Why New York’s Hottest Startup, Valued at $1.2 Billion, Just Sold A Huge Chunk Of Itself For A Tiny Sum
WPP, the world’s largest ad agency holding company, announced it invested $25 million in the adtech company AppNexus.
The deal is somewhat complicated, but in a nutshell WPP has acquired a huge stake in the hottest tech startup in New York — worth $1.2 billion — for what appears to be a huge bargain.
It also helps WPP maintain a potent threat against Facebook and Google, who increasingly dominate online advertising.
The new funding will increase WPP’s stake in AppNexus from roughly 1% up to nearly 15%. According to CrunchBase, AppNexus has raised $225.5 million in funding from investors to date. The deal comes after AppNexus took in an investment round of up to $100 million last month, which placed the company’s valuation at $1.2 billion.
In addition, AppNexus has acquired from WPP its Xaxis For Publishers (XFP) unit, a product that serves ads for website publishers selling ad space, for an undisclosed sum. We’re told XFP is profitable and will therefore be immediately “accretive” to AppNexus. Business Insider has been told that the non-cash value of the XFP deal was about $150 million.
So, on paper, WPP appears to be makin! g a prof it on a deal in which it has gained a greater stake in AppNexus: WPP has received a net value from AppNexus of $125 million ($150 million on the sale of XFP minus $25 million in cash from WPP) and gained 15% of AppNexus in exchange. Here’s another way to look at it: WPP’s $25 million in cash is actually only 11% of the $225 million invested in AppNexus, not the 15% its stake currently represents. And AppNexus doesn’t need the cash anyway, following that $100 million injection a month ago.
So why would AppNexus CEO Brian O’Kelley agree to such generous terms with WPP?
Business Insider has been told that the deal comes with the implicit understanding that WPP will continue to funnel its clients’ ad money through AppNexus and its new XFP unit. (Think about it: If WPP spent less money through AppNexus, it would reduce the value of the stake it just bought.)
WPP has a track record of cutting deals like this: The company used to own a stake in the social media marketing platform Buddy Media, on which it made a profit when Buddy was sold to Salesforce. Buddy was the preferred partner for WPP’s clients and, by amazing coincidence, Salesforce offered “volume-based incentives” to its larger ad clients.
In other words, while O’Kelley appears to be letting a huge chunk of AppNexus go at a discount, he’s gaining a ton of new revenue in the future.
“We’re delighted to deepen our partnership with AppNexus, which has proven itself as a clear leader in ad tech and a company with the scale and ingenuity to continue to transform our industry,” WPP CEO Martin Sorrell said in a press release.
The deal also helps both companies in their war against Facebook and Google. WPP needs to be able to go to Google and Facebook as one of the biggest ad spenders on the planet and say, “We nee! d you to give us special treatment or we will go elsewhere.” AppNexus, as one of the largest ad servers on the planet, is now the default “elsewhere.”
AppNexus has long been rumored to be planning an IPO in the very near future. O’Kelley recently told Business Insider that the company was profitable, saying its net revenues were over $100 million.
The deal is expected to close by the end of this year.
Online video is growing faster than most other advertising formats and mediums.
- Video ad revenue will increase at a three-year compound annual growth rate (CAGR) of 19.5% through 2016, according to our estimates.
- That’s faster than any other medium other than mobile. And much faster than traditional online display advertising, which will only grow at a 3% annual rate.
In a new report from BI Intelligence we explore the key drivers of the skyrocketing growth of video ads, examine the cost and performance of the emerging digital ad format, and look at the major players that are shaping the industry.
Subscribers also gain access to our 2014 Media Spend Forecast, which projects spend on all the top mediums and formats for the next five years. (See chart, below.)
Here are some of the key trends we explore in the report:
- Online video ad revenue will reach nearly $5 billion in 2016, up from $2.8 billion in 2013, while TV ad revenue will decline by nearly 3% per year during the same time period.
- Video ad views exploded in 2013, topping over 35 billion views in December, averaging over 100% year-over-year monthly growth during the year.
- Online video ads are significantly more expensive than other formats, but prices are steadily declining as more publishers rush into video, and placements open up.
- Video ads have an average click-through rate (CTR) of 1.84%, the highest click-through rate of all digital ad formats.
- Viewability, the question of whether video ads are actually seen by multitasking online viewers, has emerged as an issue, but we believe that overall demand for online video is too high for viewability to put too much of a crimp in the video ad market.
- Streaming devices and connected TV accounted for just 2% of online video ad views in the fourth quarter of 2013, but companies like BrightLine are experimenting with formats to grow this new niche market.
- The growth of mobile and digital video advertising has been paralleled by fundamental changes in the online advertising industry — programmatic advertising, which we covered in a recent report, has begun to reshape the entire digital ad market, including video.
- Newly launched video ad platforms have been among the companies to adopt programmatic tools, including real-time bidding, ad exchanges, and advanced analytics.
US ad spending inched up by 0.7% year-over-year in the second quarter to reach $35.6 billion, dragging down the growth rate for first-half expenditures to 3.1%, per the latest quarterly figures from Kantar Media. The analysis notes that Olympic advertisers reined in spending by 4% year-over-year during Q2, while those not advertising during the Olympics increased spend by 2%, with the latter considered a more appropriate indicator of core media spending trends. › Continue reading
Notes: Global marketing budget optimism dipped a little quarter-over-quarter in Q3, but remains positive, with September marking the 21st consecutive month of budget improvement. Not surprisingly, marketers are most pessimistic about traditional media, with print and radio seeing the biggest budget contractions and TV mostly flat. Online and mobile, by contrast, are growing rapidly, though budget optimism was slightly tempered during the Summer months.
Source: Solve Media
Notes: Some good news on the bot traffic front, as levels of suspicious web activity dropped to 45% – still a high figure, but an improvement nonetheless from the high of 61% in Q4 2013. Levels of suspicious mobile activity in the US also declined quarter-over-quarter, from 24% to 18%, the lowest figure in at least 6 quarters of measurement. Expect those levels to rise again, though, warns Solve Media, as the holiday season approaches and ad spending picks up. Overall, 31% of US web traffic was confirmed as bots, as was 12% of mobile traffic. Separately, Solve Media notes that the CPG vertical is seeing! above-a verage levels of mobile bot traffic, with that attributed to rising mobile ad spend in the sector.
Consumers are well aware of marketers’ increasing data collection practices and focus on audience targeting, according to new survey results from Goo Technologies. Asked in which of various ways they believe advertising will change in the next 10 years, a majority of US adults surveyed indicated that advertisers will! have mo re personal data about consumers (58%) and that advertisers will improve targeted ads towards certain demographic groups (52%). › Continue reading
Online recommendations might be as influential as in-person ones, but the vast majority of word-of-mouth (W-O-M) impressions about brands occur offline, at least among Millennials (18-34). That’s according to new figures released by the Keller Fay Grou! p, which show that some 84% of Millennials’ word-of-mouth impressions about brands take place offline – with 71% the result of face-to-face conversations (versus just 3% over social media). So which media and marketing content are spurring these conversations? › Continue reading
Notes: Multi-screeners are twice as likely as single-screeners to say it’s important to watch their favorite shows live (47% vs. 23%), according to a Viacom survey of more than 1,500 Viacom viewers aged 13-44. The survey results also indicate that multi-screeners are more likely to be loyal to a few networks and less likely to give up pay-TV because they rely on DVR. Separately, the Viacom survey finds that live TV retains a key role in viewing behavior across the age groups tracked despite the proliferation of viewing screens and sources.
Source: Adap.tv [download page]
Notes: Brands surveyed for the Adap.tv report (limited to video ad buyers) estimate allocating 60% of their video budgets to programmatic channels versus traditional or direct publisher sales. And it appears that they’re extending their use of data-driven practices to linear TV, too, as 43% say they currently use some form of automated or data-driven process to drive traditional TV transactions.
Print newspaper ads are still a powerful medium for influencing consumer purchase behavior, details the Newspaper Association of American (NAA) in a new report. The study notes that 52% of adults use print newspapers – including ads in regular news and classified pages and inserted circulars – on a weekly basis to assist them with their shopping planning and purchase decisions. Many also report having bought something advertised in a print newspaper. › Continue reading
Dr. Augustine Fou is Digital Consigliere to marketing executives, advising them on digital strategy and Unified Marketing(tm). Dr Fou has over 17 years of in-the-trenches, hands-on experience, which enables him to provide objective, in-depth assessments of their current marketing programs and recommendations for improving business impact and ROI using digital insights.
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