Media Post: Expensive Tech Sedates Consolidation

Originally posted on Media Post by Tyler Loechner, February 4, 2014
Read the report here

Santa Monica-based merchant bank Siemer & Associates LLC on Tuesday released its Winter 2014 Online Advertising Report, which highlights ad technology companies, real-time bidding (RTB), and private marketplaces.

David Siemer, co-founder of Siemer Ventures, the bank’s investment arm, spoke with RTM Daily about the report. Citing a combination of reports, including Siemer’s own data, Wall Street Research, and eMarketer, the report says RTB ad spend increased nearly 75% in 2013, which dwarfs the overall online ad growth rate of 17.1%.

While the year-over-year growth will slow, RTB is continuing its steady climb in relation to display advertising and all online advertising. Siemer believes this growth will be driven by consolidation of ad technology companies known as “point solutions.”

“Point solution” is another way of saying “ad technology companies that serve a very specific purpose.” While we have seen M&A activity, especially in the past eight months, it hasn’t been speedy.

“Consolidation has been quite slow,” Siemer said. “It hasn’t been nearly as fast as anyone, myself included, would have predicted five years ago.”

Siemer theorized that consolidation has been sluggish because of the nature of specialized commerce tools. He said “it’s not hard to leverage out into other toolsets” once a tech provider has built a specialized tool.

In other words, tech providers are more inclined to build rather than buy. Siemer also said it has been harder than expected to integrate technologies with one another when consolidation has occurred.

The final reason Siemer gave was one we’ve heard before: the companies worth buying are simply too big to be purchased.

“Yahoo, Google, AOL are all buyers — and occasionally they make acquisitions — but for the most part, once you get below those guys, there are very few buyers that can actually pay for an ad tech platform,” Siemer said. It’s true; not many can afford to shell out triple-digit millions for technology.

Siemer noted that agencies are not big buyers of technology, with WPP being “one minor exception.” He said, “most agencies don’t want to own tech. They want to own relationships and license tech.”

Shifting gears — but staying within ad tech — the report touches on private exchanges. Essentially, private exchanges let publishers sell their inventory via RTB while still working with select buyers.

But Siemer doesn’t think private exchanges are a long-term solution for most publishers.

“Over a long period of time, everything will open up because there will be demand for that,” Siemer predicted. “Private exchanges are great — if you are massive like WPP or Hearst.”

He believes we will continue to see a “big rise” in private exchanges, but doesn’t see advertisers putting up with it for long. “The whole point of a private exchange is to put certain rules in place and control it,” he remarked.

While the private exchange model will be at risk if advertisers feel gamed, if it allows them to buy more “premium” inventory — which publishers supposedly put more of in private exchanges — the model could last.

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SoCalTech Insights: Why UBER Matters, A LOT by Ivan Nikkhoo

“Underlying most arguments against the free market is a lack of belief in freedom itself.” – Milton Friedman

I was recently at the Le Web conference in Paris where Travis Kalanick, the Cofounder and CEO of Uber was one of the speakers. It is ironic that the idea for Uber was conceived in Paris, France, where free markets and capitalism are under tremendous pressure.

What makes Uber an extraordinarily important company? In one word, freedom. Disintermediation is the Internet’s biggest gift. Uber is one of the best examples of how disintermediation can transform industries in which unions, lobbyists, regulation, and bureaucracy have created obstacles to progress, openness, and competitiveness. Which is why wherever Uber operates, unions, lobbyist, regulators, and bureaucrats make every effort possible to block them, make them illegal, or otherwise stop them from operating. The same applies to other companies that are using disintermediation in other inefficient industries.

As I travel a lot, I have the opportunity to speak to Uber drivers in different countries. They believe Uber has changes their lives, even the ones that used to own taxis before. What is more is that they are now genuinely concerned about their ratings and quality of service. When was the last time a cab driver in New York, whose medallion costs one million dollars, showed any concern about his cost, quality of service, or your satisfaction?

Free markets are not about job security, regulations, collective bargaining, or keeping others out. They are about expanding demand and the universe of services and products, and growing the ecosystem. It is about creating a bigger pie. It is about execution and providing equal opportunity.

Disintermediation is the key to free markets and equal opportunity. Equal opportunity, however, does not mean equal outcome.

Which is why it is interesting to think about what will happen when “Uberization” is applied to other industries, as it inevitably will.

This model offers on-demand products and services, choice, quality, value, and of course, accountability. It is highly portable across geographies and industries. It is efficient, scalable, and offers transparency, flexibility, a feedback loop, and competitive, market adjusted pricing. Such competitive pressures also push out the poor performers and bring down prices.

Clearly this is not an easy task. Uber has demonstrated world-class execution, and has thus made it look easy.

So imagine if we applied these principals to the industries that need it most? Like health care, education, or government services? Imagine being able to choose your doctor the same way you chose your ride. I know this may be too simplistic, but if indeed this happened, the changes would have incredible ramifications.

Your appropriate medical data would be portable and available to the doctor of your choice on demand upon your selecting of that doctor and the service. You will know how much most of your visits and procedures would cost before you select them. The doctor would have to take into account transparency, accountability, customer satisfaction, and costs.

As disintermediation causes relationships to become more one-on-one, there will be a significant reduction in costs, bureaucracy, and administration layers, which of course is why those whose interests are aligned with the current system will fight this change. But as Harry Browne said, “Voluntary association produces the free market – where each person can choose among a multitude of possibilities.” So as we cheer Uber on, we wait with anticipation for others to come along and Uberize our other dysfunctional industries, and maybe even government agencies.

Ivan Nikkhoo is an experienced entrepreneur, investment banker and VC focused on the life cycle of tech companies. He is a Managing Director at Siemer & Associates, and an advisor to Siemer Ventures.

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Siemer & Associates Releases 2013 Digital Video Industry Report

Digital Video – an emerging ecosystem experiencing rapid growth and increasing complexity

November 19, 2013 (Los Angeles, CA) ─ Siemer & Associates LLC, a leading merchant bank serving the Digital Media, Software and Technology industries, has published its 2013 Digital Video report providing an in-depth look at the rapid growth and evolving challenges within the digital video sector.

Digital video is playing an increasingly large role as the creation and delivery of video content expands beyond the traditional channels of consumption. Multi-channel networks (MCNs), in particular, have capitalized on the proliferation of content creators, leveraging YouTube as a distribution platform and differentiating via defined verticals or ancillary services and tools. Their distinct business model, namely the aggregation of content and monetization tools, make them a more attractive distribution network for small content creators. This has led to continued interest in MCN’s and ultimately, are valuable acquisitions or investment targets for large media companies or media focused investors.

“The MCN model is of rising interest in the online video space,” said David Siemer, Managing Director of Siemer & Associates. “But it doesn’t come without its set of challenges — from licensing to revenue shares, MCNs are becoming highly competitive, forcing increased specialization via monetization tools or niche content verticals.”

Social video is another category driving the growth and influence of digital video. A combination of user-generated videos through platforms such as Vine and Instagram and branded advertisements that are marketed through “video seeding” are encouraging video to be an integral piece of the social media landscape. The out performance of video advertising across a variety of metrics including brand recall and likability are driving up growth in digital video ad spending which is expected to reach $9 billion by 2017.

Overall, the online video industry is a thriving ecosystem that is still in its early innings. Its growth potential is just beginning to be realized with billions in ad spend shifting to digital, the evolving landscape of multi-platform households and still developing international markets.

Click here to access the 2013 Digital Video Industry Report.