That’s the consensus of a panel of ad tech, finance, and software executives today, speaking at the semi-private ad tech conference RampUp in Mountain View, a stone’s throw from Google. That might be about the only thing they agreed on, however, as they debated about how about the ever-changing landscape in ad tech might shift this year.
On the panel were moderator Bryan Morris, CFO of LiveRamp, which is hosting the conference; Terence Kawaja, CEO of Luma Partners, creator of those widely distributed Lumascape charts of online marketing competitors; Paul Kwan, managing director at Morgan Stanley, who said he’s basically trying to knock companies off the Lumascape (most recently, via this week’s acquisition of BlueKai by Oracle); and Bryan Lamkin, senior VP of technology and corporate development at Adobe, a big buyer of ad and marketing tech companies in recent years. Here are some highlights of their discussion:
Q: How do you look at the marketing tech landscape and how has it changed?
Kawaja: It looks like we have the whole Lumascape here in person. There are now 11 Lumascapes on different market segments. Clearly it’s fragmented and for years people have been calling for consolidation. It’s amazing venture capital has been rife with putting money into these companies despite all the competition. This notion that there will be fewer companies is a fallacy. Consolidation will never happen. About 100 to 200 new companies get birthed every year, but only 40 get sold or go out of business. There’s plenty of easy money out there. That said, the 12th company in a segment probably won’t find a home.
Kwan: For us it’s not about 12 companies in a bucket, it’s about which companies have differentiated themselves. I’ve been waiting for the CMO and CIO worlds to converge. Oracle’s not done. Not everyone is a technology company.
Lamkin: Consolidation is a huge thing. The drive is simplicity, making these solutions works together.
Q: Most interesting M&A transactions in the past year?
Kwan: You’re seeing strategic interest coming from both the Internet world and the enterprise software world. So the aperture of potential acquirers has to open up.
Kawaja: The universe of acquirers is expanding. New entrants, foreign companies are coming into the mix.
Q: Which potential buyers will be the most aggressive and least aggressive in the next 12 months?
Kawaja: A few media guys like Gannett and Hearst have experimented here and there, but I’m not sure they’re going to be that action-oriented. The agency guys are interested but they don’t have the cash.
Software guys like Adobe, Salesforce, IBM and SAP have plenty of cash and high multiples, so they’re going to be in with two feet. You’ve got the network companies like Facebook and Twitter may need a set of capabilities for their own benefit, like Facebook’s acquisition of Atlas. Finally you’ve got the core Internet guys like Google, AOL, maybe Yahoo.
The big unknown is Microsoft. Steve Ballmer really didn’t like the marketing business, maybe Satya will, but we look forward to another strong buyer.
Kwan: It’s not about doing $40 million in revenues for these companies. It’s about the technology and the team.
Lamkin: Don’t just put on makeup for the party. Build a real business. And think about playing in a large field, show that you can be one of those leading platforms.
Kawaja: If you want to be attractive to the big software plays, you gotta have a lot of software, not mostly services. They’re going to look at how good the coding is. Too many companies get sucked into the crack cocaine of media sales. The software guys are less enamored with those revenues.
Kwan: You’ll see the public markets move to net revenues rather than gross revenues as a way of focusing on the core value they’re bringing.
Q: How do you view valuations in ad tech?
Lamkin: Things are hot right now. Where there’s real differentiation, we’re willing to pay. There’s still value at the top companies.
Kwan: Private valuations are quite high. Public valuations are reasonable. So I don’t see a bubble. But people appreciate that the opportunity set you guys are solving and feel it’s worth paying for.
Kawaja: Prices are full-ish. But that’s a reflection that there’s a real there there–a real addressable market. Also, some of these businesses have real revenues that grow into their multiples.
Q: Is there any potential for slowdown in this hot market?
Kawaja: Not really. M&A is a good democracy tool. Google, Facebook and a couple others with their own platforms dominate. I’m a little bit worried as we move from desktop to mobile, with no cookies, where you don’t have a level playing field for data, what happens to advertisers and publishers that want to do something different?
Q: Top takeaway for smaller companies?
Kawaja: Look to other industries that have gone through a wave of consolidation. Take ERP software. Only three or four big companies doing that now. It’s a game of musical chairs. Running an auction doesn’t not attract the highest bidders, it attracts bottom-feeders. So you want to be wary of putting yourself forward as a seller of your company.
Kwan: Don’t underestimate the value of reference large-scale customers who are themselves also customers of your potential buyers.
Lamkin: Don’t focus on the quarterback, focus on the ball–that is, don’t focus on filling gaps you think we have as an acquirer. Focus on getting the customers.