Media tech: mystery and margin
As with all things WPP you wonder: is there more to the AppNexus deal than meets the eye?
Like many others, I suspect, I was taken by surprise by the news last week that WPP had taken a 15 per cent stake in adtech company AppNexus for $25 million and ownership of its Xaxis for Publishers offering.
The next development must surely be for the rejigged entity to rename itself W(A)PPNexus.
Earlier this month, strong rumours emerged suggesting that Publicis was considering buying Criteo. The latter used be a simple retargeter, but that’s a grubby business these days.
So, Criteo has, with some success, redefined itself an outfit that, in its words, uses “sophisticated predictive technology…[to] process a vast amount of rich purchase-intent data in real-time to identify buyers and deliver dynamically-created ads which are personalised for each consumer.”
Hmm, still sounds like retargeting to me. Maybe with added bells and whistles.
But as one sound business maxim has it: “where there’s mystery, there’s margin.” And those tech companies certainly know how to conjure up some mystery. Both AppNexus and Criteo have huge market valuations, at $1.2 billion and $20.5 billion respectively.
All this is reflected in a seismic shift in the M&A world, which you can see in some fascinating information collated by the specialist consultancy Results International.
We all know about the convergence of technology and media and its impact on marketing communications and the advertising eco-system.
In turn, this plays out in M&A trends, the most significant being the rise of tech deals. According to its figures, approximately 70 per cent of deals by value in 2013 were in the adtech space, and the rest in marcomms (roughly defined as agencies buying other agencies, expanding by discipline and geography, of which the Aegis/Dentsu deal would be typical).
By contrast, just two years ago, the balance was the other way round: more than 85 per cent of deals were marcomms, and less than 15 per cent were in adtech.
There are a number of forces at work here: one is the rebound in confidence – about six years to the day that Lehman Brothers crashed; another is the tech revolution itself, which has led to an explosion in the number of tech niches that can be filled: optimisation, attribution, measurement, mobile, ad serving, video management, analytics, data management platforms…and so on.
The number of potential buyers is expanding too, beyond the usual suspects – Google, Yahoo, WPP, Omnicom etc – to include telecoms companies like Telefonica and SingTel, so-called enterprise software suppliers like Oracle, broadcasters, and traditional data companies like Acxiom. Results tracks this with great diligence.
It’s a bunfight and everybody wants a piece of the action.
The result is an M&A feast. According to Results, there have been 209 deals just in H1 2014, compared with 223 in the whole of last year. Of those this year, 43 were in mobile; 18 in data analytics; and 14 in the video ecosystem.
Right at the forefront of this are the big holding companies, buying up tech companies everywhere they go. According to Results, WPP made six tech acquisitions in the first half of this year. Yahoo made eight, but the likes of Twitter, Google and Facebook made only two each.
And WPP, Results says, differs from its peers in its willingness to take minority stakes (as with AppNexus). But even these are bigger, and more meaningful than many of its traditional acquisitions, which are often about filling in gaps by geography or discipline so all the boxes can be ticked.
So, eventually, will we look on the big holding companies as technology players, who just happen to do a bit of marcomms on the side or even outsource it to what used to be called ‘agencies’? They have ‘magic’, but they don’t have the other ‘m’ word.
Maybe. Certainly, as the mysteries of tech become more puzzling to clients, so the higher margin services can be introduced and the low-margin staples like planning and buying ads can be gradually displaced.
Talking of mystery, I asked a senior adtech figure what they made of the Xaxis/W(A)PPNexus deal. They weren’t surprised by it, and confessed to a grudging admiration for it as a business move, coming as it does hot on the heels of Xaxis’ reworking of its business model in August this year.
Then, it unveiled a sort of Xaxis ‘lite’ – or Xaxis ‘open’ (if such a thing isn’t a contradiction in terms) – apparently in response to criticism from clients of its opacity. On the face of it, the move looked like surrender.
But as with all things WPP you wonder: is there more to the AppNexus deal than meets the eye?
My contact paused before answering. “It brings to mind a multi-layered series of stage curtains,” they concluded. “One twitches open, but the actors step behind the next. And no, however clever it looks, it’s not the right thing for a holding company to do.”
Mysterious indeed.
But the good news is that Xaxis EMEA boss Caspar Schlickum is one of the panellists at MediaTel’s automated trading debate on Monday 6 October. Let’s see if he can unpick the mystery.