M&A Update: Ad Networks, Social Media Win, But Mobile Loses Out In 2008

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"The numbers are a bit skewed because about half of the dollars went into one deal," said Scott Wiggins, managing director at Petsky Prunier. "But growth remains the driver." And growth, at least in terms of visitor traffic, is what social media and UGC providers are delivering. LinkedIn, for example, saw its traffic soar by nearly 150%, from May 2007 to May 2008, according to Nielsen Online. And in June, the business-oriented social network scored $53 million in a funding round led by Bain Capital Ventures.

Petsky Prunier grouped ad networks and exchanges in the Interactive Advertising sector, and Cox Communications' $300 million acquisition of ad network tech and services provider Adify was the largest interactive advertising deal of the first half of 2008. Meanwhile, Glam Media picked up $85 million from German media giant Hubert Burda Media.

By some accounts, there are over 150 ad networks or exchanges currently operating in the U.S., which begs the question of sustainability in an increasingly crowded market. According to Wiggins, portals and large content sites will continue to invest in ad networks, as the third-party services provide much-needed improvements in content monetization. "Meanwhile, consolidation/shakeout will continue in commoditized networks," he said. "For example, some performance-based networks may be marginalized by ad exchanges." Still, Wiggins said that networks and exchanges that offered competitive tech or other advantages would continue to attract investor interest.

On the other hand, investments in mobile marketing tech and services, which Petsky Prunier also grouped within the Interactive Advertising sector, have slowed significantly. Holding companies and VC firms funneled just $80 million into mobile marketing firms in the first half of 2008, down from $291 million last year.

"(Mobile) was the largest recipient just two years ago," Wiggins said. "As investors were perhaps hoping that 'if you build it, they will come.' But the infrastructure hasn't facilitated its use." And Wiggins said that even the new 3G iPhone wouldn't spark increased interest (or investments) from financiers in the short term.

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