• by Laurie Sullivan  @lauriesullivan, May 13, 2010

Millions of dollars flowing into companies supporting online advertising through mergers and acquisitions, along with venture capital funding, signals a recovering industry. The businesses receiving the dough during the past six months support mobile advertising, audience targeting, real-time bidding, and self-service display ad platforms.

The investments also point to emerging trends in these spaces, along with those willing to educate advertisers and publishers on Internet and security risks. That's according to the 2010 Online Advertising Market Report "Emerging Q1: Trends & Outlooks," released Thursday.

Despite seasonal spending declines, The Rubicon Project 20 Index rose 25% in Q1 2010, compared with the year-ago quarter. As the quarter progressed, money began to follow more freely, yet strategically. March, on average, rose 38% higher compared with January.

"The highs achieved toward the end of the quarter were higher than almost any part of last year, other than the end," says Kara Weber, VP of marketing at Rubicon Project. "Many of those dollars came in from third-party demand channels that represent brand dollars. We're not just seeing more dollars, we're seeing an influx of new brand dollars."

The report points to major sporting events in February -- such as the Super Bowl and the Olympics -- as driving growth, along with the passage of the healthcare bill in the U.S. House of Representatives that both influenced advertiser spending and site traffic. The Rubicon 20 Index monitors a group of 20 Web sites, and through algorithms, analyzes impressions from CPM, revenue, and traffic volume across news, games, finance, and entertainment sites. The index reflects performance.

Craig Roah, chief operating officer and founder, says Rubicon serves more than 50 billion ads monthly, doubling from the prior year. He attributes the rise in ad impressions to a growing company and a recovering industry.

The Rubicon report points to strong growth in mergers and acquisitions (M&As) during the first quarter. Investment bank Petsky Prunier recorded 56 transactions in the quarter, with 47 in the prior quarter. Online advertising investments rose 28% sequentially, to $1.6 billion in total transactions for the quarter.

Mobile advertising took the lead in M&A activity. Apple's Quattro Wireless acquisition for $275 million led the disruption, and then Google's purchase of AdMob for $750 million. Several other smaller ad deals worth noting followed. Yahoo paid around $40 million for iPhone social sports app developer Citizen Sports. Mobile ad campaign manager Adenyo raised $27 million. Opera invested $8 million in mobile ad network AdMarvel. Google purchased mobile email startup reMail, and Israeli mobile ad network Todacell, doubling its venture capital financing to $2 million.

In total, mobile ad deals represented 32% of transactions in the digital media space, according to Petsky Prunier.

Venture capital investments began rolling in, too. Yelp raised an additional $100 million; WebVisible, an additional $20 million; DataSphere, $11 million; GeoSentric's GyPSii, $11 million; EveryScape, $6 million; and Placecast added $3 million to the $5 million it raised from the same investors five months earlier. Ten deals in the text and video ad network exchange space total about $225 million, according to Petsky Prunier. And millions more went to audience measurement and ad targeting companies Quantcast, BlueKai, DataXu, DoubleVerify, ClearSaleing, and TagMan.

The report calls attention to trends that caught the attention of investors and Rubicon's clients. They include audience targeting across the Web, real-time bidding on display advertising, self-service display ad platforms and an increasing awareness of security risks for publishers and advertisers placing ads online.

Audience targeting presents an opportunity for publishers to regain relevance with advertisers to target -- for example, females 18 to 49 across the Internet rather than a Web site. It finds the audience rather than finding the Web site that serves the audience.

"Prices that advertisers are willing to pay are four to eight times greater than they will pay for traditional run-of-network type inventory," Roah says. "We have also seen quarter-over-quarter growth of about 150%."

The report also looks at the opportunities and risks in real-time bidding. Risks in RTB for publishers include data loss, price erosion, and channel conflicts. RTB enables advertisers to access publisher data, often with little to no compensation for that access. As advertisers continue to buy only their desired audience at the lowest possible price, rates for publishers' unsold inventory will continue to decline, driving down publishers' overall revenue. RTB on a demand-side platform essentially treats all impressions as equal, and premium publishers' direct sales deals are threatened as advertisers buy by audience instead of by publisher brand.

Self-serving display advertising has also emerged as a trend to watch. Google, the bulk of whose revenue comes from self-service search text ads, pushes this approach on its AdSense network. AOL recently bowed the self-service Ad Desk. And self-service is a key ad channel for Facebook, too. Self-service can cut time and dollars to produce higher return on investments (ROIs).

Roah says the rise of online advertising also poses security risks for publishers and their clients. Popular Web sites and advertising companies like eBay, Facebook, MySpace.com, DoubleClick, and Yahoo have all been the target of embarrassing and well-publicized criminal campaigns that have compromised their users.

"Malvertising," or malicious advertising or malware, is a form of malicious software distributed through advertising tags to unsuspecting consumers on publisher Web sites, or through social media technologies on a site, like comments, forums and other forms of user-generated content.

Another trend that has emerged is advertising verification services, such as DoubleVerify, Mpire and AdSafe. These services work with advertisers and networks to monitor campaigns to ensure that ad delivery adheres to terms and conditions of campaign contract details for criteria such as international traffic exclusion and proper page position, as well as protecting against abusive behaviors such as spam, pornography and malware.