Conflicts of Interest

If the performance marketing sector could act as a predictor for the broader markets, it would suggest an incredibly active mergers and acquisitions market in the year ahead. Google and Apple have certainly set the stage with more high-profile deals, but in the private sector, a few equally interesting but lesser known transactions have taken place. In some ways, the transactions mirror those by Google and Apple. These purchases allow these companies to become market leaders in areas that the core business might want to go, but did not have any meaningful operations. For Google especially, their acquisition of AdMob (as of today uncertain due to regulatory concerns) acts as a hedge and early foothold into an area that some see as a long-term threat – mobile and the shift away from a search-based world. Apple’s acquisition of Quattro, appears less of a hedge but could play an equally significant role in their future monetization. While Google and Apple’s core businesses might face challenges along the way, they are more like a big ship facing bad weather than a ship caught in a bad storm in danger of capsizing. Yes, the absolute unexpected could happen, but by and large, Google and Apple are tanker ships that will reach the other side of their journey with greater value than they left.

The great thing about the companies who made the acquisitions is that they both have much more money than the rest of us, and they can afford not to care what we think. These companies can afford not to care because they have successfully navigated the gray and black areas of performance based advertising and done so in such a scale where, if they cared about ruffling the feathers of others or a few user complaints, they couldn’t have come anywhere near the levels of financial success they have achieved. We could argue that they acted at times recklessly, but they didn’t get to their size and scale by being dumb. Furthermore, these acquisitions solidify their business intelligence even further. The downside of the acquisitions, though, is not that they made a bad choice and might not recoup their costs, it’s the bomb they dropped on the market who is trying to make sense of it, namely the clients of the acquired companies. They scare the crap out of the acquired’s clients. To understand why, it helps to understand some of the email market.

Email plays a huge part in the performance marketing ecosystem, and it makes people a lot of money, but it doesn’t make them nearly as much as it used to. Success comes down ultimately to delivery. The best ads make no money if users don’t see them. As a result of the challenge, the industry has segmented itself. Those who generate the addresses (offer owners) rarely if ever manage their list. Instead they let the "pros" do it, who are either list managers (think stock portfolio managers where the stocks are companies that can do delivery), or if they know some of the best delivery companies (a closely guarded secret), they work with them. The advantage to the former is, in theory, they can move around a list based on who is doing well; the latter offers a greater sense of control, and if you know the really good ones, better returns. Both though, play an active role in maximizing the list value (segmenting and testing).

Offer owners not only rely on the emails they generate for revenue, but they rely on the other lists for more distribution. Offer owners pick a list partner not only for the revenue they can generate on that list but on their providing more sign-ups by running the offer as part of the monetization of other lists. It’s a trade off that keeps both sides honest. Offer owners have been list managers, but few offer owners are in the delivery game. What happened here is that one of the largest offer owners made the smart move of acquiring one of the largest and best delivery companies, again a super smart move, insert some manufacturing term about vertical integration, etc. But, what else does that get them? This offer owner now has insight into the exact performance of every offer. Not a problem if they weren’t an offer owner themselves, and it wouldn’t be a problem if the company didn’t have a reputation for copying offers. By owning the insight, they can look for high performing offers and make their own versions, getting the full CPA, rather than splitting the CPA in the current set up. Those being copied won’t really know, because they will see their performance decrease and presumably be told that it’s the offer, as opposed to the fact that the company has decided to run an internal version of it.

The second transaction also involves the email space, but instead of insight into which offers do well, it provides unparalleled insight into the email addresses of the lists, especially on which names to prune. Both deals are too new to know how they will ultimately play out. Several years ago, similar concerns were raised in two other deals. One of which was when an ad network purchased, for lack of a better term, a search super affiliate, and the other was when Experian acquired LowerMyBills. The second had people worried that due to Experian’s amazing data, LowerMyBills would obtain a competitive advantage being able to offer credit score insights (among other things) without having to incur the cost others had to pay. That cost was basically their margin on media spends. The first scenario was a little more akin to these email related deals. As an ad network, the company received a fair amount of data across all arbitragers of a particular offer. At the time of the transaction, most publishers didn’t mask the subids, so they would include keyword and campaign information in the landing page link from the network. The network already had the offer. Now, it had a search affiliate that could take that keyword data and run the same offer on the same traffic, if it chose to go that way. And, that’s where we stand today. The newly joined companies have a lot of power. Will they form a Chinese Wall as is mandatory in certain other industries where similar conflicts exist? It’s really hard to do, especially when you have no obligation to do so.