Recession and ROI Mentality Drive Investments in Web Ad Sector

Online advertising revenue growth has slowed, and media reports have focused a lot lately on topics like shrinking display ad spending or the inability of ad revenue to fully support free Web content. However, buried amid the doom and gloom are signs that investors see a positive future for online advertising.

Ad networks and ad tech firms including Collective Media, Glam Media, Rubicon, Pubmatic, and ScanScout have all received investment funding in recent weeks. Network and ad management technology outfit Collective Media announced $20 million in financing this week. Video ad network ScanScout grabbed $5.1 million, and vertical ad net Glam Media reaped about $10 million. Ad inventory management firms Rubicon and Pubmatic also scored funding. (Rubicon took in $13 million, while Pubmatic did not disclose the amount it received.)

Draper Fisher Jurvetson Associate Ravi Belani stressed a general movement among advertisers away from cross-site media buys towards adoption of targeting and performance-based advertising as key to the trend driving recent investments in the sector.

“You’re seeing the maturing of online advertising with tech driven firms that are able to ensure a strong ROI for advertisers,” said Belani. “That trend is the commonality across all of those investments.” Belani sits on the boards of six digital media and advertising related firms. DFJ joined in Pubmatic’s recent funding round, and has also invested in Glam Media.

“If you’re in the business of delivering targetability through technology or inventory aggregation, I think those technologies are very interesting to investors,” said Collective Media CEO Joe Apprendi.

He argued display advertising as a whole is not suffering; rather, premium, high CPM-based display advertising is. “Even though display media in aggregate is flat…the money is shifting slightly away from premium high CPM buys,” Apprendi told ClickZ News. With its $20 million investment, the company plans to expand its U.S.-only operations to Europe organically or through acquisition. The firm also expects to hire around 35 additional employees by the end of the year, bringing it to around 120 staffers.

Belani pointed to Collective Media and Glam Media as firms that represent the next stage of ad networks, in part because both have acquired ad technologies. Glam bought display ad targeting and optimization company AdaptiveAds earlier this year, while Collective purchased targeting firm Personifi last year. In addition to running its own ad network, Collective enables ad management for networks including local news ad networks quadrantOne and Internet Broadcasting.

Some suggest the economic downturn is helping expedite the evolution towards more efficient, targeted, and measurable ad opportunities. “Some of the best investments made by VCs were made in 2001 in the last downturn when they bet on performance-based ad models [such as],” noted Bill Day, CEO of ScanScout, which recently received around $5 million in funding. “Economic downturns tend to drive the acceptance and growth of these models,” he continued.

Belani suggested industry consolidation spurred by the recession “is healthy because there is less fratricide among startups that are minimally funded.” Overall, he has high hopes for future investments in the online ad sector. “I am optimistic because I think the tech driven companies are going to get disproportionate returns over the next year,” he said.

Related reading