The crowded advertising technology sector may be about to shake out some losers.
With north of 150 companies -- according to consultant and investment banker Luma Partners -- in the relatively new online advertising industry, there are simply too many competitors seeking too much of a return on capital.
Add in a drop-off in potential buyers and a declining appetite for public offerings, and the online advertising sector is due to stall, industry players and backers say.
"It's just not a big enough market for all the money invested," said Will Margiloff, chief executive officer of Ignition One, the digital marketing technology unit of Japanese ad agency Dentsu.
"That is a real challenge -- VCs and private equity guys are trying to figure out how to jump on the ad tech bandwagon and are really grasping. There can't be six or seven category leaders."
To Margiloff, the problem is that some of these companies frequently have more money invested in them than revenue potential, and often the revenue opportunity involves a more service-oriented action such as sales rather than a unique technological capability.
"The valuations that you see are more the heyday of the Right Media sale to Yahoo -- 10 times revenue," said Margiloff about Yahoo's $680 million purchase in 2007 of the remaining 80 percent stake in the company that it did not already own. "That is not reality ... Two to three times revenue is more realistic."
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With north of 150 companies -- according to consultant and investment banker Luma Partners -- in the relatively new online advertising industry, there are simply too many competitors seeking too much of a return on capital.
Add in a drop-off in potential buyers and a declining appetite for public offerings, and the online advertising sector is due to stall, industry players and backers say.
"It's just not a big enough market for all the money invested," said Will Margiloff, chief executive officer of Ignition One, the digital marketing technology unit of Japanese ad agency Dentsu.
"That is a real challenge -- VCs and private equity guys are trying to figure out how to jump on the ad tech bandwagon and are really grasping. There can't be six or seven category leaders."
To Margiloff, the problem is that some of these companies frequently have more money invested in them than revenue potential, and often the revenue opportunity involves a more service-oriented action such as sales rather than a unique technological capability.
"The valuations that you see are more the heyday of the Right Media sale to Yahoo -- 10 times revenue," said Margiloff about Yahoo's $680 million purchase in 2007 of the remaining 80 percent stake in the company that it did not already own. "That is not reality ... Two to three times revenue is more realistic."
Alternative Health News
Read More
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