Internet Ad Frenzy – what’s next?

Wow-what a past couple of days!  First I would like to say congratulations to David Moore, CEO of 24/7 RealMedia, on the company’s pending sale to WPP Group for $649mm.  I first met David in 1996 when he made his move from offline to online advertising as my prior fund invested in the initial round of 24/7.  We have stayed in touch throughout the years and what has impressed me most about David is his perseverance, sticking with the company through a few near-death experiences, struggling to find cash to make payroll, dealing with a penny stock, and ultimately fighting and building his way back to this exit.  What kept David plowing through was the belief that the crash was a temporary blip and that dollars would eventually move online in a big way.  Looking back, one could easily say that is a no brainer, but if you lived through the bubble you have to remember how the Internet was a dirty word.  Anyway, Aquantive is another company that survived the meltdown and is now about to sell itself to Microsoft for $6b.  I am not going to dive into the metrics here, but let me say that I still believe we are just in the second inning of this shift from offline to online advertising and that we should start looking for the next battleground.  What is interesting is that 24/7, AQuantive, and Doubleclick make most of their money from the boring stuff like SEM and display ads.  If you talk to most of these guys they will have a small bet on mobile and broadband video but will clearly admit that when it comes to managing a public company and having to hit quarterly revenue targets, you have to listen to your customer, the advertiser.  This means that the video and mobile stuff will be big but it is still way too early in those markets.

With AQuantive, Microsoft will get advertiser relationships and a platform from which to build a real online business.  I still think that Microsoft needs a Yahoo or even an AOL to compete with Google but despite that here are some things I would do.  I would go small and focus on building its publisher base where Google gets over 1/3 of its revenue.  I would buy small/medium sized companies that offer free and premium web analytics, feed management and RSS Ads, and potentially even a blogging platform from which to offer MSN AdCenter at the point of creation.  Getting publishers on board will help Microsoft get more data on clicks, increase its revenue base, and also allow the company to build relationships and good karma with the next generation of Internet entrepreneurs.  It already seems that Google is ahead of the curve as it is rumored that it is trying to buy Feedburner, a leading feed management and RSS ad platform (I currently use FeedBurner to manage my RSS feeds and deliver RSS Ads).  Besides the mobile and broadband space I mentioned above, one other opportunity that is huge and here for the taking today is the television and cable advertising market.  Companies like Spotrunner and VisibleWorld (a portfolio company) are approaching the market in different ways but clearly offer advertisers tremendous potential to bring Internet like tools and business models to an analog market.