Ad viewability and verification are measuring up to big exits

Waste abounds as advertising dollars transition into digital, which is leading to a payday for companies in ad viewability, verification, brand safety and antifraud that can detect and mitigate that waste. Digital budgets are being syphoned away through a spectrum of inefficiencies that ranges from ads sitting alongside too many others to ads in the wrong context, ads that accidently or intentionally never appear on a screen, and ads shown only to bots.

Vendors that help digital advertisers measure the context of their ad campaigns are commanding premium valuations. In a year when few ad-tech firms have traded above 2x trailing revenue in hard-to-come-by exits, Oracle's acquisition of Moat at more than 10x trailing revenue grabbed attention. That deal was followed four months later by the sale of Moat's competitor, DoubleVerify, to Providence Equity Partners.

Advertisers that rely on television need to follow their audiences into digital media. The digital footprint left behind as consumers engage with media and encounter advertising provides advertisers with an opportunity to understand audience reach and engagement in ways that are difficult in traditional television campaigns. To do so, advertisers must be able to track interactions beyond clicks – they need to gather and analyze data about ad placement and the length of time those ads were viewable.

In addition to the opportunities, moving more budget into digital advertising brings challenges that aren't part of the TV landscape. Advertisers need to be able to verify that the ads were shown where they were meant to be shown in a brand-safe environment and to whom they were meant to be shown (that the audience was people, not bots). The mix of challenges and opportunities, alongside increasing momentum in a shift toward digital media consumption, has put a premium on companies that supply the data advertisers need to grapple with these changes.

The 451 Take

Legacy brands and digitally native vendors are seeking ways to measure and protect their digital advertising investments. The ability to measure clicks and other actions has long been a feature of most digital advertising, although as brands push their media spending into digital those action-based measures aren't sufficient. Unlike the direct-response advertisers that have dominated the earlier stages of digital advertising, brands desire additional measures of engagement, such as viewability and time spent with an ad. Meanwhile, ad fraud and the potential to unknowingly place ads alongside undesirable content adds another challenge for brands to overcome as they push toward digital. On the back of a pair of recent, high-multiple transactions, the cohort of companies that solve these problems is thinning, leaving potential acquirers with a limited time to print meaningful deals.

Context

For many decades, television has captured the largest share of ad budgets. The effectiveness of that spending was measured through correlation of consumer panels, surveys and purchase data. But as our data shows, audiences are rapidly moving beyond TV for their video content. According to 451 Research's VoCUL survey on TV industry trends, 21% of online video consumers now subscribe to three or more streaming services, almost double the level from the same survey two years earlier. The survey also shows that the number of people planning to cancel traditional TV service altogether continues to rise.

Measuring TV ads, while lacking the nuance of digital measurement, is a comparatively simple process. Both reach and impact are measured by tracking the watching and buying habits of panels of consumers that make up a representative slice of key demographics. Surveys are deployed to gauge brand lift, brand affinity and other pre-sales metrics for a campaign. In digital media, particularly programmatic advertising, ads are delivered to individuals across a complex mix of publisher properties, leaving advertisers to need more information to generate key performance indicators. The data they require to measure a campaign includes matching devices to a single individual or household, context about the page or app where the ad was shown, data about where on the page the ad was placed, how long the ad was viewed (of particular importance in video), and whether the audience was human or bot.

Collecting all of those dimensions, most of which come from separate providers, is a necessary part of measuring a campaign, particularly for brand advertisers, for whom traditional digital measures such as clicks hold little value. With a new set of metrics comes an opportunity to displace the legacy measurement companies, particularly Nielsen, which has long held a near monopoly on media measurement.

Potential targets

Two of the most substantial deals of the year in advertising technology came from contextual measurement – the category of vendors that enable advertisers to track the context of the ad by measuring viewability, verification of placement, brand safety and contextual relevance of the surrounding media. Both Moat and DoubleVerify fall into this group. Their more mature rival, Integral Ad Science, remains at large. As the company will approach $150m in revenue this year, it would come with a hefty price tag from any acquirer. These vendors have all seen the value of their products soar in recent years amid growing concern over ad fraud and a lack of transparency in digital media buying.

Although the three companies above are the largest in contextual measurement, there are a handful of smaller targets, including Meetrics and ADmantX. Also, a few specialists in subcategories of contextual measurement have risen up. Grapeshot, for example, has seen a burst of growth in the past two years with its brand-safety offerings. The company takes data from Web pages and uses it to enable advertisers to target audiences based on perceived interests or steer clear of advertising on pages covering topics they wish to avoid.

Further down the spectrum of advertising waste from the viewability and verification providers sit security firms like White Ops and Protected Media that help marketers and publishers grapple with the growing nuisance of ad fraud. Many viewability vendors offer ad fraud-detection capabilities that use machine learning for anomaly detection. White Ops and Protected Media deploy bot-detection capabilities that embed code in the ad to reveal bots by running tasks that return different values for human and bot browsers.

Estimates of the money lost to fraud in digital advertising vary widely, although all agree that it's a multibillion-dollar problem. Compared with the size of the problem, the budgets for solving it are modest. Unlike other areas of infosec, businesses aren't seeking an impenetrable barrier. Some fraud is acceptable. Blocking all fraud would also block desired audiences and at a cost that might make it prohibitively expensive to advertise. In other words, antifraud will always account for just a slice of the ad budget and therefore those capabilities will inevitably be housed as part of a broader measurement or analytics service. Although many entrepreneurs in this space have backgrounds in infosec, it's unlikely that their companies will buy into this market because the sales channels are different.

Potential acquirers

The most likely acquirers of the viewability and verification providers are the legacy measurement vendors: comScore and Nielsen. Both companies built products that measure media engagement across broad demographics using panels. Neither has invested substantially in the audience-level measurement and analysis that Oracle has spent more than $2bn accumulating.

As viewability, verification and fraud metrics (along with other types of audience measures not covered in this report) become a standard part of media buying, these vendors put their coveted positions at risk. In the contextual measurement market, comScore has inked two tuck-ins – Proximic and MdotLabs – but neither has established it as much of a presence in the category. Before it can do any significant acquisitions, comScore will need to straighten out the accounting errors that emerged two years ago and recently caused it to be delisted from the Nasdaq.

As noted, the first wave of products that sought to reduce waste in advertising via precise targeting were focused on audience segmenting and measurement. Acxiom, Neustar and Oracle made a series of purchases to enable audience-level measurements with identity-resolution services. Oracle already enhanced its contextual measurement capabilities with the pickup of Moat, so a large transaction is unlikely. But it could ink a tuck-in to improve its brand-safety or antifraud capabilities.

Acxiom, having regained its digital footing with the purchase of LiveRamp in 2014, a deal that made it a force in the trend away from cookie-based audience targeting, has made clear that it intends to be a data provider to digital marketing and advertising applications. Owning contextual measurement capabilities would be a step in that direction. Similarly, Neustar has strengths in identity orchestration that would benefit from contextual measurement, although it recently was taken private by Golden Gate Capital and probably won't be considering bolt-on deals for a few more months.

Despite Oracle's reach for Moat, we take a dim view of the prospects of another enterprise software company responding in kind. IBM is the lone exception to that. While Salesforce and Adobe have built their advertising and marketing businesses on software, IBM has invested in data by acquiring the technology assets of The Weather Channel. That gave Big Blue extensive weather and location data that position it to offer a unique asset to advertisers. Contextual data would complement its weather and location data by offering additional dimensions beyond audience through which to analyze marketing campaigns. Such contextual insights could also be fed into Watson, IBM's natural-language-processing service, for analysis of advertising campaigns.

There are also a few categories of buyers that may make tuck-ins of contextual measurement specialists, although they are unlikely to invest in an expensive platform purchase. Brand survey and market research firms such as GfK Group, Ipsos and WPP's Kantar could bolster their digital capabilities by adding contextual measurements that would enable them to tie their research with nuanced data relating to ad exposure. Also, some of the multi-touch attribution vendors and marketing analytics service providers such as Conversion Logic or Analytic Partners may look to bring on in-house expertise in measuring contextual exposure, as Impact Radius did with the acquisition of Forensiq.

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