DM Predictions for 2008

Hard to believe that only a few days separate this year from last. By now, the office ghost towns have once again returned to their former selves as bodies again fill the cubicles, and while productivity hasn’t fully returned, the weight of entering a new year has started to hit home. For many, this weight comes in the form of a post-holiday let down – having to return to a life more ordinary, one without the time away from the office and constant signs of celebration. For others, the weight of the new year has little to do with the personal and environmental 180 that happens once the first week of January starts; instead, it has everything to do with trying to execute on the budget and strategic plans inked in the latter part of the year before for the one that lies ahead. As the numbers for last year finalize, and the company has a chance to understand with some clarity and say quantitatively how it did, it has nothing else to focus on but this year – to continue last year’s momentum, jump start flat performance, or right a ship where one too many people have their eyes on the life rafts. Similar to sports commentators trying to predict the football season, we can take comfort that no one knows precisely what will happen. That doesn’t stop any from trying, including us. Thus, we present our (primarily direct marketing focused) predictions for 2008.

• IPO – For all the record growth seen in our industry, what we didn’t see was an Azoogle, Datran, or other well-backed, leader in the performance space see a public exit. In writing this prediction, we feel a little like 2005, when for 2006 we thought we would see one of the major performance marketing companies, e.g., Quinstreet, go public. That didn’t happen in 2006 or 2007, but we think the third year’s a charm – not that the public markets have looked that attractive, but we guess as the economy as a whole settles down, this will change. Right now, the two that stand out in our minds as the best bets are Quinstreet and Education Dynamics. Outside our space, AOL’s Platform A looks like a clear favorite. 
• M&A – Followers of Seeking Alpha will have come across their list of the Top M&A Deals of 2007, and Techcrunch readers were treated to their Year in Deals 2007 Edition. More than a few content sites fetched premiums, including long-time players Dictionary.com parent Lexico for $100mm, How Stuff Works for $250mm, and UGO for $100 million. And, who could forget the ad network / serving technology buying binge which saw DoubleClick, RightMedia, 24/7, aQuantive, Blue Lithium, Tacoda, and Quigo purchased that topped well north of ten billion dollars. It’s hard to think that the number of deals in 2008 could top 2007, especially given the number of large names taken last year, but quite a few well known names still exist, spanning the tech and consumer gambit, e.g. Datran, Revenue Science, Valueclick, Yahoo, Yelp, and Zillow. It’s no stretch to say that we will see more acquisitions in the social media and video space, those companies that like YouTube and Skype built a user base but no real revenue stream. They operate in areas that have the momentum and map to the areas of expected highest growth for ad dollars.
• Vertical Leadership and Platform Plays– 2007 saw quite a bit of consolidation in the lead generation space, especially in online education. A few years ago, we saw a platform play emerge by Experian Interactive as they picked up companies across verticals and disciplines, along the path that AOL and others have pursued in order to offer the "one stop shop." Last year, Halyard Capital took a different approach, combining companies within the same vertical, creating Education Dynamic. The combination gives them diversification among traffic sources – from paid search, organic search, display, etc. – as well as across clients. For the overlapping clients, they have increased scale; for those that don’t overlap, they can look for areas to expand the relationship, and so on. Collegebound Network remains another often overlooked company, one that made a commitment to a particular area within a vertical and stuck to it. They didn’t lose their focus and now have built a business that poses some decent sized barriers to entry. In 2008, be it in lead generation, affiliate marketing, or another area, we anticipate success from the vertical leaders. This doesn’t suggest that platform plays won’t happen; just as vertical powerhouses will start to form, we expect focused, platform plays, especially for solutions providers.
• CAN-PIN – After a several year reprieve of litigation and legal scrutiny, or better said, after several years of clearly defined best practices, last year saw what happens when a hot and not well understood segment gets the attention of state. Unfortunately, we saw only the beginning in 2007, and 2008 will bring increased scrutiny from more than just one state. Unlike CAN-SPAM, we feel a 50/50 chance exists for some universal standard to arise without the assistance of the federal government. We think, or perhaps hope, the states saw the inefficacies of each having their own statues, as was the case with email.
• Affiliate Marketing Shakeout – We will call 2008 the year of the phoenix for affiliate marketing, our guess – we will see a major change at one of the well known cpa/affiliate networks, while one that looked dead will rise from the ashes so to speak under completely different leadership. CPA Networks will still thrive, but the unfortunate truth and something we touch on a little bit in "Will 2008 be Great" is that the relative lack of differentiation and low barriers to entry will put a squeeze on some of the players. It won’t be as bad as the Web 2 shakeout that has to happen, but we shouldn’t think ourselves immune.
• Lead Exchange – We have long been bullish on Lead Exchanges, companies like LeadPoint and Detroit Trading who have made it their mission to empower smart marketers with liquidity for the data they generate. We don’t anticipate any major exits (nothing public), but we wouldn’t be surprised if they weren’t the focus of consolidation this year. At the very least, we expect them to take hold especially as they start to have sales strength across many verticals and thus act as a disincentive to those looking to build out the sales themselves. No longer on the fringe, they will become truly mainstream options.

• The Big Unknown – Here’s the bad news about 2007. For all of the digital media activity and the amount of personal wealth created for entrepreneurs and investors, we just made it through an incredibly turbulent year. As if to underscore that point, the market ended last year and began this year with triple digit losses. For all the M&A news and rosy projections for online, the broader economic indicators simply do not seem stable enough to sleep without worry. We’ve got even money on an aftershock or two, potentially as big as the initial mortgage fallout occurring sometime in Q2. Regardless, we do believe in the upside for online only that, like last year, we can expect it in spurts with some periods of unease.