LUMApresentsourannualStateofDigitalMarketing,whichcoversourviewsonthe

market,industrytrends,andthefutureoftheecosystemwithaspecificfocuson

digitalmarketing.Wehopeyouenjoyit.

Meet the Senior LUMA Team

Founder & CEO Partner Partner Partner CMOTerry leads strategy,banking and content for LUMA.

He’s also head comedy writer and performer.

Brian is LUMA’s marketing technology guru.

He excels at coaching both little league and big clients.

Mark runs M&A strategy and execution for LUMA.

He’s never met a term sheet he couldn’t improve.

Dick leads LUMA’s mobile and gaming banking coverage.

You can find him holding court every February in Barcelona.

Gayle runs LUMA’s marketing, events, and partnerships.

She may be new, butshe’s alreadyformidable.

Terence Kawaja Brian Andersen Mark Greenbaum Dick Filippini Gayle Meyers

LUMA’ssingularindustryfocusisontheintersectionofMedia,Marketing,and

Technology;thesectorsofDigitalContent,AdTechandMarTechallseen

throughthelensofmobile.

Afterarockystarttotheyear,MarTech stockpriceshavestabilized.AdTech

stocksshowstrongerperformancewhenincludingtheindustry’snewest

entrant,TheTradeDesk,whichbegantradingpubliclyinSeptember.

Onan“apples-to-apples”basis,excludingthisyear’snewentrantTheTrade

Desk,weseetheAdTechsectorinnegativeterritoryyear-over-year.

Beyondthestockprices,whenwedividebyrevenueandlookatmultiples

overthesameperiod,wenotestablestockpricesbutgrowingrevenuesyield

decliningmultiplesforMarTech.

IncludingTheTradeDesk,whichiscurrentlytradingwellaboveitspeers,

multiplesinAdTechappearunchanged.

ExcludingTheTradeDesk,AdTechmultiplesaredownalmost50%while

revenuescontinuetogrowmeaningfullyforbothAdTechandMarTech.

RevenuegrowthremainstheprimarydriverofmultipleacrossbothAdTech

andMarTech.

SinceourlastDMSWestayearago,weseenonlyoneIPOintheAdTechand

MarTech spaces.TheTradeDeskpricedinSeptemberandisstillhovering

aroundits$1billionvaluation,ararebrightspotforpublicAdTechcompanies

andperhapsasignalofmoretocome.

Lastyearwenotedapalpablechangeinsentimentinthefunding

environmentandthischangeremainsevidentinthedatawithventurecapital

fundingdownsignificantlyinMarTech,andevenmoresoinAdTech.

Thatsaid,differentiatedcompaniesarestillfindingcapital.Infact,over30

industryleadershaveeachraisedatleast$20millionsincethelastDMSWest.

Theonerealbrightspotinthemarket:M&A!We’veseenalmostascoreof

scaledstrategicexitsinthelastyear.

Interestingly,valuationspaidforthesescaledstrategicexitshavebeenata

meaningfulpremiumtocurrentpublicmarketvaluations.

Whatisdrivingthisactivity?Agrowingpoolofstrategicbuyers.Wesee

continuedactivityfromtheusualsuspectsliketheenterprisesoftwareandAd

Tech,butanumberofnewentrantsarealsomakinganactivepushintothis

space.

Telcoshavebeenveryactiveastheyaimtomonetizetheirlargecustomer

basesandenterthefastgrowingdigitaladvertisingmarket.Theyhave

alreadymadeanumberofsignificanttransactionsjustthisyearalone.We

expectmoretocomeinthenearfuture.

Privateequityhasalsoenteredthespace.Withpredictablerevenues,high

operatingleverage,andhealthymargins,somecompaniesintheindustryfit

thefinancialprofilethatintriguesfinancialbuyers.

Lastly,internationalbuyers,mostnotablyfromChina,havebeenvery

acquisitivethisyear.

Interestingly,wehaveseenprivateequitybuyersstepupforMarTech assets,

payingmultipleswetypicallyassociatewithstrategicbuyers.

AndChinesebuyershascomeonstronginAdTechwithanumberofscaled

exitsjustinthelastquarter(e.g.Smaato,Media.net,andAppLovin).

Inthepast6-12monthstherehasbeenincreasingfocusandawarenesson

artificialintelligence(AI).However,asForbessuggested,wearenowina

periodofskepticism(“disillusionmentandchaos”)ofAIasthemarket

experimentswithAItodeterminewhetheritprovidesabenefit– ornot.But

wefirmlybelievethatwewillbeenteringthe“amazement”phaseverysoon.

TheAImarketisstillveryearly.Theaboveprojectionremindsusofthe

programmaticadvertisingmarketin2010whenmarketerswerefirst

experimentingwiththetechnology.Whentheindustrysawtheeffectiveness

ofprogrammatic,themarkettookoff– anditisnowabout2/3ofthedisplay

advertisingmarket.WebelievethesamedynamicwilloccurwithAIasitgets

appliedmoretoAdTechandMarTech andtransformstheindustry.

Wearen’ttheonlyonesbullishaboutAI.TechgiantslikeGoogleandIBMare

makingsignificantinvestmentsinthistechnology.Googleisplanningtoapply

machinelearningacrossallitsproducts,andIBMismakingthe“biggestbet”

initshistoryaroundcognitivecomputing.

EventhePresidentisweighingin.AIwillbeappliedacrossamultitudeof

industries:automotiveandtransportation(self-drivingcarsandlong-haul

transportation),healthcare,researchand- ourfocusarea- marketingand

advertising.

AIhasbeenappliedtothemarketingindustryforsometimebutmainlyatthe

“edges”,meaningnarrow,specificusecases.Forinstance,indisplay

advertising,AIhasbeenappliedtobid/creativeoptimization,andpredictive

analyticshavebeenutilizedforreal-timecontentinsertionforwebsitesand

email.WebelievethatAIwillnowmovetowardsthe“core”tocoordinate

activitiesacrossthesechannels.Moreonthislaterinthepresentation…

InthepastAdTechandMarTech wereverydistinctindustries,withlittle

connectionbetweenthetwo.AsAdTechevolvedintodata-drivenadvertising

andMarTech intodata-drivenmarketing,wehaveseenthedatalayer

becometheconversionpointfortheseindustries.ThisconsistsofDMPs,

online/offlinedata,andplanningandattributionsystems.

Twosub-trendsthatarepartofthelargerAdTech/MarTech convergence

trendare:1)theevolutionofdatatechnologies,specificallyDMPs,and2)the

riseof“identity”solutionsasacriticallystrategiccapabilityinthemarket.

WhenDemdex,oneoftheearliestDMPs,launchedin2010,itwasprimarilya

cookiemanagementplatformfordisplayadvertisingforpublishers.Inrecent

years,thecapabilitiesandusecasesofDMPshaveexpanded.DMPsnow

includeadditionalfunctionalitysuchasdataanalytics andtagmanagement

plusrobustmobiledatamanagement.Andusecaseshaveexpandedfromjust

displayadvertisingtoareassuchaswebpersonalizationandA/Btesting.

IthaslongbeenchurchandstatebetweenCRMsystemsandDMPs,

separatingpersonallyidentifiableinformation(PII)fromanonymousdata,but

wearenowstartingtoseethesedatasetsstarttoblendwithinplatforms

suchasDMPs.ItwillbeespeciallyinterestingtoseehowSalesforceintegrates

Krux oncethatacquisitioncloses– andwhethertheycombinePIIand

traditionally“anonymous”datasets.

TheDMPhasbeenknownasoneofthekeysoftwareplatformstoenable

targetingfordigitaladvertising.WiththeevolutionofDMPcapabilitiesand

usecases,itnowsits“atthecenterofthemarketingcloud”asthe“hubof

enterpriseintelligence.”

DespitetheevolutionoftheDMP,wearestillintheveryearlyinningsofthis

industry.LargeenterprisesareonlyjustbeginningtoimplementDMPsand

managingtheirfirst-partydataassetseffectively.Onetrendwebelievewill

emergeisadramaticriseofsecond-partydatasharingamongcompaniesin

complimentaryindustriesaswellasthegrowthofdataco-ops.Adobeis

pursuingthisopportunityaggressivelywithitsAudienceMarketplace.

IfyouobservetheriseoftheMarketingClouds,youwillnoticethattheyhave

beenveryfocusedonconsolidatingpointsolutions(Phase1)– whichmakes

sense.Asmentionedearlier,DMPcapabilitiesandusecaseshaveexpanded.

ESPssuchasExactTargethavealsoevolved,addingSMSandsocialchannels

totheirplatforms.Butacrossallthemarketingclouds,thevariouspoint

solutionsarestillfairlychannel-focusedwithonlyminimalintegration.

WebelievetheMarketingCloudswillnowaggressivelymoveto“Phase2”,

whichisto“orchestrate”activitiesacrosschannelsinordertooptimizethe

customerexperience.Thisorchestrationlayerwillincludebothrules-driven

andAIapproachestohelpmarketersaccomplishtrue1:1marketing:sending

therightmessagetotherightpersonattherighttimethroughtheright

channel.ThiswilldrivefurtherconvergenceofAdTechandMarTech.

“Identity”isakeyindustryfocussinceitiscriticaltobeingabletocoordinate

thecustomerexperience.Identityofferingshavebeenadvancingrapidly,with

incumbentsfurtheringtheirofferingswhileothershaveenteredthemarket.

WehavelongtalkedaboutOraclebeingthemostactiveinbuildingitsidentity

solutionswithits“DataCloud”,butthereareothermajorplayersbuilding

robustidentitysolutions,suchasAdobe,Neustar andAcxiom.

The“identitygraph”,whichorganizesmultipledatasets– purchase,demo,

behavioral,digitalIDsandlocation– foreachindividual,hasemergedasa

keyidentityoffering.Theidentitygraphsnotonlyenablesophisticated

targetingformarketing,butalsofeedintoplanningandmeasurement

applicationsaswell.Wewillcontinuetoseesignificantinvestmentinidentity

graphsfromtheMarketingCloudsandstartupsalike.

Predictivemarketing platformsemergedafewyearsagoandarebeing

adoptedbye-commercecompaniestoenable1:1personalization.These

systemscombinedatafrome-commerceplatforms(providingpurchase

historyforeachuser),browsingdata(short-termbrowsingbehavior)and

othersystems.Combinedwithapredictiveanalyticsengineandaproduct

feed,theseplatformsthencoordinatepersonalizedcontentacrosschannels.

Mobilemarketingautomationcompaniesemergedduetodynamicsinthe

appeconomy:1)consumersaredownloadingfewerapps,2)itisexpensiveto

acquirenewusers,and3)mostappsarefreeandapppublishersstruggleto

monetizeusers.Theseplatformscreateprofilesoneachuser,andcoordinate

triggeredmessages:in-app,pushnotificationsandemails.Somealsohelp

optimizetheappwithanalyticsandA/Btesting.

Whatdo“predictivemarketing”and“mobilemarketingautomation”

companieshaveincommon?Theybothhaveadatahub/CRMsystematthe

core,andalsoprovidetheorchestrationforinteractionswitheachconsumer.

UnliketheMarketingClouds,withpointsolutionsthatneedorchestration,

thesehaveorchestrationatthecore.Iftheyneedtoaddanewchannel,such

asemailorSMS,theygenerallyuseOEMsystemssuchasSendGrid orTwilio.

Wehavetalkedaboutaccount-basedmarketing(ABM),deliveringtheright

messageattherighttimetotherightaccount,andpredictiveanalytics,which

foldsintoABM.Theybothhavegrowndramaticallyinthelastyear.Thenext

keytrendtowatchistheconvergenceofMarTech andSalesTech.WhileAd

TechandMarTech convergenceappliestoB2Cmarketers,MarTech andSales

TechconvergenceappliestoB2Bmarketerswithdirectsalesteams.

Thereisnowaburgeoningecosystemofcompaniesfocusedonbuildingtools

forkeystepsandworkflowswithintheentiresalesprocess.Wehavecreated

theSalesTechLUMAscape tohelpmapoutthegrowingecosystem,whichyou

canfindonwww.lumapartners.com.

CRMsystemslikeSalesforcearefocusedonthemanagementlayerofan

organization,nottheindividualsalesperson.Inthelastcoupleyearswehave

seenanincreasingnumberofstartupsemergethatarefocusedonmaking

theactualaccountexecutiveorSDRmoreeffectiveathis/herjob.Investors

haverecognizedthisaswell,asweareseeingmoreVCinvestmentand

growthinthisarea.

Duringtheearlydaysofperformancemarketing,theindustrywasfilledwith

veryquestionablebusinessesfromtoolbarcompaniestoincentivesites.Not

onlydidthesecompaniesnotdriveincrementalsales,buttheyalsodrove

spam,adwareandotherproblems.Whenperformancemarketingis

mentionedtoday,manystillconjureupimagesofthesequestionable

practices.

Butwhatdefinesperformancemarketingtoday?GoogleandFacebook.

InMay,MorganStanleyreportedthatGoogleandFacebookcapturedover

85%ofincrementaldigitaladspendinQ12016.Thisisaverytoughdynamic

fortherestoftheecosystembattlingovertheremaining15%.Arecent

analysisconcludedthatGoogleandFacebookactuallycapturedover103%of

thegrowthinthefirsthalfof2016.Inotherwords,therestoftheindustry

mayactuallybeshrinking.

Butnotallislost.Marketerswantperformanceandifavendorcandeliverit,

theywillcontinuetospend.Criteo hasbuiltascaledbusinessbyservicing

advertisersdirectlyandusingCPCpricing.Customersspenduptotheefficient

frontier,justlikesearch,resultinginalways-onadspend.AppLovin hasbuilta

tremendousbusinesswithstaggeringgrowthandprofitabilitythrough

developingterrifictechnologyandusingpricingthatalignswithitscustomers.

WehavewitnessedtheevolutionofpricingmodelsfromCPMtoCPCtoCPI,

andultimatelyCPA,drivingtheactionmarketersaretryingtoachieve.By

aligningpricingwithitscustomers’desiredoutcomes(anddevelopingrobust

technologytodeliverthoseoutcomes),leadingperformancemarketing

companiesareabletocreateterrificscaled,predictableandprofitable

businesses.

WehearsomepeoplesaythatCriteo isjustanadnetwork.However,let’s

compareCriteo tothepublicadnetworksandalsotothemostsuccessful

SaaScompany:Salesforce.In1H’16,Criteo hadhigherrevenuegrowthwith

lowerS&Mcostasapercentageofrevenue– highlightingitspredictabilityof

revenuesandhighoperatingleverage.Thepublicadnetworks,incontrast,

generallyarenotgrowingandhavehighercostsingeneral.

LUMAInstituteisthedivisionthatincorporatesourresearch,contentandevents

initiatives.ThemissionoftheLUMAInstituteistoprovideeducation,insightsandmarket

developmenttoallconstituentsofthedigitalecosystem.Wepartnerwithmedia,

marketingandtechnologycompaniestoprovideadviceandeducationatleadershipoff-

sitesandcustomereventsonacustomizedbasis.IfLUMAcanhelpyourorganizationsort

throughthiscomplicatedanddynamicsector,contactGayleMeyersat

gayle@lumapartners.com.