You don’t have to be a seasoned business manager to know that soaring demand for online advertising played alongside video clips is spurring big growth amongst startups specializing in online video advertising. Companies like Adap.tv, YuMe and Tremor Video Inc., for example, are all poised for Initial Public Offerings later this year, as the expansion in fast mobile encourages ever-more bloggers and media firms to bump up the quantity of video on their sites.
But the cannier business development manager may well be entertaining some skeptical questions about what kind of success can be expected by these firms by selling shares to the public. In reality, there aren’t that many internet advertising agencies to have taken the IPO turn in recent years, largely because everywhere they look they’re confronted with the sight of a colossus: Google Inc. is firmly in control of around half the digital ad business. That’s one heck of a big slice of pie.
Take Millennial Media Inc., which sells promotions on smartphones. After its IPO in March 2012, it’s now valued at half the total it floated at back then. While its stock currently trades at 1.8 times its revenue, Google’s price-to-trade ratio is 5.2 per cent. To the sea the river flows (well, to Mountain View, anyway).
Startups like Tremor will simply have to compete against Google, whose YouTube model looks pretty unassailable (content owners are permitted by Google to run ads inside their uploaded YouTube clips and promotions can be embedded in videos). But there’s a corner of the market that Google hasn’t yet captured: the corner that serves commercials on high quality programs. And that’s where smaller firms seem to be doing better.
But, as any business development manager can testify, nothing stands still for long in Adland. Google already has its eyes on the space, and according to former Google product director Ari Paparo, it’s “very much on their radar and they’re looking to aggressively go into the market.”
Finally, there’s the danger of ending up as acquisition fodder. Yahoo may have recently failed to buy a stake in Dailymotion, but according to market analyst Brian Weiser at Pivotal Research, it may look hungrily at Adap.tv when it hits the public arena.
There are some big, hungry beasts in that thar public jungle.