In news that we will continue to talk about for months ahead, the parent company to Azoogle Ads, Epic Advertising, announced a merger with Connexus Corporation. As the release states, "Top independent ad network to combine with leading global performance network and search marketing company to form one of the largest privately-owned digital media companies in the world." Staring at the release, we still find ourselves trying to make heads or tails of the decision. Ultimately, we know exactly why the two companies merged, but how much would we have liked to have been a fly on the boardroom walls during the negotiation.
Understandably, the Connexus and Epic merger most likely won't capture the mainstream attention. It's something for the performance marketing sector to geek out on. Part of that fun comes from the lengthy history that each company has. At the risk of dating myself, I remember when Azoogle Ads entered the scene. In the 2000 time frame, performance marketers had just started to discover email. Before Google ads and before search arbitrage even existed, the arbitrage way to make money involved finding ways to generate email signups, the dominant method being co-registration from sweepstake-like sites. Once you figured out where to buy names you needed an email provider. That's where Azoogle initially fit, acting as an email 1.0 service provider. They realized though that people were making money through commercial emails not newsletters and opened up a network as a means to help their initial mail clients make more money.
In less than two year's time, Azoogle Ads became the dominant email marketing ad network, evolving as the market did to become a performance network supporting publishers using various traffic types. They grew fast enough and large enough that they started to attract the attention of the investment community, and in early 2005, they received roughly $48 million from two well known names (TA and Stripes if memory serves correctly). That time also saw the company moving from its home in Canada to become based in the capital of advertising, NYC. It is now five years since the investment, and Epic still maintains its leadership position, but it is no closer to an exit. Margin growth mirroring the companies first six years in business hasn't happened, and while they generate at least $150 million annually, they have not reached a size that would allow them to exit. Acquisition isn't a natural option, so that leaves going public, which then means getting bigger.
Epic could have gotten bigger by building or buying, or in this case, merging. Their new bedfellow, Connexus Corporation shares an equally interesting background, if not more colorful background. That two $100+ million dollar companies would think about merging would seem almost nightmarish had one of them not done this before, Connexus. It is nothing more than an empty vessel, coming in to being when two other performance marketing titans came together in 2006 - Vendare and Netblue. That union was quite complex and utterly confusing, with Vendare alone having once owned, run, or been everything from Jackpot.com, Traffic Marketplace, eMarketMakers, Uproar, and New.net now Firstlook. They spanned consumer sites, direct navigation, display, affiliate, and email. Then came Netblue which was one of Traffic Marketplace's largest advertisers, and one of the affiliate divisions largest publishers. They are also the company that popularized the incentive promotion model having once been named YourFreeDVDs before expanding into gift cards, electronics, etc.
Today, all that remains of Vendare Netblue is the display ad network Traffic Marketplace and the domain portfolio Firstlook (previously New.net). The company shuttered email, all consumer sites, and affiliate. Netblue's incentive promotion business was shut down as well, but the company's core assets - the incentivized platform - were eventually and smartly transitioned into tmpsocial, a virtual currency monetization platform. There isn't necessarily a cohesive story for Connexus, but through disciplined leadership along with disciplined cost control, the company turned itself around and focused on the areas that made money and showed too that they could still tap into new markets. As to why a merger with Epic, it wouldn't surprise me to learn that the same arguments that create Vendare Netblue shaped these two coming together - getting big enough to exit, as each on their own had grown but not enough. That Connexus now merges with Azoogle has some sense of either irony or coming full circle given that affiliate was one of the areas that Vendare Netblue didn't keep, and it is the core of Azoogle's business.
With Connexus, Epic gains some interesting assets, namely a top notch sales team with much stronger brand / agency connections. They also gain a foothold into social that they didn't have directly. Connexus gains serious revenue and some interesting options in the retargeting world. Azoogle's advertisers aren't a natural fit for display; although, some will be a great fit for the virtual currency business. Operationally, the two will most likely stay separate for a while, and that they don't need each other is actually a good thing as it gives them time to figure out how to best use each other. The hardest part about this merger is really the story. Is this going to be the one-stop shop for advertisers? Is it a story of moving brands into performance marketing and becoming a pioneer in that space? Right now, it's not so clear, coming across more like a Valueclick than an Adknowledge whose unified technology platform and self-service interface give them a cohesive story. Fortunately for the new company, what it lacks in obvious strategy it makes up for in leadership. Congratulations to the two companies for making such a move. As for their competitors, now is the time to pounce while they are distracted.
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