The $20 billion market for online advertising grew by 25% in 2007 and is poised for continued growth in 2008. As investment bankers focused on this market, we closely track the technological innovation and shifts in consumer behavior driving growth and spurring acquisitions.
Increasingly accurate data mining is hastening the end of spraying and praying that characterized the early days of the database marketing business. Thanks to anti-spam software, gone are the days when the “I Love You” worm could infect in a single day 10% of all computers connected to the Internet. A similar worm having that kind of impact today is all but unthinkable, thanks to anti-spam laws and anti-spam filters.
Consumers, too, have wised up: most are adept at identifying and eliminating spam and are more protective of their online privacy. In the face of recent user outrage over its Beacon tracking software, Facebook was forced to apologize to its users and empower them with an opt-out function. Its reputation damaged, Facebook is but one example of the need for digital advertising to evolve in step with its consumer targets.
The selling point of many database marketers is their proven ability to get advertising into the inboxes of pre-qualified recipients. The tactics of using data services to clean up lists, advanced e-mail distribution strategy and focus on specifically targeted demographics have dramatically improved response rates.
A flurry of recent deals illustrate just how much and how rapidly the digital marketing industry is changing. Take AmeriMark’s acquisition of Dr. Leonard’s Healthcare Corporation, for example. Five years ago, few could have imagined that the over-55 market would become so attractive to online marketers.
The numbers show that the digital marketing space is growing, and so are the barriers to entry. Critical advantages such as specialized knowledge, technology, expertise and access to market share are often too difficult or too expensive to build from scratch, leaving only one option: dealmaking. Companies in the advertising space as well as new entrants from other industries are actively seeking to gain a foothold in this lucrative market.
While the recent credit crunch has gained a lot of attention, it has had very little effect on middle market mergers and acquisitions — where deals tend to be far less leveraged and more strategically driven. Going forward, we anticipate healthy growth and rapid consolidation through M&A activity in the year ahead.
James Kim is director of business development at Berkery Noyes. Reach him at [email protected].
(This article appeared in the 2008 edition of the Essential Guide to Lists, Database Marketing and Data Services.)
