The Ad Network Spending Spree

Big Internet companies have been snapping up ad networks to boost ad revenue. Now Specific Media plans to join the M&A frenzy

by Catherine Holahan

The wave of dealmaking engulfing the online advertising sector isn't over yet. The most recent evidence came Nov. 1, with news that Francisco Partners, a private equity firm in Menlo Park, Calif., is investing $100 million in Specific Media, a company that specializes in placing and targeting online ads.

Specific Media plans to use the funding, which follows a $10 million venture capital infusion in June, 2006, to purchase smaller ad outfits capable of expanding the company's ad-delivering capabilities and the markets its ads reach. "The capital is going toward acquisitions," Specific Media CEO Tim Vanderhook says.

Specific Media's peer group has already seen its share of deals. The world's largest Internet companies, including Google (GOOG), Yahoo! (YHOO), Microsoft (MSFT), and Time Warner's (TWX) AOL, have spent more than $10 billion in recent months (BusinessWeek.com, 5/18/07), snapping up online ad networks in hopes of boosting revenue from the placement of display ads, the graphic and multimedia messages that run in fixed places on Web pages.

Staking Out a Position

Specific Media won't say how much ownership it ceded in exchange for the investment, making it difficult to estimate the company's current value. According to the Venture Beat blog, the company was worth $200 million before the investment.

Specific Media's worth will become paramount in the runup to any initial share sale—or if the company becomes a takeover target. Thanks to revenue-sharing deals with sites across the Web, Specific Media placed clients' ads in front of more than 130 million U.S. Web surfers in September, more than 70% of the nation's online population, according to comScore Media Metrix.

Despite its size, Vanderhook sees Specific Media as David in a battle against an army of Goliaths for share of the nonsearch advertising market. "There is maybe one other company that has the scale to compete with the portals aside from us," says Vanderhook, referring to ValueClick, the leading independent ad network. "We will be the independent ad network of choice."

A Growing Share of the Ad Market

And plenty of online players are hoping Vanderhook is right. Since the spate of ad network acquisitions this year, some Web site owners have expressed concern that the companies placing ads on their pages are now owned by some of their largest competitors for online traffic and advertising dollars. The extra control Google would receive from its yet-to-be-approved $3.1 billion acquisition of DoubleClick has some particularly concerned, especially since many feel the dominant player in search advertising already wields too much power (BusinessWeek.com, 4/9/07).