Month: February 2021

Investors, whether they’re private or public, seem fine with big, initially costly consolidation of ad tech companies. This is largely because revenue growth, not profit, drive corporate value right now. Put another way: It’s as if investors forgot that ad tech is steeped in a lot of uncertainty right now. 

Take Criteo. It’s valued now at $1.9 billion. A year ago Criteo’s stock crashed to a 52-week low after Google said it would block the cookies the ad tech vendor uses to retarget people in the Chrome browser. Google still intends to make its move sometime next year. And as it stands, no one has a viable alternative. Yet, Criteo is worth more today than it was a year ago.

“Nothing makes sense anymore,” said Ratko Vidakovic, founder of ad tech consultancy AdProfs.

Moments like this are rare for an industry that’s been kept at arm’s length by investors. So many moving parts must align. Still, online ad spending is accelerating and valuations for ad tech companies are at all-time highs with renewed interest in ad tech among both strategic and private equity investors. What’s more, capital is cheap. Put that all together and there’s simply a lot of cash sloshing around ad tech vendors right now. A blue moon event for the sector if ever there was one. 

Cue a scramble to get deals done. Call it strategic opportunism.

“The conditions in the market right now mean it’s a great opportunity for further consolidations,” said Verve Group’s chief revenue officer Sameer Sondhi. 

Last month, Verve Group, a network of ad tech companies, acquired mobile video ad platform LKQD from telecommunications company Nexstar. Sondhi is on the lookout for more deals, with CTV, digital out of home and contextual focus areas for the future. 

“Ad tech companies are trying to seize the opportunity because the sector has been treated like a second-class citizen by investors for a while,” said Vidakovic. “And the way to take advantage of these markets is to create entities that have scale.”

Here’s a valuation-related example: Magnite bought SpotX on a valuation of $1.17 billion — more than 10 times its $116 million revenue for 2020. Prior to the deal with SpotX, Magnite traded at 20 times its sales. Ad tech may be missing a few things right now, but optimism isn’t one of them.

Even private investors, who have steered clear of ad tech in recent years, are exuberant about the sector’s future. 

“We’re following several companies in ad tech, especially in France, as it’s a good time to invest because the industry is smaller so there’s more transparency,” said Cedric Boxberger, managing partner at investment Capital Croissance, which took majority-ownership of France-based ad-tech firm Smart AdServer earlier this month. 

Few assets will deliver such strong returns during one of the most turbulent economic times, for private investors like Boxberger. “Over the next five years there’s an opportunity for us [Smart Ad Server] to either go on the public market or have further investors — maybe even in the U.S,” he said. 

Ad tech last scaled these heights in 2013, during a boom sparked by excitement over digital advertising. The market had a Wild West vibe during the period. Exuberant claims about opaque technology impressed investors. When the bubble burst spectacularly in 2015 it was just about all the evidence investors needed to shrug off technology that struggled to reverse the low margin, high volume dynamics of the sector. Then Covid happened. And unlike last time, the stakes are a lot higher now. 

The way the sector makes money is going to irrevocably change over the next two years. The data that forms the backbone of their businesses is being throttled by the largest online media owners. Any company that relies on third-party cookies or mobile identifiers must make do with less, if not any, of it soon. 

It’s why Vidakovic’s scale argument rings true. Larger, more integrated ad tech companies tend to be better equipped to roll with whatever way the market goes. In particular, ad tech vendors are focusing on two, yet to be commoditized areas: CTV and identity resolution. 

“Cookie-less environments have grown from just Safari and Firefox to now all of Connected TV and soon Chrome,” said Chris Vanderhook, chief operating officer at ad tech vendor Viant on the day the company went public earlier this month. “We have patented technology around our Household ID as opposed to our competitors that still rely on the cookie.”

Rightly or wrongly, ad tech is coming full circle via the latest wave of consolidation. Companies that were once built to prosper from a fragmented landscape are having to do the opposite. They’re trying to cater to both the buy and sell sides of the programmatic market just like the ad networks that drove ad tech’s early successes. What’s old is new again. 

“The ad tech market, despite what the famous Lumascape seems to suggest, is inherently suited for a small number of behemoth winners — with independents/startups operating on the fringes until they get bought by the leaders,” said Ruben Schreurs, group chief product officer at Ebiquity. 

Much of ad tech’s evolution over the last decade has been an unbundling of the ad network — the sector’s first real success stories. While the subsequent fragmentation was lucrative for ad tech, it came at a price — consumer privacy.

Now, the fragmentation is in reverse. 

It comes at a time of dwindling demand for commercial real estate, as remote work has taken off and as developers scramble to find innovative ideas to fill those giant spaces. 

It also coincides with employee apathy about the eventual return to the office. A study by the real estate firm Clever found that just 20% of workers in the U.S. feel safe working in an office. Most said they fear for their health and their family’s health if they returned to an office. 

The San Francisco-based architecture firm Gensler is a leader in the hybrid home-work design, employing it for recent projects like West Edge in Los Angeles and 6 X Guadalupe in Austin. Brooks Howell, Gensler’s global residential practice area principal, thinks it’s an idea whose time has come. 

“If I’m a company and I’m going to build a 400,000-square-foot office space with the typical office configuration — offices, conference rooms — now I’m realizing that if I build 200,000 or 300,000-square-feet of apartments to go with that, those units become work-from-home offices of sorts,” he said. “Then you can be in the collaboration space when needed and in your private office the rest of the time.”

Residential space as a so-called amenity started with Silicon Valley companies to address the high cost of living in the Bay Area. Now, it is being marketed as the latest concept as companies prepare to return to the office in a post-pandemic world. 

It is being played up as a benefit for employees because not only is their rent being subsidized by their employer, but the daily commute becomes a thing of the past. 

The upside for companies having their people close by goes without saying. “We’re not all going to be working from home for the rest of our lives, and the office is not going to die,” said Howell.

Besides the developments in L.A. and Texas, another company that’s embraced the concept is Franklin Tower in downtown Philadelphia. Gregory Webster, COO of PMC Property Group Apartments, which owns the building, explained that the interior space on every floor without windows (therefore unusable as apartments) were converted into features like co-working space, study pods and storage areas — in addition to gyms, yoga studios and community kitchens — for corporate tenants. In addition, it added a bi-level addition to the rooftop featuring a lounge and fitness facility.

Kevin Miller, cofounder and CEO of the organic search firm GR0, likes the concept because of its social possibilities. “If employees design their homes to be adjacent or combined with their offices, they can start to view their coworkers as friends and even family,” he said. “The most successful, productive businesses always seem to have teams with close ties and deep connections with each other.” 

Whether the idea will have legs as companies look at their options for evolving the workplace remains to be seen. But one thing has become clear: the workplace of the future will not look like it did pre-pandemic.

The accounting firm PwC, in its recent U.S. Remote Work Survey, reported that despite the rise of remote working, bosses indicate that the physical office is here to stay, even as its role will change. Less than one in five executives said they want to return to the office as it was before the pandemic, and just 13% indicated that they were prepared to let go of the office for good. Meanwhile, 87% of employees said the office is important for collaborating with team members and building relationships. 

Tellingly, 87% of executives expect to make changes to their real estate strategies over the next year. “Companies are planning to reinvest the remote work dividend in new ways in order to create a special experience in the office,” according to PwC.

At the beginning of 2020, 43% of 135 publishers that participated in a Digiday survey about their goals for the coming year said that affiliate commerce was not a source of revenue for their companies. By the beginning of 2021, the number of publishers that were not earning money from affiliate links had fallen to about 34% out of 181 respondents during the second annual iteration of the survey. 

This low-effort business was a saving grace for many publishers during the lowest points of the coronavirus crisis, but in 2021, some are starting to lean in and strategize about how to make it even more lucrative as the e-commerce boom continues to grow.

With all that said though, the 2021 Digiday survey also showed that interest in affiliate commerce as a business was down slightly from the previous year, dropping from being a moderate focus for 39% of respondents in the 2020 survey to 36% of respondents in the 2021 survey. 

Turns out it takes a mindset pivot.

“It’s not an easy business for publishers to optimize towards,” said Nilla Ali, svp of commerce at BuzzFeed, who came from a background in fashion retail before moving into the digital media space. “You have to think like a retailer and not every media company can wake up and start doing that.”

Some local media outlets and newspaper-focused publishers see an opening into earning affiliate-based commerce revenue, but it is still very much a secondary source of revenue.

“When we’re scrambling for everything we can get, it’s meaningful. As a percentage compared to advertising or subscriptions, it’s dwarfed by those. But it’s worth doing because it funds our journalism,” said Colin McMahon, chief content officer at Tribune Publishing. 

Here’s a round-up of top affiliate commerce trends that publishers are following in 2021. 

Beyond links 

Commissions made from affiliate links are an easy ‘set it and forget it’ business for publishers. They can incorporate the links into product roundups or product reviews that they were planning to publish anyway to make a little extra revenue in a way that serves the reader, but there are limits to how much a publisher can actually earn. 

Commission rates from retailer affiliate rates range anywhere from 1-20% for publishers, depending on the product category and the type of deal a media company is able to strike, according to SHE Media’s CEO Samantha Skey. The addition of affiliate links into editorial commerce content and product reviews are at the low end of that range, she said. 

To bump up the rates, Skey said her team has started selling retailers on branded content packages that focus on specific products and include affiliate links. This hits both top and bottom of the funnel advertising goals for marketers and allows SHE Media to earn both guaranteed revenue from writing the posts as well as incremental revenue from any commissions earned off sales. The commission rates themselves also tend to be higher than standard affiliate rates, she said. 

Trusted Media Brands has also experimented with a hybrid advertising and commerce model that turns display advertising into shoppable posts on its sites. These affiliate rates typically fall between the range of 5-10%, according to a report by Digiday last year. 

Because of this model, the relationship between the commerce teams and sales teams have changed and the conversations with prospective advertisers have begun including more first-party consumer data than before. 

AllGear, a division of Lola Digital Media that publishes several outdoor gear product review sites, has a significant ownership over certain categories of search terms. For example, 40% of the people in the world who search for “best rain jacket,” will subsequently click on a review by AllGear, according to the group’s vp of strategy Stephen Regenold. 

That information has started being used by the publisher’s sales team to grease the wheels for more sponsored reviews and hybrid deals. 

Some larger publishers, like Meredith, have the scale of dozens of brands to integrate affiliate links into content and drive significant revenue. During the company’s second quarter last year, which ended on Dec. 31, the company earned $27.7 million from its e-commerce operations, a 26% year- over-year increase from the same quarter the year before, according to the latest earnings report. 

While hybrid advertising and commerce deals are an area that is also growing for the company, the primary effort this year is to continue producing affiliate-based content, according to Andy Wilson, Meredith’s svp of consumer revenue, e-commerce and consumer paid product. He added that unlike what other publishers have reported, this type of content typically fetches the higher end for commission rates. 

Another area publishers are exploring is on-site publishing, or solicited reviews that live on the retailers’ product pages. For the past year or two, most publishers interviewed by Digiday for this story said they have been part of the Amazon program to do just that. 

AllGear doesn’t get paid for writing the reviews, but makes a commission from sales at a similar rate to traditional affiliates. The significant difference there, Regenold said, is that readers of on-site reviews are already very motivated to purchase so the conversion rate is higher and therefore more revenue comes back to the publisher.

“There is a lot of editorial integrity and reader objectivity conversation around this,” said Regenold. “As a journalist, I don’t want to just put, ‘Yay, buy this product’ kind of articles on Amazon, we publish objective reviews, but it incentivizes publishers to be positive [with the retailers] trying to grease the skids for these sales.” 

Right now, AllGear’s site GearHungry, is creating three to five posts per week for Amazon that are essentially the same as their editorial posts, but are edited and formatted differently, according to Regenold. This business is a “significant revenue bucket” for the brand and currently his team is in talks with other retailers to get this business going elsewhere. 

Publisher marketplaces come online

Increasingly, publishers want to become a one-stop shop for online retail with their own editorially driven marketplaces. 

After seeing its commerce revenue increase by 67% year over year from 2019 to 2020, BuzzFeed is working towards relaunching the BuzzFeed Shopping tab by the end of the second quarter as a destination for Gen-Z and millennial shoppers. 

The site will have an improved search function that will allow readers to search based on product and brand, as well as allow customers to buy from a variety of retailers without leaving BuzzFeed’s website with a new checkout function, said Ali.

“We want BuzzFeed to be the point from where the shopping journey starts,” said Ali, but rather than copy the “tried and true” grid of products like most online shops, BuzzFeed Shopping will still be content-driven and focused on the reviews and round-ups that the publisher’s readers are familiar with. 

Ali added that this new model will open BuzzFeed up to new sponsorship opportunities as well, which is a similar approach that Group Nine took with its online marketplace, Swipe.Shop that gives sponsors the opportunity to be featured within the platform.

‘Barely scratched the surface’

Local media publishers are still revving up their commerce content businesses for the most part, while others have taken a step back entirely. 

Local newsletter publisher 6AM City, which currently has outlets in seven cities in the south eastern part of the U.S., is spending 2021 trying to figure out what a virtual marketplace might look like for its business. 

The mission of 6AM City is to have a positive local economic impact, according to its COO Ryan Heafy. By the end of the second quarter, he said his team is working to launch its variation of an affiliate commerce business that acts as a centralized marketplace on its site for local businesses in the communities it covers. The team is using its profits from 2020 to create the technology to drive the platform.

Right now, the publisher’s commerce business consists of paid posts on community events boards. That alone brought in $200,000 last year without any promotion, said Heafy.

Other local news publishers have bought their way into affiliate commerce businesses with the acquisition of product review sites.  

In February 2018, Tribune Publishing bought a 60% stake in the product review site BestReviews for $66 million that was meant to give the company an entry point into an affiliate commerce business. Less than two years later in December, Tribune (and BR Holding, which owned the remaining 40% stake in the company) sold the site to Nextstar Media for $160 million, earning $96 million on that deal, according to the Chicago Tribune. 

Tribune Publishing still has affiliate commerce revenue coming in post-sale, however, but is not tasked with the operational oversight and overhead of running BestReviews.

The media company has a content licensing agreement and a revenue-share arrangement with Nextstar, said McMahon, who also serves as the editor-in-chief of the Chicago Tribune. The publisher is still able to syndicate BestReview content on its nine news sites and earn a commission off of sales that are attributed to its readers, he said. 

McMahon declined to share the exact terms of the revenue share, but said that the deal is a multi-year long agreement. 

“The vast majority of our e-commerce efforts are through BestReviews and will stay that way,” said McMahon. And while the deal is only six-weeks old, he said he is projecting that the continued revenue share with BestReviews will keep Tribune’s commerce business even with last year. 

McMahon is not limiting Tribune’s ability to earn commerce revenue to its relationship with BestReviews, however. He said he is actively exploring different affiliate partnerships for the sites that will feel organic for the reader.

The USA Today Network is looking to lean further into its product review site Reviewed, which was bought by the network’s parent company Gannett in 2011 for an undisclosed amount.

Since integrating affiliate links at the end of 2017, the site has increased its revenue by more than 50% year over year for the past four years, according to the site’s general manager Chris Lloyd. All of that growth is exclusively attributable to the affiliate commerce business, he said, and affiliate commerce now makes up 75-80% of Reviewed’s total. 

Recently, Lloyd’s team has started integrating Reviewed’s content into the other local news sites in the USA Today Network. And over the past 12 months, the size of Reviewed’s audience has doubled as a result of the content share. Editors of the more than 300 local news sites are able to select any posts to include on their sites via the shared company-wide CMS. 

“It gives them an opportunity to get content that they wouldn’t be producing on their own,” said Lloyd. 

Any commissions earned from the sales that are made on the local papers’ sites are mutually beneficial from a revenue standpoint, though he declined to share the details of the revenue share.

‘We’ve barely scratched the surface on the local side. There is still so much opportunity for us to further distribute our content across this gigantic network,” said Llyod.

The ways in which publishers solved their 2020 problems vary, but Bustle Digital Group’s approach included reestablishing longterm relationships with advertisers in a variety of categories and leaning on retail partners like Amazon to bring in incremental commerce revenue.

During the first quarter of 2020, Bustle Digital Group was projected to be up 40% in revenue over 2019 by the end of the year, according to Jason Wagenheim, BDG’s president and chief revenue officer. But by March, reality of what the year would hold had set in and that projection was thrown out the window.

“We had the darkest 72 hours in our company’s history where literally tens of millions of dollars just cancelled within a three day time period,” said Wagenheim in the latest episode of the Digiday Podcast. “There was a lot of panic at the start of the pandemic.”

Ultimately, BDG ended the year about 5% up from 2019, thanks to its position in a myriad of advertising categories. Wagenheim did not provide exact revenue figures. “It’s the importance of being able to satisfy retail as much as tech as much as auto as much as fashion,” he said.

And this year, Wagenheim said his team is planning to further deepen its position in these advertising categories as well as increase the categories it plays in by growing its portfolio. On top of that, the publisher has big plans to further diversify its revenue streams after the 2020 storm.

Highlights from the conversation below have been edited for clarity.

Trading RFPs for relationships

[The industry] is still operating the way that we did back in the 1990s. An RFP goes out to publishers, they all compete like Hunger Games, and the best two or three proposals come out. It’s a lot of wasted time, it’s a lot of pitching, for even repeat business. We shouldn’t have to go on so many first dates, especially with advertisers that we have years-long relationships with.

We’ve gotten some of our top brands like Unilever, like Samsung, to some degree like Microsoft, to really start to think about upfront and endeavor partnerships a lot differently with us. We just agree that we’re going to work together and that we trust each other and that we understand each other’s business and how we operate.

More M&A is on the horizon

We are in the process now of raising money. It will come either through the private sector or there’s a lot of conversations now around SPACs. And Brian Goldberg [BDG’s CEO and founder] has his credit card and his checkbook out and wants to go acquire things. In 2019, we made five or six acquisitions. We did one last year with the W. I think we’ll be back in the three to four acquisitions kind of neighborhood this year — really looking at things in food, travel, health and wellness. Those would be great kind of brands to have in those spaces, or those categories to help us really round out our portfolio.

Setting up an online shop

At this point, all of our affiliate business comes through affiliate links and relationships primarily with Amazon. I think we do over 1,000 articles a year, most of that connected back to Amazon and driving that business. But on April 1, we are going to launch a new commerce initiative across most of our sites that will allow readers to transact within our four walls through native checkout through a universal shopping cart. We’re going to create a very big commerce initiative that will not at all compete with what we do with Amazon, but allow our readers to transact for some of the things they’re not necessarily looking for when they’re shopping through us on Amazon.

We’re looking to serve both our advertising partner, but also maybe create some new affiliate revenue as well. We’ll have these big, beautiful storefronts and we’ll be selling at a premium the opportunity to be featured more prominently as a storefront — more front and center placement. I’d consider it akin to putting them in the windows at Macy’s or Saks, right on Fifth Avenue.