Google's Risky $400 Million Bet On Admeld

neal mohanGoogle’s display ad chief, Neal Mohan

Photo: Facebook/Neal Mohan

On Friday, we received a note from a senior ad industry source warning that Google’s decision to pay ~$400 million for Admeld, an ad optimization company, will be more trouble than its worth.We decided to do a little more digging on the subject, and ultimately it looks like the deal comes with some risks but it’s not significantly worse than any other fairly big acquisition a company is going to make. 

Here is our ad industry source’s take on Admeld:

“This is a great deal for Admeld – I would guess they’ll do maybe $25-35M this year so a silly, silly revenue multiple. What Admeld actually does is manage a publishers remnant inventory and send it off to the various networks and exchanges (one of many outlets is their own RTB [real time bidding] server) and optimise revenue – using tech to move the inventory in near-real-time to the source that is yielding the highest CPM at any given time. 

I think they are the best in the space – Rubicon and Pubmatic are bigger, but I have consistently heard from publishers that Admeld gets better results. 

However, the dirty secret in this category in general (called “supply side platforms”) is that only so much can be done by the technology (which in the scheme of things isn’t that hard) and a lot of this is still done by people tinkering with the ad network daisy chains to enhance the programmatic, algorithmic yield optimization.  So, the business isn’t that defensible or scalable because a big chunk is still services and Admeld won on the customer services front (they say so on their Web site).

The problem is for Google — 1) they are in more trouble than most people know in DC regarding antitrust concerns and 2) ALL – every single one — of the premium publishers who use Admeld will LEAVE THE PLATFORM because they won’t want the GOOG-plex to manage their ad inventory – with complete visibility to traffic, advertisers, CPMs, etc. – NOT IN A MILLION YEARS.  So Google is really making a big mistake – they will attract more anti-competitive attention than this deal is worth, which is not so much since the technology has limitations in scaling and, most importantly, all the customers will leave.”

After reading this we reached out to a few sources in the ad space familiar with the deal and sympathetic to Google/Admeld.

Our sources said the deal shouldn’t have too much trouble in Washington because Google isn’t dominating the display ad business and Admeld isn’t number one in its category.

As for the other part: Our sources said DoubleClick has access to more publisher information than Admeld, so they shouldn’t be worried.

However, a source sympathetic to Admeld admitted ad networks might be worried about giving Google a peek at their inventory through Admeld. However, this source said that’s why Admeld would have to be on its best behaviour. If it did anything fishy it would lose ad network support.

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