Biz Dev in NYC by Rob Tsai

Scott Rafer referred me recently to Roberto Bonanzinga’s new stock picking community - Jambaz.

Jambaz hosts a stock picking game every two week that harnesses the knowledge of its members. I’ll embed the widget below.

Mashable covered the launch of Jambaz here:

You play by indicating which direction the stock prices will close, and Jambaz will keep a running tab on who guesses most accurately. You have to play every day that the stock market is open, or else your score will be skewed. The winners get a cash prize, up to $500, during their beta test period. Looks like the administrator of the widget can pick five stocks to choose for an individual widget game, and registered users can play as many widgets as they like, increasing their chances of earning money.

CBS Marketwatch picks up the Labor Departments release of the May Producer Price Index (PPI):

Led by another big gain in energy prices, wholesale prices rose a greater-than-expected 0.9% in May, the Labor Department reported Thursday.

Wholesale food prices fell 0.2%, the first decline in seven months.

Energy prices jumped 4.1%, the biggest increase in six months. Wholesale gasoline prices rose 10.2%…

Headline inflation has risen 4.1% in the past 12 months, the largest increase in a year. But core inflation at the wholesale level is up a moderate 1.6% in the past 12 months.

Dan Caplinger writes a good article on the Motley Fool on why the core rate of inflation is misleading:

One particularly egregious example of statistics gone wild is the so-called core component of the consumer and producer price index figures…

How realistic is it to leave out large fractions of the costs that consumers must bear in price index figures? In calculating the CPI, food and energy account for nearly a quarter of the entire index. In the PPI, they account for more than 40% of the index…

The argument is that food and energy prices are volatile, and so leaving them out presents a clearer picture of price trends in the economy…

The underlying assumption is that food and energy shocks are either temporary phenomena or eventually work into prices for other goods. The problem is that if food and energy price changes are temporary, the primary index will be misleading, while if price changes are permanent, then the primary index will lead the core index for a while. Recent experience strongly suggests the latter, as year-over-year CPI comparisons show the full index lurking above core changes during almost all of the past five years.

Now, what do you make of the news that Dow Jones is raising the price of its hallmark newspaper The Wall Street Journal from $1.00 to $1.50?  CBS Marketwatch reports:

The increase doesn’t include the subscription price, which means that more than 90% of the newspaper’s buyers won’t be affected. The increase is in response to the rising costs and falling advertising revenue that is afflicting the newspaper industry.

Inflation doves, I’m sure, would highlight this argument that a majority of readers are print or online subscribers (whose rates have not been increased).  

My friend Alex Iskold has been quite busy, and his company Adaptive Blue has just released a new version of their firefox add-on called Blue Organizer.

TechCrunch covers the news here, and so does Read/WriteWeb.

I’ve met Alex a number of times in New York, and it’s great to see the traction his service is getting.  The company raised its Series A from Union Square Ventures in February. 

I’ve written about Adaptive Blue earlier in May 2006 and in August 2006. 

Steve Rubel at Micro Persuasion and Pete Cashmore at Mashable have covered the news that Google is now embedding its widgets (Google Gadgets) within search results (if the searcher has opted to subscribe to those widgets).

Writes Steve:

Right now there are only a handful of gadgets you can sign up for. All of them are from Google, but they are handy. They include: time/date, translations, traffic and weather radar/conditions. If you have a Google account and you opt into these links, when you search it will trigger the data to load above the search results. You need to enter certain keyword commands, such as: “what time is it” or “weather 10036″ or “new york traffic” or “translate hello into spanish.”

I’m wondering if and when it would make sense for these gadgets to become a default option for display in search results.  Obviously, forcing people to opt in to a subscribed links program limits adoption, at the beginning, to the tech-savvy early adopter crowd. 

Who wants to take the time to browse a library of gadgets to select the ones they want to subscribe to anyways?   Would Google , with all its prowess around algorithms, be able to “understand” which of its searchers are likely to prefer and enjoy gadgets in search results and to proactively serve these Google gadgets as default search results without requiring a person to opt in?    And, as Google starts to serve up these gadgets in the search results, I’m sure they’re capturing and mining the data on which users are clicking through and engaging with the widgets, which ones aren’t, and which gadgets are more popular.

Obviously - as the widget ecosystem becomes extraordinarily large - the semantic challenges arise, and I can understand how an opt-in program for gadgets can help this problem.  For example, if I type in Albert Pujols in my search engine query, should the search engine display a calendar widget with the schedule of St. Louis Cardinals’  home games, or a fantasy baseball widget with his stats and how they impact my fantasy league? 

Scott Karp poses the question at Publishing 2.0 - “What is The Value Of Online Display Ads?”   He writes: 

Without clicks or some kind of response mechanism, how do advertisers determine the ROI of their display advertising? One reason why Google’s AdWords program has been so successful is that the ads use the format of the universal call to action on the web — the text link. Unless a display is itself a call to action, which usually involves text that calls upon users to click through from some benefit, there is no way to really know what impact that ad had. Many advertisers use random sampling “brand lift” surveys through companies like Dynamic Logic, but in a medium so rich with data, this is hardly an exact science.

One possible challenge with survey companies and methodologies is sample bias. Are people who have the time to fill out surveys on brand impact of the ads they see different from the vast majority of people who ignore these surveys? How does this skew the data?

Yes, click-through rate is the most direct and measurable metric from an online ad, but it’s clear that online display ads provide value above and beyond the click through. For example, a user may be exposed to a BMW banner ad while reading an article on a news site. If that user later types in a search query on Google for “BMW car”, after being exposed to the BMW car ad, the search engine gets credit for the click-through, though the display ad played a role in increasing awareness.

Yes, this challenge has been around for a long time, as articulated in Julian Smith’s article in clickZ in April 2005.

Measuring direct converters often comes at the expenses of measuring the equally important target consumers who don’t immediately convert, convert offline, or never convert at all… With greater online activity, marketers should no longer rely on click data and conversion metrics alone to provide an understanding of return on investment (ROI). Increasingly, they must take a holistic view of performance and measure the greater, aggregated effect their online messages have on consumers’ minds, offline behavior, and overall attitudes if they are to fully optimize campaign performance… As the medium matures, a wider range of traditional measures and metrics will become important. Reach and frequency are offered by the key audience measurement companies, such as Neilsen//NetRatings with WebRF and comScore Media Metrix with Campaign R/F. Those measures will enable marketers to build campaigns against branding metrics, such as gross rating points (GRPs). They’ll make pre- and post-campaign management more analogous to and comparable with offline advertising. Brand engagement measures, gained through an understanding of advertising or Web site content interaction, will enable comparisons with exposure to 30-second TV spots. Marketers should look to adopt analytics tools and interpret and act on behavioral data.

Probably the best third party data sets out there on measuring the impact of an advertising campaign can be found in a few data repositories - the search engine databases at Google, Yahoo and Microsoft - and the databases at research companies like Hitwise who mine the traffic logs of Internet Service Providers.

Imagine if an advertiser like BMW had visibility on which of their advertising campaigns (and on which publishers’ sites) were viewed by consumers who later typed in a generic search query like “new car” or better yet a branded search query like “bmw lease.” All of a sudden, you have new metrics like % Ads Associated with Generic Search Queries or % Ads Associated with Branded Search Queries.

Or better yet, imagine if you were able to tell what portion of your web visitors were exposed to which advertising campaigns? Leading behavioral targeting providers like Revenue Science and Tacoda are enabling publishers to target ads to profiles of users based on these users’ prior behaviors. For exmaple - Did they visit an auto site in the last 10 days? If so, let’s serve them an auto ad even if they’re on an email page view, and so forth.

Does the technology exist, and is it economically viable, to turn the problem on its head? Instead of looking at a users’ cookie to see what behavioral data is known about that user in order to determine what ad to show him, would it be possible and worthwhile to look at the cookie data of incoming visitors to an advertisers’ site and “see” what advertising campaigns were shown to that visitor? At some point, the technology probably breaks down. The cost of storing, analyzing and mining the data (terabytes worth) exceeds the value of the added insight. But you never know, with Moore’s law breathing down our neck….

With so many cool analytical problems to solve, it’s no wonder why so many scholars, business folks, engineers, technologists and mathematicians are attracted to the media space.

Techememe picked up a great article in the New York Times, “Reaping Results: Data-Mining Goes Mainstream”

Internet marketing and advertising is a social market made for the use of heavy-duty computing and sophisticated mathematics. Investment and start-up money is pouring into the market, and so are many high-powered computing brains.

Basem Nayfeh has a Ph.D. from Stanford, where he did his graduate research down the hall from one of Google’s founders, Sergey Brin. Mr. Nayfeh’s thesis was on multiprocessor chips, and he has worked in corporate labs in Silicon Valley on things as diverse as climate and computer design.

Today Mr. Nayfeh, 37, is the chief technology officer of Revenue Science, which tracks, analyzes and predicts online behavior to help advertisers find people most likely to buy their products. Many of his fellow computer wizards are in online marketing.

“If you asked any of us 5 or 10 years ago if we would be in advertising,” he says, “none of us would have said yes.”

BusinessWeek has an interesting cover story on how, in the search for higher returns, investors are assuming greater risks and investing in markets like Colombia:

Call them extreme emerging markets… In this parallel investing universe, price-earnings ratios take a backseat to fuzzy measures such as confianza, which translates into confidence and trust but is more accurately described as the general sense that people can safely transact business and get through everyday life unharmed. The handful of Wall Street analysts who cover Colombia supply their clients with charts of murder rates and kidnappings… “I guarantee that if you graph the decline in kidnappings to investment gains, the correlation would be one-to-one,” says Ben M. Laidler, head of Andean research for UBS Pactual.

It prompted my curiousity to look up per capita murder rates by country on NationMaster, and sure enough - Colombia ranks as #1  (though this data is only updated through 2000… I’d bet Iraq is up there today, sadly).

It turns out that Colombia’s murder per capita rate is 0.618 per 1,000 people for the period of 1998 - 2000, compared to the United State’s 0.0428 per 1,000 people, or 14.5x as high.

I wish I would have bought aQuantive stock, in the wake of the Google and Yahoo deals.  It wasn’t too hard to see the M&A frenzy in this space, and aQuantive’s position as a leading technology and service player for publishers and agencies was in plain site.  The stock is up 80% in early market trading!

TechCrunch covers the news of the deal here.

In my earlier post, I ran some crude analyses of valuations based on monthly impressions served.  Of course, aQuantive has other businesses besides its two ad serving products (Atlas, Accipiter) and 24/7 has other businesses besides its ad serving product OAS - but it’s interesting nonetheless to lay out the metrics.  Here’s the updated spreadsheet:

 Also, check out Ashkan’s post at HipMojo on why aQuantive is worth 2x Doubleclick.

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Update:

Paul Kedrosky at Infectious Greed linked to this post and kindly pointed out my dyslexia (my earlier chart had a couple columns reversed.

One of his readers, Dutch at Dutch Tender, was critical of this analysis for not adjusting for valuation for the other pieces of aQuantive (avenueA and Drive PM) - and so I thought I’d put in the extra work to make that modification.  (Dutch makes a good point that in blogging, there is a balance of speed to market and providing good insights - and good posts should win out in the end).

The analysis is still a little wonky - mostly because the revenue multiples I’m ascribing to the ad network side of the business and the agency side of the business are probably way too low.  (using a couple comps like AOL’s purchase of Ad.com and the current trading multiple of Omnicom).

It gets us a little closer to the truth…..  if someone wants to run the full comps analysis, I’d be happy to update this post again.

Hot on the heals of Google’s acquisition of Doubleclick, Yahoo! announced its $680 million purchase for the 80% of Right Media that it did not previously own.

Charlene Li at Forrester has an interesting take on the deal, noting that the exchange layer of the online ad ecosystem is more attractive than the delivery engine layer.

 

1) Smart move by Yahoo!. While this looks like a defensive move against Google’s Doubleclick acquisition, as I note above, this expansion has been in the works for the past year. Depending on your perspective, I think it’s actually an offensive strategy for Yahoo! to build on its dominance in the graphical ad marketplace. Yahoo! is putting a stake in the ground that the future for online display advertising lays in efficient, easy-to-use marketplaces — and it wants to be the trusted intermediary for that future.

So here’s the scenario of how this will play out. A publisher uses Google/Doubleclick’s ad server to show the ads that the publisher sells on Yahoo/Right Media’s ad exchange. Voila - both Google and Yahoo! have a relationship with the publisher. But look who has the relationship with the advertiser — Yahoo!.

Now let’s take a look at the advertiser side. An advertiser uses the Yahoo!/Right Media exchange to find and buy the ad inventory from multiple publishers, then uses Google/Doubleclick’s ad server to deliver the ads across those sites. Both companies have visibility into the transaction, but only Yahoo! stands in the middle.

In both scenarios, Yahoo! stands in the middle as the broker between both publisher and advertiser — Google runs the risk of being only the delivery mechanism. Nice end run on the part of Yahoo!

Here’s a fun little analysis to compare the purchase price of Doubleclick with Right Media, based on impressions.  Yes, I understand the impression metric is a little flawed, given that Doubleclick doesn’t typically charge clients on a per impression delivered, and Right Media’s business model (according to Pat McCarthy via TechCrunch) is to “charge a fee from the RMX Direct ad networks who are bidding for a publisher/blogger’s inventory.”

From OMMA’s April 2007 issue, here’s a report that estimates Doubleclick’s (DART) delivers 290 billion monthly impressions.

From Donna Bogatin’s blog Digital Markets at ZDNet,

How does Right Media attain such goals, while aiming to make a tidy profit?

More than two billion impressions are traded daily through the Right Media Exchange and Right Media gets a piece of each one.

So here’s the summary result of this CRUDE valuation comparison:

If you really wanted to try to back into Right Media’s revenue, you’d have to make assumptions on the average transaction size of each impression on their network (CPM) and their average % fee for each transaction. 

What’s interesting to note is that Right Media’s valuation is only 33% higher on a per impression basis, and Right Media’s growth trajectory is definitely much steeper.  

Another question worth asking, what’s the value story of ad delivery versus an exchange.

From Dan Farber and Larry Dignan:

Pennies matter at Yahoo’s scale. If Right Media can monetize this inventory better just by a few cents it can make a big difference at Yahoo’s scale. Decker said that some Right Media trials showed a 50 percent lift. That’s the equivalent of going from 10 cents per 1,000 pages to 15 cents. Those nickels add up. The Right Media acquisition message was also tailored to Wall Street, which spent a good chunk of Yahoo’s earnings call talking about page monetization.

Wow - 50% uplift is pretty impressive.  With an uplift that large, there’s a lot of value being created to justify Right Media’s fees.   You could probably look to eBay for a benchmark for online auction fees - eBay charges 3.25% to 5.25% in variable transaction fees, but after tacking on fixed fees and Paypal, I bet it eBay can charge up to 8%.   For Right Media, a 5% hypothetical revenue split (within the eBay range) would still yield a 10x return to the seller. 

That’s not quite the right math - as a $1.00 CPM ad going through Right Media would hypothetically garner a 50% uplift or $1.50 CPM.  So a 5% revenue split of the $1.50 CPM would be $0.075 CPM on a $0.50 CPM uplift  - so this would really be a 6.66x return.  Still sizeable and nothing to sneeze at!

All in all - congratulations to both the Yahoo! and to Right Media teams for inking this pivotal transaction.

Ashkan at Hipmojo writes:

But with this Google/DCLK deal, Google buys the ad serving platform from DCLK, and not a network… after all, DCLK got out of the display/banner network business when it sold off that unit to L90’s MaxOnline. MaxOnline subsequently was sold to Ask Jeeves, today a part of InterActive Corp.

Though Doubleclick has recently launched an Ad Exchange (similar to Right Media), Ashkan is right, Doubleclick is primarily known for its ad delivery businesses:

1. For Publishers: They sell a hosted-service (DART for Publishers, or DFP), as well as an enterprise software license (DART Enterprise, or DE).
2. For Advertisers:  They sell a hosted-service  (DART for Advertisers, or DFA).

On the Friday April 13 conference call announcing the Google-Doubleclick acquisition, it was disclosed that Doubleclick’s revenue is approximately evenly split between Publishers and Advertisers.

The best article I’ve seen that lays out how ad delivery works was written by Microsoft’s Eric Picard on clickZ.   Definitely worth a read.

During the Friday conference call announcing Google’s $3.1 billion purchase price for Doubleclick, several analysts tried to get information from Google on how they arrived at the valuation, including asking for forward looking and historical revenue and EBITDA for Doubleclick’s business.

Google preferred not to comment on Doubleclick’s standalone performance, except to say that they foresee substantial “synergies” to drive value that make the purchase extremely attractive to them. The blogosphere is abuzz about what these synergies might be – and merit a post in its own right. See Fred Wilson, Scott Karp, Hipmojo, Donna Bogatin, Phil Wainwright, and Sim Simeonov.

Louise Story and Miguel Helft report in the New York Times 4/14/07 article “Google Buys an Online Ad Firm for $3.1 Billion”:

A highflying stock in the late 1990s, DoubleClick was an early pioneer in online advertising and was one of the few online ad companies to survive the burst of the dot-com bubble. In 2005, it was taken private by two private equity firms, Hellman & Friedman and JMI Equity, in a deal valued at $1.1 billion.

Since then, the company has sold two data and e-mail advertising businesses and acquired Klipmart, which specializes in online video. DoubleClick generated about $300 million in revenue and $50 million in earnings before interest, depreciation and taxes last year, mostly from providing ads on Web sites.

So based on these numbers, it puts the deal at about 10x revenue and 60x EBITDA (trailing), if you believe those financials.

One way to sanity check those estimates is to look at the last publicly filed financials for DCLK on Edgar prior to being taken public by Hellman & Friedman.

For the quarter ended March 31, 2005, Doubleclick reported $76 million revenue. Of this, $50 million was their “TechSolutions” operating segment containing Ad Management (DART for publishers service, DART for advertisers service, and DART enterprise ad serving software product), Marketing Automation and Performics (affiliate and Search Engine Marketing). The other $25 million or so was their data division (mostly Abacus) that they sold off.

So, if their “Techsolutions” operating segment was at a $200 million run-rate two years ago, the NY Times’ reported numbers imply roughly a 50% revenue growth over 2 years.