THE PARTHENON GROUP
SIIA Strategic & Financial Investment Conference
An Ad Tech Primer for Investors
June 2014
This document was created before Parthenon joined Ernst & Young LLP on August 29, 2014, and has not been updated to reflect the combination.
THE PARTHENON GROUP
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Agenda
Introduction to Parthenon
Ad Tech Deals in Context
Ad Tech Explained
THE PARTHENON GROUP
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Parthenon Overview
London
Mumbai
San Francisco Boston
OUR MISSION:
Deliver actionable insights that help our clients achieve their Full PotentialTM
Overview • 250+ members in 2013 • Offices in Boston, London, Mumbai, San Francisco, Shanghai, and Singapore • Client mix includes Global 1000 and mid-market corporations, private equity firms, and educational institutions
Shanghai
Singapore
THE PARTHENON GROUP
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Agenda
Introduction to Parthenon
Ad Tech Deals in Context
Ad Tech Explained
THE PARTHENON GROUP
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U.S. Private Equity – All Technology Deals,
Adjusted for Tech Presence in Other Sectors, 2012-2013 U.S. Private Equity – All Deals
by Target Primary Industry Sector, 2012-2013
0.0
0.5
1.0
1.5
2.0
2.5K
2012
Other
Financial Services
Healthcare
InformationTechnology
ConsumerProducts &Services
BusinessProducts &Services
2.3K
2013
Other
Financial Services
Healthcare
InformationTechnology
ConsumerProducts &Services
BusinessProducts &Services
2.2K
-10%
-10%
7%
-6%
9%
-8%
YoY Growth-6%
Technology investing is rapidly expanding in the
private equity community
0
200
400
600
2012
InformationTechnology
Tech BusinessesClassified in
Other Sectors
464
2013
InformationTechnology
529
Tech BusinessesClassified in
Other Sectors
7%
28%
YoY Growth14%
Source: Pitchbook, Parthenon Analysis
While the traditional Information Technology
sector posted solid deal growth over 2012…
…a more holistic view of the tech industry reveals
that tech-enabled investments outside of the traditional
“IT sector” were important drivers of deal growth in 2013
THE PARTHENON GROUP
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Software & services segments are driving growth
0
200
400
600
2012
B2B
B2C
464
2013
B2B
B2C
529
21%
-2%
YoY Growth14%
U.S. Private Equity – All Technology Deals,
by Target Primary Customer Type, 2012-2013
0
100
200
300
400
2012
Software
Services
Hardware &Infrastructure
328
2013
Software
Services
Hardware &Infrastructure
396
20%
17%
30%
YoY Growth
21%
U.S. Private Equity – All Technology Deals,
B2B Segment by Target Industry Subsector, 2012-2013
Source: Pitchbook, Parthenon Analysis
Targets with a business-to-business focus accounted
for the majority of technology investments in 2013
Within B2B, companies focused on software
or services were typically the targets of investment
THE PARTHENON GROUP
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2013
SaaS business models are prevalent across and are
growing dramatically
SaaS was the leading theme of
B2B software investing overall…
U.S. Private Equity Technology Deals,
B2B Software Segment by Delivery Model, 2012-2013
U.S. Private Equity Technology Deals,
B2B Software Segment by Company Characteristics
Source: Pitchbook, Parthenon Analysis
0
20
40
60
80
100%
2012
Non-SaaSPositioned
SaaS Positioned
126
2013
Non-SaaSPositioned
SaaS Positioned
151
171%
-10%
YoY Change
20%
…with nearly 40% of software businesses
positioned strongly as SaaS solutions today
THE PARTHENON GROUP
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Vertical outgrew horizontal software
investment theses in 2013
0
20
40
60
80
100%
2012
Vertical
Horizontal
126
2013
Vertical
Horizontal
151
38%
-6%
YoY Change20%
U.S. Private Equity Technology Deals,
B2B Software Segment by Focus Type, 2012-2013
0
20
40
60
80
100%
Vertical
Other
EnergyEducation
Transportation
Media
FinTech
Healthcare IT
101
Horizontal
Other
Finance/Accounting
Human Resources
Marketing
IT Processes
Payments
Security
Data & Analytics
50Total = 151
Increase
DecreaseNo Change
U.S. Private Equity Technology Deals,
B2B Software Segment by Horizontal/Vertical, 2013
YoY Change
Source: Pitchbook, Parthenon Analysis
Deals involving companies with a particular
vertical focus saw strong growth over 2012
Healthcare IT and FinTech were particularly
active verticals in 2013 and grew over the prior year
THE PARTHENON GROUP
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Marketing and advertising is emerging as a key theme for strategic and private equity investors
Private Equity Tech Investments and Acquisitions by Leading Strategic Tech Firms*, by Target Characteristics, 2012-2013
Private Equity Investors Strategic Acquirers
Note: Covers U.S. activity only; *Strategic technology firms included in analysis: Amazon, Apple, Facebook, Google, HP, IBM, Intel, Microsoft, Oracle, Salesforce, SAP, and Yahoo! Source: Pitchbook, Capital IQ, Parthenon Analysis
▪ Yahoo!
▪ Intel
▪ IBM
▪ Apple ▪ SAP
▪ Oracle
▪ Salesforce.com
▪ TA Associates ▪ Summit Partners▪ Elevation
▪ Francisco Partners
▪ Great Hill
▪ Insight Venture Partners
▪ Vista Equity Partners▪ KKR
▪ Catterton
THE PARTHENON GROUP
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Interest in companies providing digital marketing
and advertising software and services has
increased since 2012
0
100
200
300
400
500
600
700
2012
Marketing &Advertising
NonMarketing &Advertising
520
2013
Marketing &Advertising
NonMarketing &Advertising
617
35%
17%
YoY Growth
19%
8% 9%% Marketing& Advertising
0
20
40
60
2012
StrategicM&A
PrivateEquity
40
2013
StrategicM&A
PrivateEquity
54
43%
10%
YoY Growth
35%
Private Equity Tech Deals and Acquisitions by Leading
Strategic Tech Firms*, by Target Characteristics, 2012-2013
United States Only
*Strategic technology firms included in analysis: Amazon, Apple, Facebook, Google, HP, IBM, Intel, Microsoft, Oracle, Salesforce, SAP, and Yahoo! Source: Pitchbook, Capital IQ, Parthenon Analysis
Private Equity Tech Deals and Acquisitions by Leading
Strategic Tech Firms*, by Deal Type, 2012-2013
Marketing & Advertising Targets, United States Only
THE PARTHENON GROUP
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Several firms have been particularly active over the past two years
Digital Marketing & Advertising M&A and Investment Activity by Most Active Strategic Acquirers and Private Equity Investors, 2012-2014Q1
Source: Pitchbook, Capital IQ, Parthenon Analysis
GoogleYahoo! Vista EquityPartners
Oracle
▪ Responsys
▪ BlueKai
▪ Sparo.me
▪ Spider.io ▪ Active Network
▪ SaxoTech
▪ Atex
▪ DigitalTechnology International
▪ SurveyMonkey
▪ IncentiveTargeting
▪ Wildfire
▪ Bre.ad
▪ Lexity
▪ Admovate
▪ GoPollGo
▪ Compendium
▪ Eloqua
▪ Selectminds
▪ Involver
▪ Collective Intellect
▪ Vitrue
THE PARTHENON GROUP
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Oct Aug June June May
Selected Digital Marketing & Advertising Transactions, 2013-2014
Strategic M&A February 2013
Strategic M&A July 2013
Strategic M&A February 2014
Strategic M&A June 2013
2013 2014
PE In
vest
men
ts
Stra
tegi
c M
&A
PE: Buyout (Add-on) May 2013
PE: Growth July 2013
PE: Growth August 2013
PE: Buyout (Add-on) October 2013
Source: Pitchbook, Capital IQ, Parthenon Analysis
Facebook Yahoo! Oracle
BlueKaiAdmovate
SalesForce.com
ExactTargetAtlas
AuroraCapital Group
CompetitrackMediaspectrum ExtremeReachConnect and Simplify
SpectrumEquity Investors
Insight VenturePartners
TA Associates
Summit Partners
Webcollage
THE PARTHENON GROUP
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Agenda
Introduction to Parthenon
Ad Tech Deals in Context
Ad Tech Explained
THE PARTHENON GROUP
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Global digital advertising spend is growing at
double-digit rates, led by display
0
50
100
150
200
$250B
2011
$86B
2012
$104B
2013
$120B
2014F
$138B
2015F
$154B
2016F
$171B
2017F
$188B
2018F
Asi
a-P
acifi
c
Can / Mex.
U.S.
Wes
tern
Eur
ope
LatinAmerica
CEE
$204BMEA
13%
10%
10%
7%
12%18%29%
13-18F11%
CAGR
Global Digital Advertising Spending
by Region, 2011-2018F
Note: Includes advertising that appears on desktop and laptop computers as well as mobile phones and tablets, and includes all the various formats of advertising on those platforms Source: eMarketer
Historical Forecast
0
20
40
60
$80B
2011
$32B
2012
$37B
2013
$43B
2014F
$50B
2015F
$57B
2016F
$65B
2017F
Sear
chD
ispl
ay
Other
$72B
11%
18%
8%
13-17F13%
CAGR
Total U.S. Digital Advertising
Spending by Segment, 2011-2017F
Historical Forecast
THE PARTHENON GROUP
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A lower cost per view versus traditional advertising
formats is a significant driver of digital growth
0
10
20
$30
Net
work
$18
Synd
icat
ion
$14
Cab
le
$10
Net
work
$3
Spot
$7
New
spap
ers
$15
Mag
azin
es
$8
Out
door
$2
Disp
lay
$2
Mob
ile
$3V
ideo
$25Averageacross Type
Commentary
• “Dollars shift from traditional media to digital
areas. This is the result of typically lower CPMs on digital, which frees up marketing dollars” – MD of
Digital Marketing Group, JPMorgan
• “It is more efficient digitally. There is also a lot of
shift from traditional media, newspapers, and
flyers…you can run a lot of targeted campaigns online” – Account Executive, Quantcast
• “The traditional media business has been around for 50 years and has not changed… Digital ad tech is
the new Wall Street and there is a lot of competition moving in quickly. It is a sexy industry with a lot of money coming in, but the industry is still relatively immature” – Director of Product Management,
DoubleClick
• “TV is the old school machine…there is buzz associated with big data, programmatic buying, and bidding on inventory on exchanges in an efficient way. It is a different space” – Manager of Solutions
Marketing, Rocket Fuel
• “Video CPMs are bound to come down, perhaps quickly. The main thing keeping the pricing up now, like anything else, is scarcity. Most people pushing video inventory have a surplus and are looking for publishers to take more” – Senior VP of Product
Management, Slacker
Average CPM by Ad Format, 2012
Traditional Advertising
Note: Television CPMs are for prime time Source: Media Dynamics; J.P. Morgan; Forrester; Credit Suisse; Parthenon Interview
Television Radio Print/Other Digital
THE PARTHENON GROUP
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Digital advertisers have an almost spooky ability to
target prospects via web browsers using cookies
I clicked into a daily email from home décor ecommerce startup One King’s Lane last Monday
THE PARTHENON GROUP
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Digital advertisers have an almost spooky ability to
target prospects via web browsers using cookies
I clicked into a daily email from home décor ecommerce startup One King’s Lane last Monday...
...and left an entryway storage unit in my cart
THE PARTHENON GROUP
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Digital advertisers have an almost spooky ability to
target prospects via web browsers using cookies
I clicked into a daily email from home décor ecommerce startup One King’s Lane last Monday...
...and left an entryway storage unit in my cart
The next day, it showed up while registering for kindergarten...
THE PARTHENON GROUP
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Digital advertisers have an almost spooky ability to
target prospects via web browsers using cookies
I clicked into a daily email from home décor ecommerce startup One King’s Lane last Monday...
...and left an entryway storage unit in my cart
The next day, it showed up while registering for kindergarten...
...and several times a day for about a week
THE PARTHENON GROUP
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Digital advertisers have an almost spooky ability to
target prospects via web browsers using cookies
I clicked into a daily email from home décor ecommerce startup One King’s Lane last Monday...
...and left an entryway storage unit in my cart
The next day, it showed up while registering for kindergarten...
and several times a day for about a week...
...before the advertiser tried something new
THE PARTHENON GROUP
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From 1994-2000, the purchase of display ad inventory was a simple, direct transaction... with a lot of inefficiency
Publishers
Brands/Direct Advertisers
Role: Initiates advertising campaign
Role: Sells digital ad space
Advertising Agencies
Role: Manages advertising campaign across channels
Flow of Revenue/ Spend
▪ Subway
▪ Target
▪ Mars
▪ Starbucks Coffee▪ Mevio
▪ CBS
▪ Amazon
▪ Gannett
▪ Yahoo!
▪ OMP▪ Zenithmedia ZenithOptimedia Group
▪ Starcom MediaVest Group
▪ Haworth marketing + media
THE PARTHENON GROUP
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In 2001, Ad Networks launched to solve an unsold inventory problem and make it easier to target specific groups of people
Publishers
Brands/Direct Advertisers
Role: Initiates advertising campaign
Role: Sells digital ad space
Advertising Agencies
Role: Manages advertising campaign across channels
Role: Matches agency/advertiser demand with publisher supply
Ad Networks
Flow of Revenue/ Spend
▪ Subway
▪ Target
▪ Mars
▪ Starbucks Coffee▪ Mevio
▪ CBS
▪ Amazon
▪ Gannett
▪ Yahoo!▪ OMP▪ Zenithmedia ZenithOptimedia Group
▪ Starcom MediaVest Group
▪ Haworth marketing + media
▪ Undertone
▪ SM SpecificMedia ▪ Google Ads
▪ Collective The Audience Engine
THE PARTHENON GROUP
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In 2007, Ad Exchanges arrived, promising more efficient trading of specific audiences vs. inventory
Publishers
Brands/Direct Advertisers
Role: Initiates advertising campaign
Role: Sells digital ad space
Advertising Agencies
Role: Manages advertising campaign across channels
Role: Matches agency/advertiser demand with publisher supply
Ad Exchanges
Role: Provides real-time platform for sale of ad inventory
Ad Networks
Flow of Revenue/ Spend
▪ Subway
▪ Target
▪ Mars
▪ Starbucks Coffee
▪ Mevio
▪ CBS
▪ Amazon
▪ Gannett
▪ Yahoo!
▪ OMP▪ Zenithmedia ZenithOptimedia Group
▪ Starcom MediaVest Group
▪ Haworth marketing + media
▪ Undertone
▪ SM SpecificMedia ▪ Google Ads
▪ Collective The Audience Engine
▪ OpenX
▪ Doubleclick Ad Exchange
▪ RightMedia from Yahoo!
THE PARTHENON GROUP
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Agency Trading Desks and Demand Side Platforms entered to optimize programmatic ad buys while Supply Side Platforms optimize sales
Source: Parthenon Interviews
Publishers
Brands/Direct Advertisers
Role: Initiates advertising campaign
Role: Sells digital ad space
Advertising Agencies
Role: Manages advertising campaign across channels
Agency Trading Desks
Role: Makes aggregated, scaled exchange buys
Demand Side Platform (DSP)
Role: Purchases “real -time” inventory based on specified rules
Supply Side Platform (SSP)
Role: Optimizes ad inventory sold via ad exchanges
Role: Matches agency/advertiser demand with publisher supply
Ad Exchanges
Role: Provides real-time platform for sale of ad inventory
Ad Networks Flow of Revenue/ Spend
▪ Subway
▪ Target
▪ Mars
▪ Starbucks Coffee
▪ OMP▪ Zenithmedia ZenithOptimedia Group
▪ Starcom MediaVest Group
▪ Haworth marketing + media
▪ Mevio
▪ CBS
▪ Amazon
▪ Gannett
▪ Yahoo!
▪ Undertone
▪ SM SpecificMedia ▪ Google Ads
▪ Collective The Audience Engine
▪ OpenX
▪ Doubleclick Ad Exchange
▪ RightMedia from Yahoo!
▪ Accuen▪ Cadreon
▪ MediaMath▪ Turn
▪ Rubicon▪ PubMatic
THE PARTHENON GROUP
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0
5
10
15
$20B
0
20
40
60
80
100%
2011
$1.0B
2012
$1.9B
2013
$3.4B
2014F
$4.6B
2015F
$6.0B
2016F
$7.4B
2017F
Rea
l-Tim
eB
iddi
ngP
ortio
nof
Dis
play
$8.5BRTB as a %
of Total DigitalDisplay AdSpending
0
5
10
15
$20B
2011
$2.8B
2012
$4.8B
2013
$7.5B
2014F 2015F
$12.4B
2016F
$14.8B
2017F
$16.9B
$9.8B
Nearly 50% of digital display ad buys will be
programmatic in 2014; 25% will be real-time
Note: *Includes both RTB and other programmatic/automated platforms for banner, social and video ads on desktop and mobile devices **Includes all display formats served to all devices Source: eMarketer
U.S. RTB Digital Display
Ad Spending, 2011–2017F** U.S. Programmatic Digital
Display Ad Spending, 2011–2017*
THE PARTHENON GROUP
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Ad networks and direct spending continue to grow
robustly, even as real-time bidding expands
Source: eMarketer, Parthenon Survey
0
10
20
$30B
2010
Ad Networks
DSP/Trading Desk
Direct
$10.4B
2013
Ad Networks
DSP/Trading Desk
Direct
$17.6B
2016F
Ad Networks
DSP/Trading Desk
Direct
$26.9B
25%
48%
10%
('10-'13)19%
CAGR
18%
21%
10%
('13-'16F)15%
CAGR
U.S. Digital Display Advertising Spending by Channel,
2013-2016F
THE PARTHENON GROUP
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Mobile ad spending is outstripping PC-bound
ad spend, driven by a rapid shift to mobile
internet usage
0
20
40
60
$80B
2011
$32B
2012
$37B
2013
$43B
2014F
$50B
2015F
$57B
2016F
$65B
2017F
PC
Mob
ile$72B
2%
82%
11-1316%
CAGR
-9%
40%
13-17F14%
CAGR
Total U.S. Internet Usage in Minutes (B)
by Platform, May 2010 & May 2013
0
200
400
600
800
1,000B
May 2010
497B
May 2013
Desktop
Smartphone
Tablet
958B
0 20 40 60 80 100%
Portals
OnlineGaming
Newspapers
Retail
Sports
SocialNetworking
Music
Weather
Maps
TotalInternet MobilePC
Source: eMarketer, comScore
Total U.S. Digital Advertising
Spending by Platform, 2011-2017F
Total U.S. Internet Usage
Share by Platform, 2013
THE PARTHENON GROUP
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Our office poll turned up just two well-targeted
mobile in-app ads, reflecting the challenges of
display ad targeting without cookies
A Facebook ad for sunglasses found
a colleague who had lost hers
Did this Claritin ad know our
colleague has allergies or was it
aimed at all weather app users?
THE PARTHENON GROUP
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Within display, video and rich media are stealing
share from traditional banner ads due to better
consumer engagement and higher effectiveness
0
10
20
$30B
2011
$12.4B
2012
$14.8B
2013
$17.6B
2014F
$20.6B
2015F
$23.8B
2016F
$26.9B
2017F
VideoB
anne
rs&
Oth
er
Spons.
RichMedia
$29.9B
12%
43%
11%
31%
11-1319%
CAGR
6%
22%
27%
13%
13-17F14%
CAGR
Note: *Users are 32% more likely to engage with a homepage takeover as compared to regular polite banner ** Users are 103% more likely to engage with a video extender ad as compared to a regular polite banner; video extenders are modular, nonintrusive videos that allow users to access a large, high-quality video ad Source: eMarketer, MediaMind
0 25 50 75 100 125%
32%
67%
DwellRate
AverageDwellDuration
% Lift in Engagement for Homepage Takeovers
vs. Polite Banners Worldwide*, Q3 2011
0 25 50 75 100 125%
103%
39%
DwellRate
AverageDwellDuration
% Lift in Engagement for Video Extender
vs. Polite Banners Worldwide**, Q3 2011
Total U.S. Digital Display Advertising
Spending by Format, 2011-2017F
THE PARTHENON GROUP
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Data Management Platforms (DMPs) that aggregate
online and offline audience data and segment it are
the key to accurate targeting across devices
0
20
40
60
80
100%
Use DMP?
No
Yes
Which DMP?
Lotame
BlueKai
Krux
Audience Science
Other
nugg.ad
eXelate
Use of DMPs by US Publishers, 2013
Source: eConsultancy, Rubicon
Perceived Benefits of Working
with a DMP by US Publishers, 2013
0
20
40
60
80
100%
Creatingeasily
targetableaudiencepackagesfor direct
deals
83%
Increasingrevenue
byenablingselling
audienceextension
67%
Using datafor driving
subscriptions
54%
Enhancingvalue of
RTBdeals
54%
Protectingagainst
dataleakage
42%
THE PARTHENON GROUP
31
Many of the major recent ad tech deals and new product launches reflect the trends highlighted today
Racing to enhance mobile capabilities
Chasing video’s rapid growth and promise of enhanced engagement
• Jul. 2013: Yahoo! acquired AdMovate, a platform to deliver personalized, local-targeted offers via mobile message to accelerate mobile targeting capabilities
Improving data management capabilities for high-impact, seamless
advertising
• May 2014: Facebook launched a mobile advertising network for in-app advertising and behavioral targeting based on demographics and ‘likes’
• Jul. 2013: x+1 acquired WDA, a mobile marketing technology provider, to deepen its mobile reach by leveraging the company’s hookups to mobile exchanges and ad networks
• Apr. 2014: As consumers go mobile, MediaMath buys Tactads, a cookie-free cross-device targeting company, to enhance ‘ConnectedID’ technology
• Mar. 2014: Data management. platform Lotame buys AdMobius, an audience tracking company, to accelerate its ability to use non-cookie methods to track users across their devices
• Jul. 2012: Yahoo has launched Genome, based on analysis software from Interclick acquired in Nov. 2011, to give more accurate audience data and analytics
• Jan. 2014: Yellow Pages acquired Sense Networks, a mobile ad targeting company, to extend its mobile capabilities from search to display
• Jul. 2013: Criteo acquired AD-X Tracking, a mobile performance marketing technology company, seeking to accelerate optimization of in-app mobile campaigns
• Feb. 2014: Oracle acquired DMP BlueKai, a leading cloud-based big data platform to personalize online, offline and mobile marketing campaigns with enriched audience data
• Feb. 2013: X+1 acquired the leading tag management company UberTags to gain universal tag visibility for more accurate attribution
• Mar. 2014: Comcast acquired video ad-serving platform FreeWheel as video ad views on tablet and smartphones continue to see fast growth
• Dec. 2013: Yahoo acquired Evntlive, an online platform for live concerts, and ptch, a mobile animation video creator, to bolster its online video content, aiming to improve unique visitor counts and revenue per impression
• Mar. 2014 : Adknowledge acquired social video specialist Giant Media, to gain traction in video content advertising emphasizing social sharing and earned media
• Aug. 2013: AOL acquired Adap.TV video advertising platform, to enter programmatic video advertising space and compete with video advertising giant Google after the acquisition of YouTube
FacebookAudienceNetwork
SenseNetworksYP
AdmovateYahoo!
EvntLivePtchYahoo!
Adap.TVAol.
WDA[x+1]
ADXTrackings
Criteo
FreeWheelServing the VideoRevolution
Comcast
GiantMediaAdknowledge
Tact ADSMediaMath
AdMobiusLotame
BlueKaiOracle
UberTagsAn [x+1] Company
[x+1]
InterclickGenomefrom Yahoo!
Yahoo!
