The rumoured acquistion of Microsoft's Atlas software by Facebook has become a very poorly kept secret, with the main question simply being 'when will it happen?' at this stage. Julie Langley, managing director, technology and digital media practice, Results International discusses what the deal will mean and why Google should take note.
If Facebook’s acquisition of Microsoft’s Atlas goes ahead, it will be a game-changer for Facebook and a serious challenge to Google in the advertising space.
For anyone unfamiliar with Atlas, it is an online ad serving business. It allows advertisers to place ads on websites and track their effectiveness. It competes with DoubleClick. Microsoft picked up Atlas when it acquired aQuantive in 2007.
According to eMarketer, the US online display ad market was worth nearly $15 billion in 2012, up 21.5 per cent from 2011. Whilst search is still a larger market ($17.6 million in 2012) it is growing more slowly. EMarketer estimates that by 2016 online display spend will be greater than search spend.
Google had 15.4 per cent share of online display ad revenue in 2012 and Facebook 14.4 per cent. Quite clearly display ad revenue matters a lot.
The issue to date is that Facebook has always faced difficulties in demonstrating to advertisers the value of its advertising. Clearly it sits on huge amounts of valuable data for advertisers and will figure out a way to use that data. Acquiring Atlas would give Facebook campaign management, tracking and attribution tools to help advertisers measure the effectiveness of their ads (which Google already has through DoubleClick).
It’s important because by managing the placing of ads on third party websites and all the cookie and other tracking data that comes with this, Facebook will be able to start connecting this data with its own data on its users to demonstrate the effectiveness of ads on Facebook. One of the reasons behind Facebook’s poor performance since its IPO is the recurring question, “do Facebook ads work”? So if they can use Atlas to improve Facebook attribution, this is potentially a very large win.
Combining Atlas’ advertiser facing ad serving, tracking tools and cookies database with Facebook’s data is potentially a very powerful combination for advertisers and enables Facebook to compete much more powerfully with Google in the display ad space.
It’s likely that this deal will trigger more consolidation in the “ad stack” space. There will be clear winners and losers as there are a lot of commoditised offerings in the ad network and ad exchange sector that are going to struggle to find an exit. Differentiated offerings that add value to the media buying, optimising and tracking process, such as Real Time Bidding, location based targeting or video propositions, will be acquisition targets.
And what reaction can we expect from rivals?
Other players with a large share of display advertising revenue include Yahoo, AOL and LinkedIn. They will certainly be trying to figure out what impact this will have on them and their ability to maintain their share of the online display advertising market. Yahoo and AOL both have a presence in the ad stack but may decide they need to bulk up.
Other consolidators may include Adobe, AppNexus, and Marin Software (which has recently filed for IPO). We may possibly see the enterprise software vendors such as IBM, Salesforce and Oracle entering the space, although I suspect they will stay more focussed on enterprise level software offerings.