Expansion Through Consolidation: An Oxymoron That Just Might Make Sense

The outcome of almost every successful industry is a period of expansion. It’s only natural that more people are allowed an opportunity to make money. In sports, we’ve seen new franchises born to build additional fan bases. In music’s heyday we have seen new record labels and spinoffs of record labels. Even in retail, we’ve seen new vendors explode onto the scene (more on the Internet than in brick and mortar) to sell hot new products.

Never has this idea been truer than the interactive industry. Yesterday, I didn’t know what a DMP was. Today, I don’t have enough fingers to count how many DMPs exist.

I can literally use a different company to research my media plan, issue and negotiate an RFP, layer in third-party data, track my delivery, verify that my ads are showing up, gather performance information, analyze that performance data, and invoice my clients.

The difference with the interactive industry is that no uniform process in planning and strategy exists that makes sense of this expansion. It has only lead to fragmentation and inefficiency. More importantly, it has led to confusion among the marketers.

But before we all start lamenting the fragmentation of our industry, we are seeing an equal and opposite phenomenon in consolidation and acquisition. As one company is born into this world, another gets bought. Can this industry continue to grow with opposite trends simultaneously at play? The answer is clearer when you dissect what truly fosters growth in this industry.

Technology And Resources
Two inseparable entities are required for the success of any institution in the interactive industry. While technology and resources are two concepts that are known to everyone, it is how the industry approaches these concepts that provides a fascinating view of its evolution and growth.

The end game is the marketing dollars. Providing a seamless environment where a marketer can access and utilize every facet of our fragmented industry to execute their digital strategy makes those dollars easier to acquire.

Companies such as MediaOcean and TRAFFIQ already provide an end-to-end solution. However, those companies that do not have an out-of-box end-to-end platform are rapidly working toward building an environment where marketers do not have to parse out their budgets for disparate elements of a media buy.

Call it the Internet advertising version of Andrew Carnegie’s vertical integration concept.

An integrated supply chain through one vendor allows marketers to make decisions and execute on those decisions faster and better.  In the world of technology and resources, an entity with the resources will acquire the technology to make their supply chain more attractive. The entity with the technology itself will require resources to continually improve its offering and adapt to the changing needs of marketers.

As a result, a single but multidimensional organization offering a marketer everything from advanced-level targeting, multiple ad mediums, analytics packages, inventory sources, beers on tap and NFL Sunday Ticket has a much better chance to capture advertising dollars than a start-up that offers a new technological offering but lacks the resources to provide any kind of scale. The latter is either doomed to fail or destined to be acquired.

Consider the recent M&As as examples of how consolidation improves the mutual resources of joining forces and upgrading technology: MediaOcean (Mediabank and Donovan), Pulsepoint (Contextweb and Datran), Neustar (acquiring TargusInfo), Interclick (by Yahoo!). These new ventures or partnerships offer a far better product than its individual parts.

Does this mean that if you don’t have the backing of a portal or agency holding company your fledgling start-up is going to get lost in the shuffle? Absolutely not.

What the consolidation trend really does is to force companies to evaluate their true value proposition in the interactive ecosystem, ascertain the amount of resources needed to be successful, and ultimately find the right partner, buyer, or licensee/licensor.

As marketers look for more turnkey solutions to their advertising needs, it behooves vendors to look for that strategic partner that makes their offering more attractive.

After all, no one wins “Dancing with the Stars” by themselves.