3. 3Startup Investing Guide: AdTech
TABLE OF CONTENTS
INTRODUCTION 4
MARKET OVERVIEW 6
INVESTMENT LANDSCAPE 9
EXIT ACTIVITY 10
HOW ADTECH WORKS 12
FUTURE GROWTH DRIVERS MAJOR MARKET TRENDS 18
OURCROWD’S MARKETING ADTECH PORTFOLIO 19
4. 4Startup Investing Guide: AdTech
INTRODUCTION
Although we are exposed to them every day, digital advertisements are often taken for
granted. Whether it’s a video on Facebook, a pop-up in a mobile app, or an informational
banner on the screen in the back of a cab, we are constantly being targeted by relevant
(or not so relevant) attempts to capture our attention and mind share. The underlying
marketing tools and infrastructure technologies that power today’s hyper-specific user
targeting fall under the broad umbrella of AdTech.
Recent advances in bandwidth, mobile computing, networking, and cloud services
have enabled the development of a thriving digital advertising ecosystem. On two ends
of the spectrum are publishers (such as Facebook, Google, ESPN, and The New York
Times) who have ad space to sell, and advertisers (often large brands such as Coca
Cola and Nike) who demand space to place ads. In between, a variety of infrastructure
services have been developed which automate the process of placing and optimizing
this content in real-time, for the most appropriate viewers, via a series of exchanges
and programmatic platforms.
Digital advertising currently accounts for $142B of the overall $510B advertising
market, and is on pace to continue taking market share from traditional media outlets¹.
Digital advertising revenues are growing at 11% annually versus the greater advertising
market, which is growing at 5% annually². The scale and growth trends of the space
provide numerous opportunities for smart, savvy investors who can identify the right
areas to focus on.
What is AdTech?
First, the distinction must be made between advertising and AdTech. All online
advertising companies use technology. Not all online advertising companies sell
technology. AdTech enables online advertising. It powers the platforms, programs, and
services on top of which ads are created, organized, directed, and displayed. AdTech
makes targeted advertising smart, effective, and scalable.
To give a clearer picture of what we mean by AdTech, here’s an example. The most
famous instance of an AdTech company is likely Google. While the company started
with a straightforward search engine, it has evolved to provide some of the most widely-
adopted marketing products. These include Google Analytics, Adwords and Adsense.
Google’s advertising technology suite allows users to analyze, promote and monetize
their websites and services.
¹ Magna Global, http://news.ipgmediabrands.com/article_display.cfm?article_id=166
² eMarketer 2014 Global Media Intelligence Report
5. 5Startup Investing Guide: AdTech
Why is AdTech important?
Digital advertising is a significant improvement over traditional, “offline” advertising
channels. Thanks to the empowering technology we refer to as “AdTech”, digital
advertisements can be specifically targeted to people who are most likely to be interested
in what a company is selling.
Another powerful feature of digital advertising is that it allows for customer feedback.
With print media (i.e. newspaper or magazine), it is extremely difficult, if not impossible,
to gauge the unique influence of a single ad. When it comes to digital advertising,
the opposite is true: not only is it possible to measure the resonance of a single ad
(measuring the amount of clicks received), but AdTech platforms can even determine
the percentage of interactions that lead to a sale. Data analysis of the 4 W’s helps in
this process:
• Who is this person? (Age, gender, etc. - big data)
• What are their interests? (Which websites do they visit, and for how long? - analytics)
• Where? (Where in the world is this person located? - geolocation)
• When? (Is the person a first-time guest or a frequent user? At what time of day was
the ad viewed? - first party data)
Source: Strategy Analytics Advertising Forecast, 2015
Investing in AdTech
The fragmented nature of the industry, and the range of products and services which
can be categorized as “AdTech”, has made investing in the space difficult for some.
However, informed investors - and companies - are realizing that digital advertising
is a prime driver of the online ecosystem, including the rise of mobile. With a deeper
understanding of the underlying trends, investors can identify attractive opportunities
to profit from this massive and ever-evolving space.
6. 6Startup Investing Guide: AdTech
MARKET OVERVIEW
How big is the AdTech market?
AdTech is an integral part of the global market for digital ad spending, currently valued
at US $142 billion. In this guide, we’ll focus primarily on the rapid increase in display ads
in general and mobile in particular.
Source: eMarketer, March 2014
The numbers tell the story
Display ads
Display ads - the type of website advertising that is most familiar - include a wide range
of different formats and contain items such as texts, images, flash and video.
Display ad spending is a great metric to understand the degree of disruption occurring
in the world of advertising.
7. 7Startup Investing Guide: AdTech
Source: ZenithOptimedia
Search ads
Search ads have become synonymous
with their gargantuan godfather - Google.
The internet search giant has enjoyed the
lion’s share of internet ad spending for a
long time.
This trend is about to change. If projections
are correct, by the end of 2015 the online
community will see display ads overtake
search ads for the first time.
8. 8Startup Investing Guide: AdTech
Mobile ads
Global mobile ad revenue is estimated at $30B in 2014³. Powered by the rapid adoption
of mobile devices and a huge increase in the average time users spend on their devices,
the market is growing at a ferocious pace. From 2010-2013, the average time US adults
spent on a mobile device grew 80% per year⁴. The mobile ad market currently benefits
from the powerful dynamic of a growing overall digital advertising market combined
with a shift in the allocation of advertiser budgets from other digital channels to mobile.
Within digital advertising, the mobile sub-segment is projected to reach $73B by 2018
by MAGNA Global and $166B by eMarketer – either way it is anticipated to capture ad
spend dollars from both traditional and digital media outlets⁵.
³ eMarketer 2014 Global Media Intelligence Report
⁴ eMarketer 2014 Global Media Intelligence Report
⁵ Magna Global http://news.ipgmediabrands.com/article_display.cfm?article_id=166
9. 9Startup Investing Guide: AdTech
The Major Players and Their Investments
The AdTech investment landscape is a large and varied environment, complete with
multinational tech giants, the Big Four ad agencies, venture capital firms, and private
investors.
Below are a few examples of the major players in the field, and their involvement in the
sector, as exemplified by MA activity⁶:
Source: The Parthenon Group
⁶ http://www.parthenon.com/GetFile.aspx?u=%2FLists%2FThoughtLeadership%2FAttachments%2F89%2F
SIIA%2520Ad%2520Tech%2520Primer%2520for%2520Investors%25202014.pdf
INVESTMENT LANDSCAPE
10. 10Startup Investing Guide: AdTech
Between June 2013 and November 2014 there were a number of major AdTech IPOs
and acquisitions. Notable among these are the following companies: Brightroll (Yahoo,
$640m), Rocket Fuel (IPO, ~$100m), LiveRail (Facebook, ~$500m) and TubeMogul, that
between them, totaled over a billion dollars.
Acquisitions
The last year has seen billions of dollars spent on the acquisition of AdTech by some of
the largest companies in the world:
EXIT ACTIVITY
Source:ThomvestVenturesSource:CapitalIQ
11. 11Startup Investing Guide: AdTech
During the second half of 2014 alone, the volume of AdTech MA was an impressive
$9.8 billion, seven times higher than 1H 2014⁷. Some of the biggest “acquirers” in the
last three years have been Publicis Groupe (over $4.4B in 27 deals), Yahoo ($910M, 7
deals) and Google (over $500M, 7 deals).
These transactions are part of a trend of consolidation within the advertising industry,
wherein many companies, and even the large ad agencies, are buying up smaller entities
which provide functionality across various stages of the advertising lifecycle.
Finally, for the most comprehensive view of the entire investment landscape, see below:
⁷ http://www.slideshare.net/RachelMuzyczka/hampleton-partners-ma-report-2015-digital-marketing
Source:EquiteQEdgeSource:LumaPartners
12. 12Startup Investing Guide: AdTech
How does AdTech work?
This is where it starts to get a bit technical. Our aim in this section is to shed some light
on the inner workings of the industry.
The display advertising market value chain
The process of getting an ad from the marketing department of a brand to the screen of a cell
phone is complex and features (potentially) hundreds of various entities working together.
A glossary of industry terms
CPM - Cost per thousand. The price of 1,000 advertisement impressions on one
webpage. If a website publisher charges $2 CPM, that means an advertiser must pay $2
for every 1,000 impressions of its ad. (The M in CPM represents the Roman numeral
for 1,000.) CPM is the most common method for pricing web ads.
CPC - Cost per click, where the advertiser pays each time a website visitor clicks on the ad.
CPA-Costperactionorcostperacquisition,
a method where the advertiser only pays
each time a website visitor completes a
desired action (fills out a form to become
a lead, answers a survey) or makes a
purchase that can be directly traced to
having clicked on that ad (delivers an
acquisition)⁸ .
⁸ http://www.investopedia.com/terms/c/cpm.asp
HOW ADTECH WORKS
Source: OurCrowd
13. 13Startup Investing Guide: AdTech
“Native” ads - Brand content can also be distributed in in-feed ads, often referred to
as “native,” which are paid ads that are so cohesive with the page content, assimilated
with the design, and consistent with the user experience, that the viewer simply feels
that they belong⁹.
Recently, there has been a move away from “generic CPM” and towards native ads and niche
or “vertical” CPM, as the latter methods appear to be more effective in engaging audiences.
Supply and Demand: The ad market
The next section will explain how a given ad finds its way to your screen. At its most
basic, the process works something like this: when a user visits a site or opens an app
that features space for advertising, the device sends the site or app publisher an alert
of the unfilled advertising inventory (imagine a blank space in a newspaper, where the
ad would go).
Such inventory is considered “supply” that publishers, through intermediaries and
various types of marketplaces, sell to brands who bring “demand” to the market in the
form of advertising that must be placed somewhere.
To put it another way, the demand is for “eyeballs”, while the supply is empty space
that “has eyeballs”. Along with the unfilled inventory alert, the device sends some basic
information, frequently including a device identifier (usually a serial number) that can
assist with targeting which devices and users should be served a particular ad; this, after
the device has been identified as belonging to the desired/requested demographic (i.e.,
30-year-old males from rural areas who drive trucks).
On the other side of the relationship, brands have ad campaigns seeking inventory
(or space on which ads can be displayed) that has particular audience or contextual
attributes. They send their demand requests through intermediaries to marketplaces
where they find appropriate ad space and a purchase happens (in some cases, this
process is entirely automated, and takes place in a fraction of a second).
⁹ http://marketingland.com/digital-simplified-new-advertising-supply-chain-104734
14. 14Startup Investing Guide: AdTech
The 4 Verticals of the Display Advertising Ecosystem
Below, we have broken down the contemporary display advertising ecosystem into four
verticals (or, sectors) between advertisers and publishers:
1. Media planners devise strategy for advertisers; these include agencies and Agency
Trading Desks (ATDs). Agencies are the teams a company hires to be responsible for
marketing strategy and “creative” (i.e. WPP, Omnicom). Agency Trading Desks were
developed by large agency holding companies to pool available data from all campaigns
placed by a given agency. This was done in order to enrich the data value of all agency
buys and increase the efficiency and scale in buying digital advertising. Rather than having
hundreds of individual client campaigns to execute, the buying could be done through one
trading system.
2. Media buying platforms that execute purchases of inventory (the actual purchase
of media can be a highly technical transaction).
Full-service DSPs, or Demand-Side Platforms, meet the needs of marketers who offer
the “demand” for the media. It is equivalent to the buy-side of the business.
Full Service DSPs typically access inventory through exchanges or networks. They then
determine the inventory for given targets available, place the buys, connect into the ad
serving, and then optimize the campaigns. Ultimately, the purchase and performance
data is putted back to the agency or advertiser for payment and analysis.
3. Transactional platforms where demand meets supply (ad exchanges and networks).
These are neutral parties of computer systems where media is traded much like stocks
on the NASDAQ. Sellers designate pools of impressions to be sold in the exchange
while buyers go into the system, check what is available, and make the transactions that
are then automatically fed through ad servers.
PublisherSSP
Networks
Exchanges
DSP
Agencies
Advertiser
Agency
Trading
Desks
Media
planning
DMP
DMP
DMP
Media
buying
Transactions
Supply
aggregation
Vertical 1 Vertical 2 Vertical 3 Vertical 4
Demanding inventory for ad placements Selling inventory supplyPurchases
made
• DMP = Data Mgmt Platform
• DSP = Demand Side Platform
• SSP = Supply Side Platform
Source: OurCrowd
15. 15Startup Investing Guide: AdTech
4. Supply aggregators, including Sell-Side Platforms or SSPs, are systems that behave
like exchanges but that have been developed with the needs of publishers in mind.
They develop systems that enable content creators to manage the programmatic sale
of their inventory as they attempt to get the greatest possible value for the publisher.
This is achieved, for example, through data augmentation and effective use of real-
time bidding. In addition, they have developed private marketplaces that enable buyers
and sellers to programmatically enter into a one-to-one buy/sell relationship with full
transparency of both parties involved¹⁰.
The process of facilitating purchases is flexible, as is the relationship between verticals.
That is to say that various actors within particular verticals have functionality that
overlaps with other verticals.
¹⁰ http://marketingland.com/digital-simplified-new-advertising-supply-chain-104734
16. 16Startup Investing Guide: AdTech
The Journey of an Ad
The following graphic is intended to clarify the path an ad takes to get to your screen. It
is important to note that the ad already exists at this stage; the question is where and
when it will be displayed.
Source: WPP Digital
Display advertising works in such a way that when an Internet user accesses a publisher’s
website (Let’s take The New York Times as an example of a publisher), an “ad tag” within
the code of the page will make a request for an ad.
This ad (which could be displayed in any number of different formats on the web page)
could have originated from one of two sources: a publisher’s server (in our example, the
NYT’s marketing team has sold this ad space to a content supplier) or from an ad agency
server (a platform for an ad agency to serve ads to multiple websites while maintaining
a record of each time an ad was “served”, for reporting purposes).
Once the ad has been selected from either of the two options, it will be displayed on the
website that the user is visiting. The process usually takes under a second to complete.
17. 17Startup Investing Guide: AdTech
Real Time Bidding (RTB)
The term refers to the buying and selling of online ad impressions through real-time
auctions that occur in the time it takes a webpage to load. These auctions are often
facilitated by ad exchanges or supply-side platforms.
How it works: As an ad impression loads in a user’s Web browser, information about
the page it is on and the user viewing it is passed to an ad exchange, which auctions
it off to the advertiser willing to pay the highest price for it. The winning bidder’s ad is
then loaded into the webpage nearly instantly; the whole process takes just milliseconds
to complete.
Advertisers typically use demand-side platforms to help them decide which ad
impressions to purchase and how much to bid on them based on a variety of factors,
such as the sites on which they appear and the previous behavior of the users loading
them. Zappos might recognize that a user has previously been on its site looking at a
specific pair of shoes, for example, and therefore may be prepared to pay more than
Amazon or Best Buy to serve ads to him. The price of impressions is determined in real
time based on what buyers are willing to pay, hence the name “real-time bidding”¹¹.
Below is a graphical view of the process:
Source: Turn, Thomvest Research
¹¹ http://digiday.com/platforms/what-is-real-time-bidding
Seconds
7
How Things Work: Real Time Bidding (RTB)
User clicks on URL and publisher’s content begins to load
Seconds
Publisher asks its ad server if an ad is available. If not,
server asks Ad Exchange
0.04
Seconds
Ad Exchange federates ad request to mulple demand
side planorms (DSPs)
0.08
Seconds
Ad Exchange sends user’s anonymous profile, website
category, and page ad safety informaon
0.10
Seconds
Each DSP overlays adverser targeng and budget rules,
and applies third-‐party data
0.12
Seconds
Each DSP algorithm evaluates and computes opmal bid
for adverser
0.125
Seconds
Each DSP responds to Ad Exchange
0.13
Seconds
Ad Exchange runs a second-‐price aucon and selects
winning bid form DSP response
0.14
Seconds
Ad Exchange sends price and ad from winning bid to
publisher’s ad server
0.18
Seconds
Publisher’s ad server tells browser which ad to display
0.19
Seconds
Adverser’s ad server sends winning ad to browser
0.23
Seconds
Browser displays web page including winning ad, and
signals to winning DSP the ad was viewed
0.31
0.0
Seconds
0.36
The
en+re
RTB
ad
buying
process
takes
~
.36
seconds
Source: Turn, Thomvest Research
18. 18Startup Investing Guide: AdTech
Given the size of the industry, its fragmented nature and strong growth characteristics,
AdTech is an attractive sector for a discerning investor. The following list summarizes
OurCrowd’s analysis:
• The growth of mobile: As previously noted, mobile usage is exploding across
the globe and ad budgets are shifting to mobile worldwide. Additionally, AdTech
companies are improving their approach to mobile advertising and creating
advertisements that are native to the mobile experience.
• Solving the ROI problem: One of the biggest challenges of advertising is maximizing
return on investment (ROI). Consumers have learned how to filter pop ups and
banner ads, once a staple of online advertising. However, advertisers are able to
glean more information than ever before about users – including location, age,
interests, networks and more. There are companies dedicated to tracking users over
multiple devices, using geolocation to target users in real time context, identifying
potential future customers basedonexistingones,andemployingautomatedmarketing
platforms that function independently.
• Consolidation of the food chain: As shown earlier, there are many stages involved
in the placement of an ad, along with many companies and entities. This makes it
difficult for a single organization to run the entire AdTech process in-house. Many
of the biggest players (Facebook, Salesforce, Yahoo), along with the big ad agencies
(Publicis, IPG) are snatching up promising startups and early stage companies. This
creates an opportunity for investors to identify the next candidate for acquisition.
• The evolution of Big Data: By utilizing Big Data (any voluminous amount of data
that has the potential to be mined for information), AdTech companies are enabling
advertisers to serve contextual, relevant, and tailored content. Ads which can avoid
coming across as spam can provide benefit to the consumer by helping match
people with things they need and are interested in.
• The expectation of free content: It is a common belief across the industry that
users are not yet ready to pay for most digital content which currently exists for free.
Yet, the businesses that produce and publish content need to turn a profit. Digital
advertising fills this gap, and AdTech will continue to enable the dynamic to evolve.
• Israel’s advantage: Israel is a major player on the Adtech scene. A few notable,
successful companies that have matured in the Startup Nation over the last few
years include Outbrain, Matomy and Taboola. Israel also has an impressive track
record with successful Adtech exits such as Amobee, Conduit and Kontera (bought
by Amobee).
FUTURE GROWTH DRIVERS
MAJOR MARKET TRENDS
19. 19Startup Investing Guide: AdTech
OURCROWD’S MARKETING
ADTECH PORTFOLIO
Appforma
Appforma is a Software as a Service (SaaS) platform provisioning full-fledged social media
campaigns for small and medium sized businesses (SMBs). Its marketing automation
engine analyzes SMBs' audiences, product offerings, and existing marketing strategies
and generates a year-long plan including holiday sales, special promotions, and more.
Appforma's product is capable of producing entire campaigns from the creatives
through the targeting strategies and allocation of marketing budgets. Together, this
suite of intelligent marketing campaign resources replaces costly online marketing
agencies, whose offers are often out of the reach of SMBs' budgets.
BIScience
BIScience is a business intelligence (BI) solution provider for the online media industry.
BIScience uses a patented stack of software and a globally distributed technology
infrastructure to generate, analyze and sell market-leading competitive intelligence to
all segments of the $140B digital advertising industry. With over 300 paying customers,
including brand names like Disney and Coca Cola, BIScience generated $2.75M in 2014
revenues and has seen a monthly recurring revenue run rate of approximately $250k
in Q1 2015.
Crosswise
Crosswise has developed analysis software that is able to identify and track users as
they move from device to device, enabling advertisers to target individuals consistently
across their desktops, mobile phones, tablets, and, eventually, TVs and other channels.
Such cross-device targeting enables advertisers to implement a coherent retargeting
strategy that doesn't suffer from device fragmentation and can therefore lower
advertisers' cost per acquisition of leads and customers. Crosswise's solution reads
information like location, network data, interests, behavior online and biometric
identifiers to produce a user profile that can provide a probabilistic match across his or
her devices for retargeting.
MentAd
MentAd is a predictive marketing platform sold to businesses as a service that
recalibrates existing marketing campaigns and targeting efforts based on proprietary
analysis of existing customer data. More immediately effective at identifying lead-rich
audiences than intuition-based, spray and pray approaches, MentAd's engine is also
more agile than human marketers and recalibrates targeting and budget allocation in
real-time as new information becomes available. With the advantage of monitoring an
increasingly large pool of businesses' marketing approaches and success rates, MentAd
also is able to uncover long-tail conversions in niche audiences that may otherwise
be missed.
20. 20Startup Investing Guide: AdTech
Shopial
Shopial enables any online retailer to publish a fully operational storefront on Facebook
in three clicks. Many e-commerce stores are already on Facebook but maintain their
presence as a marketing tool; rarely do these retailers sell directly through their
Facebook pages. “Social selling” offers numerous advantages, including the ability for
these retailers to fully leverage social networks for sales as well as the ability to keep
users engaged by reducing the steps required to purchase their goods. In late 2013, the
company was awarded Facebook’s Preferred Marketing Developers award.
Ubimo
Ubimo is a comprehensive mobile advertising platform, uniquely positioned to maximize
the capabilities of mobile devices for a new, contextual approach to marketing. The
company’s proprietary indexing technology analyzes billions of data points in real-time
in order to build a rich and accurate understanding of real-life context. Ubimo was
founded by a team of seasoned entrepreneurs who previously sold a venture to Google.
ViewBix
Viewbix has developed a unique Video Marketing Platform that allows small and medium
sized businesses (SMBs) to turn their online videos into mini-websites, increasing user
engagement and, ultimately, sales. Viewbix’s product is a video player that allows SMBs
to add calls to action and interactive applications to existing digital videos, allowing
users to engage directly with the company from within the video. Once a Viewbix is
created, the rich interactive experience can be shared across web, mobile and social
platforms. Viewbix videos drive viewer engagements at a rate substantially higher than
average video engagement rates.
Webydo
Webydo provides graphic designers a powerful set of design tools to build and maintain
websites with little technical knowledge. Its site-building platform uses a patent-pending
code generator that allows designers to construct complete pages that come with a
content management system without the help of a developer. As development and
coding takes the lion’s share of the cost of building a site, Webydo’s complete do-it-
yourself platform allows designers to substantially increase their revenues from the
creation of a site. Additionally, Webydo’s unique administrative tools better allow
designers to build scalable web design and management businesses.
