Recession 2.0:  A Deep Dive Into The 2009 Interactive Economy  Where Are The Investors Going?   February 23, 2009 Terence ...
“ I’m an investment banker and I’m here to help” <ul><li>The Preamble </li></ul><ul><li>For those of you who were disappoi...
The Pre Roll Message <ul><li>240 professionals in Tokyo, San Francisco, New York, Chicago and London  </li></ul><ul><li>Ad...
User Relevancy Hierarchy to Drive Insights 1 st  Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort b...
User Relevancy Hierarchy to Drive Insights 1 st  Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort b...
Investor Activity: The Raw Data
User Relevancy Hierarchy to Drive Insights 1 st  Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort b...
Segmenting the Data Three Categories <ul><li>Public Investors </li></ul>2. Private Investors   Two Time Periods 3. Strateg...
Public Investor Activity
The IPO Market is Non-Existent Source: VentureXpert 93% Decline
Public Online Advertising Stocks Taking a Beating Source: FactSet Notes: 1) Diversified Marketing Composite includes: EFX,...
Private Investor Activity
Private Investor Activity (Q1 2006 – Q3 2008) Source: VentureXpert.  Disclosed deals only.
Private Investor Activity by Sub Sector (2006-2008) Source: GCA Savvian databases.
Private Investor Activity by Sub Sector (2006-2008) Source: GCA Savvian databases.
Strategic Investor Activity (M&A)
M&A Activity (Q1 2006 – Q3 2008)
M&A Activity Triggered by Spring 2007 Transactions Date Acquirer Target Aggregate  AV /    AV /    S.F.   Value  Revenue  ...
M&A Activity by Sub Sector (2006-2008) Content Video   Gaming Social Media Interactive Marketing / Lead Gen Others Ad Netw...
M&A Activity by Sub Sector (2006-2008) Source: GCA Savvian databases.
Source: GCA Savvian databases. M&A Activity by Sub Sector (2006-2008)
M&A Activity by Buyer: The Usual Suspects The top 5 buyers accounted for almost half of all activity by value
Expanding Buyer Universe: Beyond the Usual Suspects Digital Media Companies Media Conglomerates Other Strategic Buyers Tra...
Getting it Right is Paramount Proven Strategic Deals Yet to be Proven Strategic Deals / / / / / The beta on Interactive Ad...
But Then The World Changed
Private Investor Activity (Q2 2008 – Present) Source: VentureXpert.  Disclosed deals only.
M&A Activity (Q2 2008 – Present) Source: VentureXpert.  Disclosed deals only.
The Current Investment Environment <ul><li>Public Investors </li></ul><ul><li>No public demand, low valuation levels </li>...
Gap in Perceived Valuations Notes:   Source: FactSet.  NASDAQ Performance – Since 6/1/2008 GAP (43%) Buyer’s Perception De...
User Relevancy Hierarchy to Drive Insights 1 st  Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort b...
Private Investments by “Leading” Funds  Source: GCA Savvian databases. Benchmark indexed by deal count. <ul><li>Source: GC...
“ Leading” Funds vs. Total Private Investments Source: GCA Savvian databases. Benchmark indexed by deal count. Over-indexe...
User Relevancy Hierarchy to Drive Insights 1 st  Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort b...
Content Ad Networks / Exchanges Agencies Social / Blogs Performance Marketing Mobile GCA Savvian Transactions by Subsector...
User Relevancy Hierarchy to Drive Insights 1 st  Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort b...
Dialogue Driving Insight Online Media Private Equity Traditional Media
Investment Spectrum; Balancing Risk and Reward Out There New Paradigm Platform Enabler Problem Solver Proprietary Network ...
Investment Assessment Criteria The Value Drivers 1 Growth Usage and revenue momentum 2 Profitability Gross, EBITDA margins...
Solving Existing Problems <ul><li>Analytics </li></ul><ul><li>Enablement </li></ul><ul><li>Optimization </li></ul><ul><li>...
Verticalization Across the Digital Media World Content Networks Social Commerce Horizontal circa 2005 Vertical circa 2008 ...
Performance is Back; Only It’s New and Improved Performance Pyramid Lead Impression Click Audience Sale Metric Example Com...
The Pyramid Works For Brands Too Brand Pyramid Insights Impression Engagement Audience Sale Marketer Goals Publisher Capab...
Mismatch of Supply and Demand <ul><li>It’s the demand, dummy </li></ul><ul><li>Focus should be on how ads are bought, not ...
Chasing the 30 Second Spot; A Crowded Landscape VIDEO PORTALS / SHARING VIDEO SEARCH MOBILE /  PLACESHIFTING VIDEO eCOMMER...
Chasing the 30 Second Spot; Applying a Filter
Competition for the Winning Platform So far (and it’s way early), Hulu seems to have found a monetization strategy that’s ...
Social is Going Corporate, Corporate is Going Social Licensed  Software SAAS Social  Based Tools Business Consumer
International Opportunities – BRIC Countries
And Now for Some Provocation “ I want you to be provocative” Provocative is my middle name
Pork Bellies and the Efficient Markets Thesis <ul><li>Brand publishers are upset that ad networks and exchanges are cheape...
<ul><li>What if the networks and exchanges are simply technology which brings efficiency and transparency to the marketpla...
Pork Bellies and the Efficient Markets Thesis <ul><li>What if Madison Avenue has been one giant deception for the last 100...
And Now for Some Provocation “ I said provocative, not heretical”
Pork Bellies and the Efficient Markets Thesis <ul><li>While some of you will undoubtedly see the irony in a Wall Streeter ...
Wall Street and Madison Avenue; Separated at Birth? Name Named after a street in Manhattan Unit Standardized, high volume ...
The Good News: Interactive is the Only Bright Spot Total Advertising Spend ~$300 Billion
The Good News: Interactive is the Only Bright Spot ~$300 Billion Traditional Digital Total Advertising Spend
The Good News: Interactive is the Only Bright Spot ~$300 Billion Traditional Digital Total Advertising Spend $250 ? $200 ?
The Good News: Digital Can Deliver Value to Brands <ul><li>Technology will drive targeting and relevancy to new levels, in...
The Reality The fate of the industry is in this room
Lastly, It’s All About the Brand
The Call to Action Terence Kawaja Managing Director GCA Savvian Advisors [email_address] +1 212 999 7082 I welcome discuss...
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Terence Kawaja's IAB Orlando Presentation - February 2009

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This presentation discussed the investment activity in digital media (with a twist).

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  • In the context of Brands Battle Back, a look at the investment activity will help see how the Ecosystem will develop going forward. Much of the innovation that drives this industry comes from the start-ups, not the incumbents. Valuable insights can be learned from seeing which of these innovators are getting financial backing and which are being acquired. For the established Brands, these companies are both friend and foe. They represent catalysts, enablers and competition. I plan to look at this activity of recent years, layer on the effects of the financial and economic crisis and try to discern some themes around future activity.
  • Terence Kawaja's IAB Orlando Presentation - February 2009

    1. 1. Recession 2.0: A Deep Dive Into The 2009 Interactive Economy Where Are The Investors Going? February 23, 2009 Terence Kawaja GCA Savvian Advisors
    2. 2. “ I’m an investment banker and I’m here to help” <ul><li>The Preamble </li></ul><ul><li>For those of you who were disappointed to see an investment banker on the speaker list at a conference about advertising, I feel your pain. This is not our industry’s finest hour. </li></ul><ul><li>But Randall does everything for a reason. </li></ul><ul><li>In the context of Brands Battle Back, a look at the investment activity will help shed some light on how the Ecosystem will develop going forward. </li></ul><ul><li>Much of the innovation that drives this industry comes from the start-ups, not the incumbents. Names like YouTube, Twitter, Right Media and Kayak come to mind. In fact, it wasn’t that long ago that Google was a start-up. </li></ul><ul><li>Valuable insights can be learned from seeing which of these innovators are getting financial backing and which are being acquired. </li></ul><ul><li>For the established Brands, these companies are both friend and foe. They represent catalysts, enablers and competition. </li></ul><ul><li>I plan to look at the deals of recent years, layer on the effects of the financial and economic crisis and try to discern some themes that will instruct future activity. </li></ul>
    3. 3. The Pre Roll Message <ul><li>240 professionals in Tokyo, San Francisco, New York, Chicago and London </li></ul><ul><li>Advised on over $50 billion in transactions in last three years </li></ul><ul><li>The leading advisor in the digital media space </li></ul>
    4. 4. User Relevancy Hierarchy to Drive Insights 1 st Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort by Time, Sector Top Investors’ Activity Only GCA Savvian Deal Experience What the Investor “Ecosystem” is Thinking USER RELEVANCY
    5. 5. User Relevancy Hierarchy to Drive Insights 1 st Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort by Time, Sector Top Investors Activity Only GCA Savvian Deal Experience What the Investor Ecosystem is Thinking
    6. 6. Investor Activity: The Raw Data
    7. 7. User Relevancy Hierarchy to Drive Insights 1 st Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort by Time, Sector Top Investors Activity Only GCA Savvian Deal Experience What the Investor Ecosystem is Thinking
    8. 8. Segmenting the Data Three Categories <ul><li>Public Investors </li></ul>2. Private Investors Two Time Periods 3. Strategic Investors <ul><li>Q1 2006 – Q3 2008 </li></ul>2. Q3 2008 – Present
    9. 9. Public Investor Activity
    10. 10. The IPO Market is Non-Existent Source: VentureXpert 93% Decline
    11. 11. Public Online Advertising Stocks Taking a Beating Source: FactSet Notes: 1) Diversified Marketing Composite includes: EFX, ACXM, HHS, IUSA, VCI, WPP, OMC, PIG, PUB, AGS, HAV, MDCA. 2) Internet Content Composite includes: BIDU, WBMD, RNWK, KNOT, NAPS, TSCM, DIET, SCOR, WWWW, UNTD, MOVE, DHX, MWW, EHTH, SFLY, RATE, TTGT, INET. Last Twelve Months Market down over 50%; PIPE investments looking attractive / / NASDAQ Diversified Marketing (1) DJIA Internet Content (2)
    12. 12. Private Investor Activity
    13. 13. Private Investor Activity (Q1 2006 – Q3 2008) Source: VentureXpert. Disclosed deals only.
    14. 14. Private Investor Activity by Sub Sector (2006-2008) Source: GCA Savvian databases.
    15. 15. Private Investor Activity by Sub Sector (2006-2008) Source: GCA Savvian databases.
    16. 16. Strategic Investor Activity (M&A)
    17. 17. M&A Activity (Q1 2006 – Q3 2008)
    18. 18. M&A Activity Triggered by Spring 2007 Transactions Date Acquirer Target Aggregate AV / AV / S.F. Value Revenue EBITDA 5/18/2007 5/18/2007 4/30/2007 4/16/2007 $5,782 $649 $850 $3,100 10.7x 3.0x NA 12.0x 41.4x 31.8x NA NM ($MM) Here at the IAB Digital Media Spring Fever
    19. 19. M&A Activity by Sub Sector (2006-2008) Content Video Gaming Social Media Interactive Marketing / Lead Gen Others Ad Networks / Exchanges, Targeting and Measurement Search / Agencies
    20. 20. M&A Activity by Sub Sector (2006-2008) Source: GCA Savvian databases.
    21. 21. Source: GCA Savvian databases. M&A Activity by Sub Sector (2006-2008)
    22. 22. M&A Activity by Buyer: The Usual Suspects The top 5 buyers accounted for almost half of all activity by value
    23. 23. Expanding Buyer Universe: Beyond the Usual Suspects Digital Media Companies Media Conglomerates Other Strategic Buyers Traditional Media Companies
    24. 24. Getting it Right is Paramount Proven Strategic Deals Yet to be Proven Strategic Deals / / / / / The beta on Interactive Advertising acquisitions is high given the potential downside is 100 cents on the dollar / / / / /
    25. 25. But Then The World Changed
    26. 26. Private Investor Activity (Q2 2008 – Present) Source: VentureXpert. Disclosed deals only.
    27. 27. M&A Activity (Q2 2008 – Present) Source: VentureXpert. Disclosed deals only.
    28. 28. The Current Investment Environment <ul><li>Public Investors </li></ul><ul><li>No public demand, low valuation levels </li></ul><ul><li>All fear, no greed </li></ul><ul><li>Private Investors </li></ul><ul><li>Fund proclivities depends on: </li></ul><ul><ul><li>Stage of investor </li></ul></ul><ul><ul><li>Lifestage of fund </li></ul></ul><ul><li>Deals can still get done </li></ul><ul><li>Strategic Investors </li></ul><ul><li>Most buyers on sidelines </li></ul><ul><ul><li>Many still in shock </li></ul></ul><ul><ul><li>Own business dismal (and currency gone) </li></ul></ul><ul><ul><li>Looking to pick up companies when the price is cheaper </li></ul></ul><ul><li>We expect to see increased activity in the 2H 09 </li></ul>
    29. 29. Gap in Perceived Valuations Notes: Source: FactSet. NASDAQ Performance – Since 6/1/2008 GAP (43%) Buyer’s Perception Developed Seller’s Perception Developed
    30. 30. User Relevancy Hierarchy to Drive Insights 1 st Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort by Time, Sector Top Investors Activity Only GCA Savvian Deal Experience What the Investor Ecosystem is Thinking
    31. 31. Private Investments by “Leading” Funds Source: GCA Savvian databases. Benchmark indexed by deal count. <ul><li>Source: GCA Savvian databases. Benchmark indexed by deal count. </li></ul><ul><li>Top Venture Capital indexed firms include: ABS Capital Partners, Accel, Meritech Capital Partners, Battery Ventures, Draper Fisher Jurvetson (DFJ), FirstMark Capital, General Atlantic, General Catalyst Partners, Highland Capital Partners, Kleiner Perkins, Oak Investment Partners, Polaris Venture Partners, Providence Equity Partners, Redpoint Ventures, Rho Capital Partners, Sequoia Capital, SoftBank Capital, TA Associates, Technology Crossover Ventures (TCV), VantagePoint Venture Partners, Venrock. </li></ul>
    32. 32. “ Leading” Funds vs. Total Private Investments Source: GCA Savvian databases. Benchmark indexed by deal count. Over-indexed on Agencies and Performance Under-indexed on Gaming, Mobile and Infrastructure
    33. 33. User Relevancy Hierarchy to Drive Insights 1 st Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort by Time, Sector Top Investors Activity Only GCA Savvian Deal Experience What the Investor Ecosystem is Thinking
    34. 34. Content Ad Networks / Exchanges Agencies Social / Blogs Performance Marketing Mobile GCA Savvian Transactions by Subsector Post Meltdown Deals Preferred Stock Financial Advisor January 2008 Placement Agent October 2007 Preferred Stock Acquired by Innovation Interactive Management and We Advised the Buyer June 2007 Acquired by We Advised the Seller January 2009 1UP Digital Network Acquired by We Advised the Seller December 2007 Acquired by We Advised the Seller December 2007 Acquired by We Advised the Seller May 2007 Preferred Stock Financial Advisor June 2007 Minority Preferred Investment by Financial Advisor November 2008 Merger with We Advised INTAC October 2007 Preferred Stock Financial Advisor March 2008 Acquired by We Advised the Seller May 2007 Preferred Stock Financial Advisor April 2008 Preferred Stock Financial Advisor June 2008 Acquired by We Advised the Seller October 2007 Senior Credit Facility Financial Advisor October 2007 Preferred Securities Financial Advisor September 2006 Acquisition of We Advised the Buyer October 2007 Preferred Stock Financial Advisor August 2008 Sold Stake in to We Advised the Seller December 2008 Preferred Stock and Recapitalization in Financial Advisor January 2008 Preferred Stock Financial Advisor January 2009 Preferred Stock Financial Advisor April 2008 Preferred Stock Financial Advisor July 2008 Acquired by We Advised the Seller February 2008 Acquired by Financial Advisor December 2007 Acquisition of Mobile Services Business Unit We Advised the Buyer December 2007 Acquired by We Advised the Seller November 2007 Preferred Stock Financial Advisor June 2008 Acquired by We Advised the Seller May 2008 Subscriber Management Business Preferred Stock Financial Advisor January 2009 Acquired by We Advised the Seller January 2009 1UP Digital Network Minority Preferred Investment by Financial Advisor November 2008 Sold Stake in to We Advised the Seller December 2008
    35. 35. User Relevancy Hierarchy to Drive Insights 1 st Hand Experience Segmented Qualified Raw Data Insight All Deal Data Sort by Time, Sector Top Investors Activity Only GCA Savvian Deal Experience What the Investor Ecosystem is Thinking
    36. 36. Dialogue Driving Insight Online Media Private Equity Traditional Media
    37. 37. Investment Spectrum; Balancing Risk and Reward Out There New Paradigm Platform Enabler Problem Solver Proprietary Network Defensible Models Raking It In Big Potential, High Beta Lower Beta, Big Profits Example Companies:
    38. 38. Investment Assessment Criteria The Value Drivers 1 Growth Usage and revenue momentum 2 Profitability Gross, EBITDA margins 3 Scalability Operating leverage 4 Sustainability Barriers to entry, advantage 5 Strategic Value Who needs to own it
    39. 39. Solving Existing Problems <ul><li>Analytics </li></ul><ul><li>Enablement </li></ul><ul><li>Optimization </li></ul><ul><li>Targeting </li></ul><ul><li>Monetization </li></ul>
    40. 40. Verticalization Across the Digital Media World Content Networks Social Commerce Horizontal circa 2005 Vertical circa 2008 Search
    41. 41. Performance is Back; Only It’s New and Improved Performance Pyramid Lead Impression Click Audience Sale Metric Example Companies CPA CPL CPC CPM Unique Users Brand-oriented, performance-based customer acquisition “ agencies” are in the business of “selling profits” Bob Carrigan of IDG called it “Sales Enablement”
    42. 42. The Pyramid Works For Brands Too Brand Pyramid Insights Impression Engagement Audience Sale Marketer Goals Publisher Capabilities Brand = Performance; It’s just not that immediate Wenda is right – it’s AND, not OR Howard Draft nailed it.
    43. 43. Mismatch of Supply and Demand <ul><li>It’s the demand, dummy </li></ul><ul><li>Focus should be on how ads are bought, not sold </li></ul><ul><li>Brand marketers want engagement (actually, they just want TV) </li></ul><ul><li>Publishers and networks are selling audience and clicks </li></ul>Publishers / Networks Brand Marketers “ Engagement” “ Uniques, Clicks”
    44. 44. Chasing the 30 Second Spot; A Crowded Landscape VIDEO PORTALS / SHARING VIDEO SEARCH MOBILE / PLACESHIFTING VIDEO eCOMMERCE VIDEO CREATION / EDITING VIDEO STREAMING / CDN INTERMEDIARIES / MEDIA PUBLISHING RICH MEDIA ADVERTISING / VIDEO AD NETWORKS VLOG-O-SPHERE OTHER SERVICES P2P / IPTV * *
    45. 45. Chasing the 30 Second Spot; Applying a Filter
    46. 46. Competition for the Winning Platform So far (and it’s way early), Hulu seems to have found a monetization strategy that’s working, despite it’s miniscule size relative to YouTube.
    47. 47. Social is Going Corporate, Corporate is Going Social Licensed Software SAAS Social Based Tools Business Consumer
    48. 48. International Opportunities – BRIC Countries
    49. 49. And Now for Some Provocation “ I want you to be provocative” Provocative is my middle name
    50. 50. Pork Bellies and the Efficient Markets Thesis <ul><li>Brand publishers are upset that ad networks and exchanges are cheapening their “premium” inventory, reducing their once robust CPMs </li></ul><ul><li>There is a glut of online inventory that is causing havoc on the display business </li></ul><ul><li>You can hear the battle cries: </li></ul><ul><ul><li>“ Brand marketing is dead” </li></ul></ul><ul><ul><li>“ Those technologists are ruining our business” </li></ul></ul>
    51. 51. <ul><li>What if the networks and exchanges are simply technology which brings efficiency and transparency to the marketplace? </li></ul><ul><ul><li>After all, don’t marketplaces bring market prices? </li></ul></ul><ul><li>What if the low CPMs are the real “value” of the ad inventory? </li></ul><ul><ul><li>Reflecting low click-through rates, clutter and a perception that advertising is not working </li></ul></ul><ul><li>What if advertising pricing has been artificially high until now? </li></ul><ul><li>Was Wannamaker onto something bigger? </li></ul>Pork Bellies and the Efficient Markets Thesis
    52. 52. Pork Bellies and the Efficient Markets Thesis <ul><li>What if Madison Avenue has been one giant deception for the last 100 years? </li></ul><ul><ul><li>Duping corporate America into overpaying for advertising </li></ul></ul><ul><li>Could it be that Madison Avenue has perpetrated a fraud larger than Enron, WorldCom, Stanford, Madoff and the Subprime crisis put together? </li></ul>
    53. 53. And Now for Some Provocation “ I said provocative, not heretical”
    54. 54. Pork Bellies and the Efficient Markets Thesis <ul><li>While some of you will undoubtedly see the irony in a Wall Streeter challenging other industries at this time </li></ul><ul><ul><li>Maybe this outsider perspective is instructive </li></ul></ul><ul><ul><li>Maybe it’s cocktail reception fodder </li></ul></ul><ul><ul><li>Maybe I won’t get dinner tonight </li></ul></ul><ul><li>Wall Street, while imperfect, is an instructive analogy </li></ul><ul><li>From 6 ¢ per share stock trades to a fraction of a cent due primarily to technology </li></ul><ul><li>Wall Street and Madison Avenue are more alike than you think </li></ul>
    55. 55. Wall Street and Madison Avenue; Separated at Birth? Name Named after a street in Manhattan Unit Standardized, high volume Buyers Looking for a good ROI Sellers Looking for the highest price Agent Intermediaries Handful of global firms in New York, Europe Rating Agencies Provide “independent” third party measurement Distribution Channels Partner sales channel which aggregates demand Industry Association Industry lobby
    56. 56. The Good News: Interactive is the Only Bright Spot Total Advertising Spend ~$300 Billion
    57. 57. The Good News: Interactive is the Only Bright Spot ~$300 Billion Traditional Digital Total Advertising Spend
    58. 58. The Good News: Interactive is the Only Bright Spot ~$300 Billion Traditional Digital Total Advertising Spend $250 ? $200 ?
    59. 59. The Good News: Digital Can Deliver Value to Brands <ul><li>Technology will drive targeting and relevancy to new levels, increasing ad value </li></ul><ul><li>Interactive consumer behavior will allow for engagement that TV could only dream of </li></ul><ul><li>Brands can finally use advertising as a transparent sales tool </li></ul><ul><ul><li>Strengthening the “R” in ROI </li></ul></ul><ul><li>And yes, it’s not all math </li></ul><ul><ul><li>Relationships matter </li></ul></ul><ul><ul><li>Creative matters </li></ul></ul><ul><li>Democratized publishing is opening up a whole new world with endless possibilities </li></ul><ul><ul><li>We’re all “brands” now </li></ul></ul>Conclusion: In digital, brands can battle back “ The art and science of persuasion and participation” Wenda Harris Millard David Payne is on to this
    60. 60. The Reality The fate of the industry is in this room
    61. 61. Lastly, It’s All About the Brand
    62. 62. The Call to Action Terence Kawaja Managing Director GCA Savvian Advisors [email_address] +1 212 999 7082 I welcome discussing your needs and opportunities . TOKYO • SAN FRANCISCO • CHICAGO • NEW YORK • LONDON

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