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Gridley & Company LLC Gridley & Company LLC Ad Exchanges, Targeting Ad Exchanges, Targeting & Optimization & Optimization From Mad Men to X From Mad Men to X - - Men Men January 2010 January 2010 CONFIDENTIAL

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Page 1: Mad men to x men

Gridley & Company LLCGridley & Company LLC

Ad Exchanges, Targeting Ad Exchanges, Targeting & Optimization& Optimization

““From Mad Men to XFrom Mad Men to X--MenMen””

January 2010January 2010CONFIDENTIAL

Page 2: Mad men to x men

2January 2010

Table of Contents

I. Industry Introduction and Overview

II. The Landscape of Players

III. The Opportunities

IV. How Gridley Can Help

Page 3: Mad men to x men

3January 2010

I. Industry Introduction and Overview

Page 4: Mad men to x men

4January 2010

Introduction • Almost every slice of the advertising pie is undergoing major transformation

• With new devices, channels, technologies, content, and formats, advertising has never been more complex

• Ad exchanges, ad networks, optimizers, targeting platforms, new forms of data, and the explosion of online inventory has forced massive changes in the old ways of Madison Avenue

• Today’s Don Draper needs to be part Wall Street trader, part techie, and part media maven – the new X-Men

• The stakes are high and new technologies are the hot topic

• The landscape has loads of interest with investment and M&A activity ready to take off

• This Gridley Industry Overview is designed to helpyou navigate this new landscape

Page 5: Mad men to x men

5January 2010

A Lot at Stake in Online Display Advertising• Improving economy + re-entry of financial and auto advertisers = double digit

growth in 2010

• Display will represent more than 30% of total online spend next year, second only behind search

• Online display will continue to capture shifting ad spend from large brand marketers

U.S. Online Advertising Spending, by Format

Source: Interactive Advertising Bureau (IAB), PricewaterhouseCoopers (PwC), and Barclays Capital estimates.

($ in millions)

'09 - '10 '10 - '13Channel 2007 2008 2009 2010 Growth 2011 2012 2013 CAGR

Search $8,810 $10,528 $11,370 $12,507 10.0% $14,008 $15,549 $17,104 11.0%Display Advertising 7,153 7,639 7,544 7,740 2.6% 8,103 8,479 8,843 4.5%Classifieds/Auctions 3,271 3,147 2,908 2,878 (1.0%) 2,936 2,979 3,023 1.7%Lead Generation/E-mail 1,972 2,134 2,153 2,226 3.4% 2,315 2,393 2,459 3.4%

Total $21,206 $23,448 $23,975 $25,351 5.7% $27,362 $29,400 $31,429 7.4%

% Mix

Search 41.5% 44.9% 47.4% 49.3% 51.2% 52.9% 54.4%Display Advertising 33.7% 32.6% 31.5% 30.5% 29.6% 28.8% 28.1%Classifieds/Auctions 15.4% 13.4% 12.1% 11.4% 10.7% 10.1% 9.6%Lead Generation/E-mail 9.3% 9.1% 9.0% 8.8% 8.5% 8.1% 7.8%

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%

Page 6: Mad men to x men

6January 2010

But Online Display Faces Challenges• Way too many vendors representing inventory

– Hundreds of ad networks in all shapes and sizes

– Horizontal, vertical, display, performance, video, in-game, social apps, and mobile

• Fragmented audiences– Traffic is dispersed across the entire “tail”

• Lack of transparency in ad networks– Advertisers don’t know where and when their ads run

– Publishers are not guaranteed “blind” inventory

• No standard KPI’s– How do you measure success and attribution? Clicks? Engagements?

• Little control over pricing– Advertisers want to maximize ROI = lower CPM + higher conversion

– Publishers want to maximize yield = higher CPM + more premium inventory

• Agencies / buyers are giving away a lot of margin to the ad networks– Ad networks are making 30% - 40% margins

Page 7: Mad men to x men

7January 2010

Exchange Technologies are Taking the Lead• Real-time Exchanges offer transparency, market pricing, and liquidity

• Demand Side Platforms are offering the holdcos and marketers a solution

• Trading Desks at the agencies are becoming the experts at optimization

• Data Providers and Exchanges offer online audience segmentation at a detailed level

• Ad Creative Optimization allows dynamic ad serving of the right ad to the right audience at the right time

• Social Targeting platforms enable marketers to target based on social interactions

• Publishing Yield Optimizers aggregate inventory and maximize CPMs for publishers – looks a lot like the exchanges

• Ad Networks are trying to hold on to their high margins by adding better targeting technologies, high value services, and / or going deep into a vertical

Page 8: Mad men to x men

8January 2010

• New ad targeting, optimization, and data companies are redefining the landscape

The New Players are Staking Out Positions

Ad“Traders”

Ad“Traders”

Age

ncie

s / M

edia

Buy

ers

Rich Media Ad Platforms

Ad Creative Optimizers

Ad Creative Optimizers

Data Providers & Exchanges

Data Providers & Exchanges

Demand Side

Optimization Platforms

Demand Side

Optimization Platforms

Social Targeting

Social Targeting

Demand Side – Advertising $$ Supply Side - Inventory

Adv

ertis

ers

Publishing Yield Optimizers

Publishing Yield Optimizers

The Ad Exchanges

The Ad Exchanges

Publishers

Data M

easurement

Direct Sales Force

Display Ad Networks

Page 9: Mad men to x men

9January 2010

The New Players are Staking Out PositionsA

genc

ies

/ Med

ia B

uyer

s

EyeblasterEyeWonder

PointrollUnicast

VideoEgg

Demand Side – Advertising $$ Supply Side - Inventory

Adv

ertis

ers Publishers

Data M

easurement

Com

pete, comS

core, Quantcast, N

ielsen NetR

atings

24/7Adconion

AdifyAdroll

Audience ScienceBizo

Brand.netBrightRoll

Burst MediaCasale

Collective MediaConnexus

CPX InteractiveEpic AdvertisingFOX Audience

NetworkGoogle Ad Network

Gorilla NationInterCLICK

KonteraMicrosoft Media

NetworkPlatform-A

Specific MediaTremor MediaTribal Fusion

Turn Inc.Undertone Network

ValueClickVibrant Media

Yahoo Media NetworkYume

Ad“Traders”

Demand Side Optimization

Platforms

Data Providers & Exchanges

Social Targeting

Ad Creative Optimizers

Ad Exchanges

Publishing Yield Optimizers

Direct Sales Force

Page 10: Mad men to x men

10January 2010

Key Factors for Success• “Industrial-grade” technology platforms that deliver true

real-time performance at scale

• Easy-to-use platform interfaces that minimize work flow disruptions

• Ability to provide transparency and “trustability” across platform or service offerings

• Strong “customer” services focus as new marketers and suppliers enter market

• Clear performance measurement and reports that don’t require a Ph.D. to understand

• Ability to draw actionable insights out of reports, activate vast stores of data, and implement the “call-to-action”

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11January 2010

PRESENTATIONS PANELISTS ATTENDEES

Participants at 2010 Gridley Conference• Gridley has stayed in front of this emerging industry and continues to provide

thought leadership

Page 12: Mad men to x men

12January 2010

II. The Landscape of Players

Page 13: Mad men to x men

13January 2010

The Ad Traders are at the Agencies• The ad holdcos are actively positioning themselves in the landscape

– Evaluating all the players but have never been successful at buying technology companies

• Ultimately will stay gate keepers of the media spend and utilize their “traders” and technology for execution and analysis

Havas IPG MDC Partners Omnicom Group Publicis WPP Group

Trading Unit Adnetik Cadreon Varick Media Management

Omnicom Media Group Digital

VivaKi Nerve Center

Media Innovation Group / B3

N/A

Head of Unit Nathan Woodman Quentin George Darren Herman Matt Spiegel Curt Hecht Brian Lesser

Description Digital trading network and agency

Custom audience trading marketplace

Media traders using algorithms and data to trade in real-time

Partnering with Fox Audience Network (FAN) for access to audience targeting tools

Digital media optimization agency for premium inventory

Optimizer of ad network spend

TechnologyPlatform

DataXu Multiple platforms Multiple platforms FAN's Audience Insights, Audience Planner and Real-Time Bidding platforms

Private platform (Audience on Demand)ATOM Systems (Razorfish)

Private platform

Status Not operating in U.S. yet

Out of beta and serving clients

Established in 2008 Announced October 2009

Test mode in 2008; live clients today

Went live in middle of 2008

Page 14: Mad men to x men

14January 2010

The Demand Side Optimization Platforms• New breed of trading technology platforms that combine bid optimization, data

integration, analytics, and supply relationships to optimize display ad buys

– “Bloomberg terminals” for the media buyers

• “Trading desks” provide the execution – Adnetik, Cadreon, Varick Media, Living Segments, VivaKi, and B3

• Attracting a lot of interest from investors and strategic buyers

Company Year

Founded Investors

Capital Raised($mm)

www.adbuyer.comNew York, NY

NA NA NA

www.appnexus.comNew York, NY

2007 First Round Capital, Khosla Ventures, Kodiak Venture Partners, Venrock

$10.5

www.dataxu.comCambridge, MA

2007 Atlas Venture LLP, Flybridge Capital Partners 6.0

www.invitemedia.com Philadelphia, PA

2007 First Round Capital NA

www.mediamath.comNew York, NY

2007 Safeguard Scientifics, Inc.; QED Investors LLC; European Founders Fund

16.6

www.turn.comRedwood City, CA

2005 Focus Ventures, Norwest Venture Partners, Shasta Ventures, Trident Capital

38.5

www.xplusone.comNew York, NY

1999 ATV, Blue Chip Ventures, Hudson Ventures, Seed Partners, WS Capital

30.8

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15January 2010

Data Providers & Exchanges• Data exchanges provide cookie data to segment high value audiences

– Allows media buyers to target only the impressions they want

• Incorporating data from multiple sources – offline and online

• Speaking the language of database marketers – data management, audience segmentation, new marketing cohorts

Company Year

Founded Investors

Capital Raised($mm)

www.almondnet.comNew York, NY

1998 Argoquest Inc. $1.0

www.bizo.comSan Francisco, CA

2008 Ascent Ventures, Venrock NA

www.bluekai.comBellevue, WA

2007 Battery Ventures, Redpoint Ventures 13.7

www.brilig.comNew York, NY

NA NA NA

www.datalogix.comWestminster, CO

2002 Advantage Capital Partners, General Catalyst Partners, Sequel Venture Partners

15.2

www.exelate.comPetach Tikvah, Israel

2006 Carmel Ventures 4.0

www.lotame.comElkridge, MD

2006 Battery Ventures, Betaworks, Emergence Capital Partners, Hillcrest Capital Partners

25.0

www.quantcast.comSan Francisco, CA

2005 Polaris Venture Partners, Inc., Revolution Ventures, The Founders Fund

25.7

www.permuto.comPalo Alto, CA

2008 Onset Ventures, Rembrandt Venture Partners 6.0

www.targusinfo.comVienna, VA

2005 TA Associates, Inc. 60.0

Page 16: Mad men to x men

16January 2010

Ad Creative Optimizers• Dynamic ad creative optimizes ads using the best creative assets when the ad is

served

– Ability to serve ads in different colors, images, messaging, and lay-out to different audiences in real-time and at scale

• Integrates third party data to determine most effective ad to serve to right audience at right time

Company Year

Founded Investors

Capital Raised($mm)

www.adisn.comLong Beach, CA

2007 Battery Ventures $2.2

www.adroitinteractive.comBoston, MA

NA NA NA

www.aggregateknowledge.comSan Mateo, CA

2005 DAG Ventures, First Round Capital, Kleiner Perkins, Red Rock Ventures, VantagePoint

25.2

www.teracent.comSan Mateo, CA

2006 KPG Ventures, New Enterprise AssociatesAcquired by Google on 11/23/09

7.8

www.tumri.comMountain View, CA

2004 Accel Partners, Shasta Ventures, Tenaya Capital, Time Warner Investments

26.5

Page 17: Mad men to x men

17January 2010

The Ad Exchanges• Ad exchanges are the NASDAQ or NYSE for online ad inventory

• Provides transparent, dynamic pricing for advertisers

• Provides liquidity for publishers

• Big players already own this market

• Other exchanges are getting in the game

• Sell-side yield optimizers / inventory aggregators look a lot like the exchanges

• Today exchanges are for high volume, non-premium inventory

• In the future, exchanges will list premium inventory too

Page 18: Mad men to x men

18January 2010

Publishing Yield Optimizers• New platform technologies aggregate publisher inventory and optimize yield on the

ad networks and exchanges

• Publishers sell impressions to the highest bidder

• Publishers can consolidate ad network relationships into a single optimizer

• Platforms operating in real-time bidding environment look like the exchanges

Company Year

Founded Investors

Capital Raised($mm)

www.admeld.comNew York, NY

2007 Foundry Group, Spark Capital $15.0

www.pubmatic.comPalo Alto, CA

2006 Draper Fisher Jurvetson, Helion Venture Partners, Nexus India

7.0

www.rubiconproject.comLos Angeles, CA

2007 Clearstone Ventures, IDG Ventures, Mayfield Fund, Peacock Fund, Stanford, UC Berkeley

33.0

Page 19: Mad men to x men

19January 2010

Social Targeting• Optimizing ads based on social marketing data

– Identifying the influencers through social connections

– Did you download a song? How big is your friends network? Did you comment on a picture?

• Activating data based on social graph and engagement

Company Year

Founded Investors

Capital Raised($mm)

www.33across.comNew York, NY

2007 First Round Capital, RoseTech Ventures, LLC NA

www.lotame.comElkridge, MD

2006 Battery Ventures, Betaworks, Emergence Capital Partners, Hillcrest Capital Partners

$25.0

www.media6degrees.comNew York, NY

2008 Contour Venture Partners, Coriolis Ventures, U.S. Venture Partners, Venrock

11.8

www.seethroo.usLos Angeles, CA

2007 NA NA

www.rapleaf.comSan Francisco, CA

2005 Active Starts, Dace Ventures, Felicis Ventures, SoftTech VC, The Founders Fund

NA

Page 20: Mad men to x men

20January 2010

III. The Opportunities

Page 21: Mad men to x men

21January 2010

Fewer Vendors, More Capabilities• Today, many companies offer pieces of the puzzle, but few offer the full suite

– Marketers and publishers want fewer vendors, which will drive consolidation

• Consolidators will seek to acquire stand-alone technologies or services to be the one-stop shop

– Look for acquisitions of stand-alone platforms like the data exchanges & providers, ad creative optimizers, social targeting platforms, and publishing yield optimizers

• Ad networks will begin to consolidate into a few power groups representing inventory and strong media relationships

– The “Titans” Aren’t Going Anywhere: 24/7, FOX Audience Network, Google Ad Network, Microsoft Media Network, Platform A, and Yahoo Media Network

– The Consolidators: Adconion, Collective Media, Connexus, Epic Advertising, Specific Media, ValueClick, and “Titans”

– The Targets: Adroll, Audience Science, Bizo, Brand.net. BrightRoll, Gorilla Nation, InterCLICK, Kontera, Tremor Media, Turn, Vibrant Media, and Yume

– The Question Marks: Burst Media, Casale, CPX Interactive, Tribal Fusion, Undertone Networks

Page 22: Mad men to x men

22January 2010

Who Will Own What?

• The Ad Holdcos

– Specialized agencies with their own “trading desks”

– Traders will trade on the exchanges through multiple primary optimization platforms

– Will opportunistically acquire specialized technologies and services in online data, data analytics, market research, and ad creative technologies

• The “Titans”

– Google, Microsoft, AOL, and Yahoo will dominate the exchanges and networks

– Will acquire across entire spectrum of landscape

– Will compete for inventory listings by offering best execution and liquidity

– Since all have multiple capabilities across online ad technologies, they will be interested in many areas including data providers & exchanges, secondary vertical exchanges, social targeting, yield optimization

Page 23: Mad men to x men

23January 2010

Who Will Own What?

• The Data Companies and Database Marketers

– Will aggressively pursue all data-centric technology platforms across landscape

– The data exchanges and platforms, demand side platforms, and social targeting companies will be their highest priority

– Database marketers with multi-channel agency services will also look at ad creative optimizers and rich media ad serving

• The Technology Players

– Look for technology leaders like Adobe, Akamai, Cisco, IBM, and others to make “best-in-class” technology platform acquisitions across landscape

– Some precedents have been set: Adobe / Omniture; Akamai / Acerno; Cisco / Tribe.net, Five Across, and Starent

Page 24: Mad men to x men

24January 2010

Who Will Own What?

• The Diversified Media Giants

– Will continue to have a high level of interest across landscape

– Already investing across entire spectrum

• Meredith: Genex, New Media Strategies, Healia, The Hyperfactory

• Gannett: Pointroll, 4INFO, Ripple6

• NBC Universal: 4INFO, Greystripe, EveryZing, Rubicon Project

• Forbes.com: Investopedia, PublicPost

• Cox Enterprises: Adify

Page 25: Mad men to x men

25January 2010

Possible Strategic Buyers by Category

Ad“Traders”

Ad“Traders”

Age

ncie

s / M

edia

Buy

ers

Rich Media Ad Platforms

Ad HoldcosData & Analytics

Database Marketing

Diversified MediaInternet Titans

Ad HoldcosData & Analytics

Database Marketing

Diversified MediaInternet Titans

Ad HoldcosData & Analytics

Database Marketing

Diversified MediaInternet Titans

Technology

Ad HoldcosData & Analytics

Database Marketing

Diversified MediaInternet Titans

Technology

Ad HoldcosData & Analytics

Database Marketing

Diversified MediaInternet Titans

Technology

Ad HoldcosData & Analytics

Database Marketing

Diversified MediaInternet Titans

Technology

Ad HoldcosData & Analytics

Database Marketing

Diversified MediaInternet Titans

Technology

Ad HoldcosData & Analytics

Database Marketing

Diversified MediaInternet Titans

Technology

Demand Side – Advertising $$ Supply Side - Inventory

Adv

ertis

ers

Ad HoldcosDiversified Media

Internet TitansTechnology

Ad HoldcosDiversified Media

Internet TitansTechnology

Internet TitansTechnology

Internet TitansTechnology

Publishers

Data M

easurement

Direct Sales Force

Display Ad Networks

Demand Side Optimization

Platforms

Data Providers & Exchanges

Social Targeting

Publishing Yield Optimizers

Ad Creative Optimizers

Ad Exchanges

Page 26: Mad men to x men

26January 2010

Opportunities by Category• Buy-side Optimization Platforms

– Platforms will power the trading desks of the media trading units

– Near-term high growth opportunity for arbs

– Long-term high growth opportunity as more $$$ is deployed on platforms

– Likely Interested Buyers: technology-centric agencies, data & analytics companies, database marketers, diversified media, internet titans, technology companies

• Data Providers & Exchanges

– Near-term high growth opportunity as enhanced data drives high CPM and arbs can leverage spread

– Long-term high growth opportunity as audience segmentation becomes fundamental buying approach

– Getting high level of interest from all sides

– Interested Buyers: technology-centric agencies, data & analytics companies, database marketers, diversified media, internet titans, technology companies

Page 27: Mad men to x men

27January 2010

Opportunities by Category• Social Targeting

– Near-term high growth opportunities as marketers seek social marketing buys

– Companies will either become data providers or agencies

– Likely Interested Buyers: technology-centric agencies, data & analytics companies, database marketers, diversified media, internet titans, technology companies

• Ad Creative Optimizers

– New breed of ad servers that optimize ad based on variable creative assets

– Long-term high growth opportunity as marketers adopt creative dynamic ad serving

– Likely Interested Buyers: technology-centric agencies, data & analytics companies, database marketers, diversified media, internet titans

• Ad Exchanges

– Look for the big, established exchanges to make strategic acquisitions to drive scale

– Near-term consolidation of niche/vertical exchanges

– Likely Interested Buyers: internet titans, technology companies

Page 28: Mad men to x men

28January 2010

Opportunities by Category• Publishing Yield Optimizers

– Aggregating publishing inventory and providing yield maximization from bidders

– Need to pick the right horse

– Near-term high growth opportunity for first-movers who aggregate high volume inventory

– Likely Interested Buyers: technology-centric agencies, diversified media, internet titans, and technology companies

Page 29: Mad men to x men

29January 2010

IV. How Gridley Can Help

Page 30: Mad men to x men

30January 2010

About Gridley• Leading boutique Investment Bank specializing in Information Services

– Comprehensive perspective on Advertising, Marketing , Financial Technology, Outsourcing and Information Services trends and transactions

• Strong industry reputation on assignments led by senior bankers– Sellside = Excellent strategic positioning and valuation– Buyside = Deep knowledge and access to emerging companies and industry trends

• Trusted advisor and strategic matchmaker– Thoughtful M&A ideas – not just the logical public company combinations– Deliver value to buyers and sellers alike

• Broad industry network developed over 20+ years– Industry leaders, hot emerging growth companies, and senior investors– Senior executives on Gridley Advisory Board

• Well-known thought leader– Host of leading Annual Information Services Conference and participant in industry

events– Sought after commentator and resource for the media– Highly regarded quarterly newsletter – 2,500+ distribution

Page 31: Mad men to x men

31January 2010

Gridley Can Help You…• Understand the dynamics of this industry in transition

• Identify the companies on our market map that best fit your interest areas – we’ve met with these companies and know their CEOs

– What their strengths, weaknesses, and key market positioning are

– Who their management teams and investors are

• Navigate the Ad Holding Company, Database Marketing, and Data Provider worlds

• Identify the financial investors and strategic investors most interested in this emerging industry

• Execute your financial objectives

– Sellside Advisory Services

– Buyside Advisory Services

– Private Placement Agent Services

Page 32: Mad men to x men

32January 2010

Gridley Can Help You…• Understand the dynamics of this industry in transition

• Identify the companies on our market map that best fit your interest areas – we’ve met with these companies and know their CEOs

– What their strengths, weaknesses, and key market positioning are

– Who their management teams and investors are

• Navigate the Ad Holding Company, Database Marketing, and Data Provider worlds

• Identify the financial investors and strategic investors most interested in this emerging industry

• Execute your financial objectives

– Sellside Advisory Services

– Buyside Advisory Services

– Private Placement Agent Services

Page 33: Mad men to x men

33January 2010

Gridley Has the Expertise• Decades of experience executing transactions at the nexus of database marketing

and internet services

Sole Agent

$31,000,000

Preferred Stock

September 1999Co-manager

$50,000,000

Initial Public Offering

September 1999Advisor

$58,000,000

AcquiredPerformics, Inc.

May 2004Advisor

$138,000,000

AcquiredModem Media, Inc.

October 2004

Co-managerMay 2006

$113,189,337

Secondary Offering

Ad-serving Business of

Advisor

Undisclosed

Sold toAegis plc

June 2007

Email Business of

Advisor

Undisclosed

Sold toOne to One

Interactive, Inc.

July 2007Advisor

$157,000,000

Acquirede-Dialog, Inc.

January 2008

$20,000,000

Placement Agent

Investment byTZP Group LLC

December 2008

Undisclosed

Advisor

AcquiredWard Media, Inc.

March 2008Advisor

Undisclosed

AcquiredSilverlign Group

April 2009Advisor

Undisclosed

AcquiredPepperjam

September 2009

Advisor

$101,000,000

Sold CMG Direct Corp. to Marketing Services

Group Inc.

June 1999

Advisor

Undisclosed

Sold to

August 2006

Parthenon Capital LLCAdvisor

Undisclosed

Sold to Dun & Bradstreet Corp.

April 2001

Advisor

$175,000,000

Sold to Young & Rubicam Inc.

May 1999

Advisor

$112,400,000

Sold to Omnicom Group

November 1999

The M/A/R/C Group

Advisor

$20,000,000

Strategic Investment by

Young & Rubicam

March 2000

Database Marketing Internet Services

Page 34: Mad men to x men

34January 2010

Gridley & Company LLC10 East 53rd Street, 24th Floor

New York, NY 10022212.400.9720 tel212.400.9717 fax

www.gridleyco.com

Linda GridleyPresident & CEO212.400.9710 tel

[email protected]

Stan SandbergManaging Director

[email protected]