In 2018, for the first time ever, companies are expected to spend more of their media marketing dollars online than offline: $100.8bn on digital media compared to $97.8bn on offline media.
This tipping point reflects an incredible shift in the media world that has taken place over the past decade. Although marketing budgets have been migrating online for roughly the past 25 years, momentum accelerated as access to the internet has grown, smartphones proliferated, and mobile apps multiplied.
Nor is it stopping here: this February, one survey of U.S. chief marketing officers predicted their online budgets would grow by another 15.1% over the next 12 months, while their offline advertising budgets would decline by 1.7%.
The increasing flow of marketing dollars online is creating an entirely new marketing ecosystem – complete with its own distinctive set of service providers – that constitutes a new set of opportunities for financial investors and marketing and media companies.
One of the more significant new players in this new media ecosystem is the digital media software and analytics platform. Acquisio, WordStream, and other fast-growing firms optimize a marketer’s online budget by analyzing the performance of particular key words and overall marketing spend across different marketing channels such as paid search, display advertising, and social media.
At the same time, these automated platforms perform an equally valuable function for online search engines and social media platforms by channeling their clients’ media purchases toward a variety of online and mobile destinations.
This combination of indispensable roles has already made digital media analytics platforms extremely attractive to media companies. First, Sinclair Broadcast Group, one of the largest television broadcasting companies in the country, built Sinclair Digital Solutions, a full-service, in-house marketing agency that offers clients a wide range of marketing services under one umbrella.
To keep pace, Web.com purchased Acquisio in November 2017, and on June 21, 2018, announced that it had agreed to be acquired by Siris Capital to help Siris develop additional technology capabilities for innovation and growth. In addition, ReachLocal (a unit of Gannett) picked up WordStream in May 2018 in order to continue to accelerate Gannett’s digital transformation initiatives through data-driven marketing solutions.
The Gannett purchase, in particular, suggests that established media companies may find buying a platform more attractive than building their own. One reason may be that legacy industries such as news media struggle to recruit forward-looking product and technology talent. Jeff Bezos might own The Washington Post, but traditional media means much less to young techies than it once did. For many programmers born after the heyday of print, Gannett is likely to make them think less of USA Today than USA yesterday.
Traditional publishers offer advantages to the platforms as well, by giving them access to the publishers’ existing sales teams and distribution networks. Ultimately, the more products and services the combined entity can sell to a client, the stronger the relationship and the likelier it is to last.
Beyond their appeal to media companies, digital media analytics platforms have a number of other features that are attractive to both strategic and private equity investors. As software-as-a-service (“SaaS”) products, the platforms offer predictable, recurring revenue due to low customer churn. The limited services/support required once the product is up and running adds to the appeal as well. Finally, the monthly price point is usually low enough that the basic service may end up providing a good opportunity to upsell the client to other products.
Perhaps most appealing of all is the likelihood that marketing automation platforms will soon become a core aspect of almost every online advertiser’s strategy, and as their performance improves, such services are likely to inspire loyalty. What’s not to like about a product that describes itself, as Acquisio does, as “designed to do all the stuff you hate doing”?
Barriers will grow over time, as platforms build loyalty with their customers and extend their offerings by integrating social media, geo-targeting, and other kinds of customer data into their algorithms. At the moment, however, the analytics platform opportunity is still relatively open. Almost any of the new platforms that have received venture funding so far could succeed if they find the right financial or strategic partner.