Neustar’s Going Private, but It’s No Twinkie

Neustar Inc., the MadTech (MarTech and AdTech) company that provides data and analytics to marketers, announced on Wednesday they were bought by a private investment group led by Golden Gate Capital for about $2.9 billion.

Why would Golden Gate shell out all that money to take Neustar private?

Many private equity deals focus on undervalued companies, often in out-of-favor areas, and through restructuring and financial engineering create enormous gains on their investment. Last week The New York Times chronicled how Apollo Global Management took parts of Hostess, in particular the Twinkie factories, private.  The article examined the huge reduction in head count, de-unionization of the plants, investment in more efficient technology, and many of the other typical activities seen in privatizations.  It also chronicled the financial engineering that secured 13 times the original investment for Apollo and its partners.

But Neustar is no Twinkie.  The motivation for this deal is easy to see:

  • Neustar spent more than $1 billion on acquisitions in the last decade, and its stock price in November was off more than 50% from its high of $55.70 in August of 2013.
  • Neustar’s slower growing call center business can be sold off to pay down the acquisition price (and create cash for more deals, as I’ll explain below).
  • Neustar is a great platform for rolling up other companies. (They are well-versed in buying and integrating companies).
  • They have a strong management team.

So, while it is easy to believe Neustar is undervalued, that is not why this is such a great opportunity for growth. Unlike the Twinkie plants, this is not about downsizing, better equipment, or de-unionization.

While the general feeling about AdTech companies has been negative, M&A activity continues to grow as new VC investment remains robust for certain segments. Stock performance has ranged from weak (Rubicon, Rocketfuel) to OK (CriteoThe Trade Desk).

Where, then, does the Neustar deal fall? It’s about data and the opportunities for data growth. Neustar was planning to separate their  large call center business from the data business, and I suspect that Golden Gate will sell that business in the near future.  I also suspect Neustar will double down on the data side of the business. Neustar combines knowledge about people and their intent.

The narrow market for data onboarding is projected to grow from $250 million today to over $1 billion by 2020.  The overall market will grow at least as fast. Data represent digital value realized. Given the recent acquisition of Circulate and Arbor by LiveRamp for $140 million, and of many other data companies by Oracle, AdobeSalesforce and others, roll-ups of data companies are well along. However, capturing, building, mapping and leveraging data is still in its early days.  While the first round of winners may be emerging, the market is still in an early stage.

Data in MadTech started largely as cookie targeting and became more sophisticated with the emergence of DMPs.  Data has become much more and is now the engine that drives the MarTech and AdTech ecosystems.  The interesting technologies are those that leverage multi-source data and cross online and offline sources.  As these newer, cross-capability companies get traction and new VC money, companies like Neustar are becoming suppliers of the raw material.

The first AdTech area to emerge as a real business was (and continues to be) algorithms. Those algorithms took the early data sets and figured out how to target and optimize to enhance performance advertising. Even today, most programmatic media dollars are focussed on performance. We’ve seen the rise of DSPs, SSPs and ad exchanges and, more recently, large deals and IPOs (such as Invite Media, Rocket Fuel, The Trade Desk, AppNexus and Rubicon).  While all these companies leveraged data, they were arguably not true data companies.

The first major data deal was when Oracle  purchased BlueKai in February 2014 (although Adobe’s acquisition of Demdex was an early salvo).  BlueKai was a massive deal at the time ($350 million – $400 million). Oracle has gone on to spend billions to build its Marketing Cloud business, and others continue to invest. The privatization of Neustar is likely to increase the table stakes. While Golden Gate Partners will do their share of financial engineering, I suspect that Neustar will become the most aggressive acquirer of raw data suppliers in the market.  The nature of data is changing.  It is growing beyond cookie targeting to new and creative ways of finding, matching, and leveraging combined offline and online information. One longer term value of data will be leveraging it into addressable TV and other emerging addressable markets.

So, now there are at least three acquisitive data companies searching for roll-up opportunities: Oracle, Acxiom (which owns LiveRamp) and Neustar. Neustar, once it disposes of its call center business, will become a single-minded data roll-up platform.

Taco Bell's chatbot.

Chatbots for Breakfast: What Makes Them Work

By Eli Mandlebaum and Dorian Benkoil

Chatbots are taking over the world — or at least  growing in popularity. At a recent roundtable breakfast, a panel of leaders in the field shared wisdom on what makes them work.

You may have seen automated bots through Facebook Messenger, Kik’s bot shop, Line, Microsoft’s Xiaoice and other platforms. Chatbots are huge in China and Japan, where they have become the “on ramp” to retailing, ticket buying, advertising and games. People use them to book, buy, interact with each other and have fun.

(Sign up here for our next breakfast, on the role of advertising operations.)

There are bots for weather info, grocery shopping, news, life advice, personal finance, scheduling, friendship — the list is growing. Taco Bell’s “Tacobot” is changing the way some people order food.

Goodbye Websites, Hello …

So, how can marketers and other messengers make them work? At the breakfast, the experts (see a full list of them and more on the breakfast here) offered some best practices:

  • Make it easy. Simple buttons, for example, may be better than typing.
  • The fewer the steps, the better. People lose interest the more they have to click, click, click. “Too many interactions means you’re missing up somewhere,” said David Berkowitz, Sysomos’ chief strategy officer and an Industry Index friend. “If ordering pizza takes 20 interactions, you’ll just pick up the damn phone.”
  • Artificial intelligence plays a role, but programmable content can perform fine. For example, Bud Light partnered with Snaps to create its #MyTeamCan Beer Delivery Bot for football season. It asks fans their favorite team, then, an hour before kickoff every game, it sends a push notification asking if they would like to order Bud Light. Answer  “yes,” and cans of the beer are delivered in under an hour.
  • To measure success, a great metric is how much people are sharing the bot. Another is engagement, how much people use it.
  • If you see a lot of “mutes” you’re probably doing something wrong, being overly chatty or intrusive.
  • Create user-centric experiences that cannot be replicated through apps or websites.
  • Help people get stuff done — book travel, get a table at a restaurant — without having to open a website or app.
  • Don’t just build a bot, make sure there’s a reason to do so. “Lots of people are saying, ‘Let’s build a chatbot,’ without considering what they’ll actually do” that creates value for them, said Asaf Amrir, CEO of Chatsuite.

Eli Mandelbaum is Managing Director, PluggedIn BD. With Industry Index, he hosts intimate breakfast gatherings offering insights around topics in MadTech every month. Sign up for the next one, on the role of Advertising Operations, here.

Media We Like: “MarTech + AdTech = Success”

I.I. team members share our faves with each other. Now, we’re sharing with you. We’ll keep doing it, too. 

A World Without Work (The Atlantic) – July/August 2015
(From Chris) For centuries, experts have predicted that machines would make workers obsolete. That moment may finally be arriving.

The Platform Of The Future Will Own The Intersection Of Advertising And Marketing (AdExchanger) – Nov. 7
(From Jonathon) Whoever masters and melds marketing and advertising will dominate an industry now ruled by Facebook and Google. Salesforce, Oracle, Adobe and the holding companies are contenders.

The Secret Formula For The Perfect Viral Share (SocialTimes) – Jun. 4, 2014
(From Dorian) In depth, long form (meaning research-driven) content performs best.

Breitbart Urges Boycott of Kellogg After Brand Abandons Site (Bloomberg) – Dec. 1
(From Mark) Discusses AppNexus’ barring of Breitbart for hate speech.

15 SEO Best Practices for Structuring URLs (The Moz) – Feb. 24, 2015
(From Chris) Write for humans. Try to avoid hashes. And other tips. See the comments, too.

Programmatic Display Ad Prices to Surge 20% by 2018 (The Drum) – Nov. 22
(From Jonathon) … due to publishers using yield optimization technologies, says a study.
And, programmatic will grow faster than other channels. (MediaPost)

(Join in! Tweet us or tell us via LinkedIn some media of interest that you think is worth sharing.)

Digital Advertising is DEAD! Long Live Digital Advertising

The recent acquisition of Operative Media by SintecMedia for an estimated $200 million marks another milestone in the AdTech game of musical chairs.  At their core both companies assume the burden of ad operations for their partner companies.  Sintec has made a name for itself in the TV world, claiming 100 brands and $30 billion in revenue managed across 40 countries. Operative has become one of the leading digital advertising operations companies.

So, another merger. Where’s the milestone?  This acquisition represents the realization that the demarcation between advertising and digital advertising has been killed. It’s all just advertising. This death has been approaching over the last five years.  Video has been capturing budget and other resources from traditional TV, but 3-4 years ago it was still an afterthought. The digital world was excited to see all the zeros and high CPMs of video, but digital still represented a tiny fraction of the TV advertising budget. These lines have been collapsing.  RTL’s investment in SpotX, the rapid growth and profitability of OTT video (Hulu, ESPN, HBOGo, etc.) and the changing viewing habits of the developed world all show that what used to be “digital” is now just advertising.

The analog world is still kicking, but the action has shifted. Most TV is still sold face to face, and some people even still buy ads on dead trees. The interesting growth is not in digital, it is in the transition of analog to digital.  While this shift is still early in TV — as it is in audio and digital out-of-home — the scales have tipped and people are rushing to get on the digital side.  This includes not only the media sellers, who are integrating their digital teams into their traditional sales teams, but also agencies, where the hundreds of billions in advertising dollars are actually deployed.

The next wave of the advertising revolution will be tracking, internalizing and leveraging the lifetime value of the customer.  To do this, the leading contribution of digital advertising —  audience targeting — is spreading to all other elements of advertising and marketing.  And now, the audience is migrating from a cookie to an identifiable person. This is the MarTech revolution, but that is too small an acronym.  It is really a MadTech revolution, combining the dream of one-to-one marketing from one side of the house with the analytics of another side of the house, with exploding methods and options for capturing and leveraging data.

So, good luck to Operative and Sintec. The deal makes sense on paper, alone. More importantly, for companies still searching for strategy, product market fit, growth and advantage, the deal shows that they need to get past the narrow confines of AdTech and look at where the excitement lies.