentation
79%
91%
Today
Intwoyears
Has your organization pursued a programmatic approach to the following
use cases? Are you likely to do so within two years?
EffectivenessWill Drive Programmatic Use
CasesTo Shift from Auction to Audience

With Significant Enhancement to Creative
and Content Solutions
Content Optimization
Has your organization pursued a
programmatic approach to the following use
case? Are you likely to do so within two
years?
47%
69%
“Dynamic creative
and message
matching is
growing… and that’s
something that’s
good for the
consumer and for
the advertiser”
— Sr. Marketing
Executive Panelist
Today
Intwoyears

And A Continued Expansion of Programmatic
Across Digital and Direct Channels
Today Next 3-5 Years
Search
Display
Digital / Variable
data direct mail
and e-mail
TV
Radio
Print
Direct mail

What Is Required for Continued Programmatic
Evolution?
Audience
recognition
“Omnichannel”
addressability
Data governance
practices/platforms
Internal and
external process
optimization
Continued
technology evolution

“Cookie-less,” Cross-Device Audience
Recognition
How?
• Unique device identifiers
(UDIDs)
• Cross-device insight and
attribution
• “Lookalike” modeling

“Omnichannel” Addressability—Spanning
Paid, Owned and Earned Channels
How?
• Actionable audience data
• Cross-device data
management solutions
• Seamless program execution
across channels
• Cooperation between internal
stakeholders

Executive-Level Data Governance and
Management Practices (and Platforms)
How?
• Inclusion of all stakeholders
• Maintenance of a customer
information “map”
• Development of a unified
data strategy
•Infrastructure to support data
use

Organizational Process Optimization to
Support Programmatic Execution
How?
• Breaking down functional silos
•Auditing existing processes and
partners
• Restructuring compensation and
incentives (internal/external)
• Merging complementary
automation initiatives

Continued Evolution of Marketing and AdTech
“Stacks” Supporting Enterprise & SMB Needs
How?
• Consolidation of smaller
vendors that improve point
solutions
• Strategic acquisitions to create
“stacks”
• Continued role of financial
investors to drive transformative
innovation

Though Adoption is Accelerating, Challenges
Remain
Risk Management
& Brand Safety
Issues
Fragmentation of
Planning/Buying
and Measuring
Marketing
(Internal and
External)
LongTerm Funding
of Marketing
Initiatives

The Improving Economy, Politics and
EntertainmentWill Drive Growth in 2014
• The U.S. economy is expected to
expand in 2014, and as
unemployment drops U.S. GDP
growth is estimated to rise
(forecasted at 2.8%)
• Election cycle to be fought on the
issues
• Olympics return
• Regulatory threats in data
“brokerage” and privacy continue
Source: JPMorgan GDP growth estimates, December 2013

Not Enough GasTo Drive Accelerated Growth
inTraditional Channels
2014E U.S. “Measured Media” Spending: $124.6BB
Newspapers:
$17.1BB
3.2%
-8.6%
Television:
$68.5BB
Magazines:
$15.1BB
Outdoor:
$7.2BB
Radio:
$16.1BB
Cinema:
$0.6BB
Note: Arrows reflect expected percentage change in spend, by channel, from 2013 levels
2.9%
0.9%
2.6%
0.0%
0.0%

2014E U.S. “Direct & Digital” Spending: $140.7BB
Note: Arrows reflect percentage change in spend, by channel,
from 2013 levels; Insert Media includes FSIs and statement inserts; Display and search
reflect spending on desktop and mobile
Teleservices:
$41.5BB
Direct Mail:
$44.5BB
Search:
$22.6BB12.4%
6.3%
Other:
$3.4BB
5.5%
Data-Driven Marketing’s Growth Accelerates
1.0%
Insert
Media:
$0.8BB
Display:
$20.6BB17.1%
Other
Digital:
$7.3BB
10.6%
(Includes Mobile & Desktop) 1.1%
0.0%

And Digital Spend Gains on Digital Adoption
20.8%
SocialTechnology
and Services¹:
$2.9BB
10.5%
Lead Gen &
Affiliate
Services:
$2.1BB
2014E U.S. Digital Advertising Spending: $50.6BB
Other
Mobile2 :
$.44BB
25.7%
Email:
$2.0BB
14.0%
Note: Arrows reflect expected percentage change in spend, by channel, from 2013 levels
¹Excludes social display and social search spend
2Excludes mobile display and mobile search spend
Search:
$22.6BB 12.4%
Display:
$20.6BB17.1%
0.0%

60% of Corporations are doing
content marketing—often through
sponsorships and native ads—and
this work will finally be defined in
2014
Mobile content marketing
strategies will lead the way in-
store
‘Director of Content’ becomes a
corporate marketing job
1
10 for ‘14: Content Comes of Age

Content: Sponsorships Rise, Offering a Way to
Offset Losses from Programmatic
Source: eMarketer, December 2013 (includes desktop, laptop, mobile phones and tablets)
$1.54
$1.90
$2.29
$2.62
$2.96
$3.20
2012 2013E 2014E 2015E 2016E 2017E
U.S. Digital Sponsorship Ad Spending
(U.S. $BB)

Content: Growth Paced by the Rise of Native
Ad Networks and Programmatic Native
Native Ad Networks
• A set of early-stage companies are
attempting to bring scale to native—
essentially becoming ad networks for
sponsored content
• Will we see IAB-type standardization
of content-based ad formats?
• Will we see ease of implementation
across sites vs. one-off publisher
negotiations or closed networks?
Programmatic Native
• Others are attempting to bring scale to
native via programmatic models—
using RTB and private exchanges to
place content
• Can they solve for brand safety?
• Can they solve for content sequencing?
• Will they add to the data-driven
Omnichannel experience?

Recently approved 4.3% exigent
postal rate increase—on top of the
regular increase—is this
temporary – or not?
Could turn growth forecasts for
volume upside down—and
accelerate the marketing spend
shift to digital alternatives—even if
the USPS revenue numbers look
better in the short term
2
10 for ‘14: Postal HikesThreaten Direct Mail;
Will MarketersTurn to Digital Alternatives?

2013 - Programmatic RTB
accounted for $3.56BB of
marketing spend, 23% of all
display ad spend
2014 - programmatic RTB is
expected to reach $4.45BB of
marketing spending, ~20%
2016 Forecast: 35% of all digital
display ad spending will be RTB
programmatic
3
10 for ‘14: Programmatic ContinuesTo Expand
Source: eMarketer and Winterberry Group analysis

Measurement standards for digital
display a top priority for
marketers: Viewability metrics a
likely outcome
- Quality of impressions increase
and number of impressions
decline
- CPMs Rise with reduced
inventory
- Quality drives performance, ROI
on unseen ads remains zero
4
10 for ‘14: Advances in Attribution and
Measurement Drive More Digital Spend

Facebook releases custom
audiences with data segments
from preferred partners and a
“BYO CRM” plan for look-a-like
modeling
Twitter opens up advertising to
CRM data with Tailored Audiences
offering (and sells $47MM of data
pre-IPO)
Agencies see significant
performance lift from use—rivaling
search
5
10 for ‘14: SocialTargeting with CRM Data
Goes Mainstream

A majority of marketers rely on
data but 45% say they don’t have
access to the data they need
Programmatic approaches,
Omnichannel audience
recognition, attribution,
measurement
DMPs and tag management
adoption play a more central role
as they collect, segment and
activate data online
6
10 for ‘14: Online and Offline Data Continues
to Merge
Source: Neolane, DOMO (2013)

Traditional campaign management
platforms go from mail and email
to social, mobile and display
Media driven DSPs evolve to
support marketing execution
across media channels (display,
social, search) and formats
(mobile, video, native)
Following multiple acquisitions
now comes the hard part:
Integration
7
10 for ‘14: Campaign Management Platforms
Evolve to Support Omnichannel Execution

“Second screen” tablet adoption
combines with “smart” connected
TVs and game consoles—fueling
cross-platform video advertising
Viewing data linked to
programmatic execution propels
growth in this key channel for
consumer engagement
“Connected” TVs are more
important than “pixel counts”
8
10 for ‘14: TV andVideo Platforms Evolve,
Become Portable
Source: Digital TV Research

Major marketing organizations are
restructuring or downsizing to
support a unified global /
multinational approach (Unilever,
P&G, Colgate, Energizer)
Deeper reliance on analytics and
metrics to justify channel spend,
staffing investment
Programmatic execution approaches
lead to reallocation of staff away
from execution and towards strategy
9
10 for ‘14: Demand and Requirements for
MarketingTalent Continues to Change
Source: Ad Age, December 2013

2013 saw lower deal volume (-16%
YOY) but increased value (up 36%)
led by a few blockbuster deals
Big Deals: Publicom, Adobe-Neolane,
Sales Force-Exact Target, Oracle-
Responsys, Accenture-Acuity
Who’s next - DSPs, Ad Networks,
large agencies?
Valuation remains high driven by
public prices, plenty of cash that
needs to go to work
10
10 for ‘14: Consolidation, Significant IPOs and
More Digital Stacks
Source: PPLLC data on enterprise software M&A transactions 2009-2013

Bruce A. Biegel
Senior Managing Director
bruce@winterberrygroup.com
212-842-6030
www.winterberrygroup.com
@WinterberryGrp
Questions?

Winterberry group - 2014 annual outlook - direct and digital marketing--dmcny luncheon--9 jan 2014

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Winterberry group - 2014 annual outlook - direct and digital marketing--dmcny luncheon--9 jan 2014