After years of struggling with the fundamental ad technology question -- is it best to build, buy or rent -- WPP has decided it may actually be better to divest and invest. That explains the deal announced early this morning spinning off some of its most rigid and capital intensive ad technology -- the stacks of computer ad servers it owns -- as part of a deal to boost its stake to 15% of rapidly growing ad exchange AppNexus.
How Madison Avenue will react to WPP’s strategic stake in AppNexus, which is one of the most popular DSPs -- or demand-side platforms -- used by ad agencies and advertisers, remains to be seen. But the addition of WPP’s ad-serving technology, plus a $25 million investment from WPP, will likely propel its adoption with publishers, making it a stronger competitor with the ad industry’s major online ad exchanges, including Google’s AdEx, Yahoo’s Right Media, OpenX and Rubicon Project.
The litany of ad tech acronyms can sometimes confuse even the most knowledgeable industry insiders, but on the spectrum between supply- and demand-siders, AppNexus now sits closer to the center of the nexus between the two, making it more of a genuine exchange equally serving the needs of buyers and sellers of digital audience impressions.
For WPP, the deal is likely to be a boon for investors, shedding some of the capital intensive risk associated with building and maintaining hardware and technology to power ad-serving and audience exchanges, and freeing it to focus on the softer, less costly, and potentially more innovative side of the business: the data, analytics, and software applications that create value and power the trades in the burgeoning multibillion-dollar audience exchange marketplace.
"This allows both companies to double down on what we do best,” Brian Lesser, CEO of WPP’s Xaxis unit, stated as part of the announcement this morning. “We're focusing our technology development on data management, decisioning, and new products.”
Xaxis is the unit spinning off the ad-serving technology, which WPP acquired as part of its acquisition of 24/7 Real Media in 2007. That technology was subsequently merged into Xaxis tech stack and renamed “Xaxis for publishers,” which also put WPP in the uncomfortable position of serving both sides of the table. With the spinoff, WPP, Xaxis and the rest of WPP media service division GroupM gain some neutrality, while retaining a potentially valuable hedge and increasing control of a fast-growing third-party in the ad exchange marketplace.
The deal also comes as Wall Street appears to be betting more on software, innovation and relationships than hard technology, which explains the increasing values of publicly traded companies like Rocket Fuel and Rubicon Project.The WPP/AppNexus deal is subject to regulatory approval, but the companies said it is expected to close by the end of the year.
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