With consumers rapidly shifting their digital content consumption activities to mobile devices, there’s a race to establish advertising infrastructure equivalent to that built up over the last two decades on the Web. This means there’s a need for mobile ad networks, ad exchanges, supply side and demand side platforms, and real-time bidding platforms, among other related technology platforms.
Many of the Web advertising incumbents are looking to duplicate their success on mobile, although it’s not always a natural transition. To that end, there’s an opportunity for upstarts to enter this market and, with the right combination of technical proficiency and industry relationships, command meaningful market share.
That’s the goal behind the transaction announced earlier today that will see Adaptive Medias, a multi-channel programmatic advertiser, acquire Ember, a nascent machine learning-powered, real-time bidding (RTB) platform. Adaptive is a venture-stage publicly traded company, listed on the OTCQB market (a fully-reporting, over the counter market) and as a result filed an 8K current report with the SEC detailing the transaction. Per that report:
Upon consummation of the Merger, the Ember shareholders were issued 7,000,000 shares of common stock, par value $0.001 per share (the “Common Stock”) of [Adaptive Medias, aka] the Company, constituting approximately 5.3% of the outstanding stock of the Company. The current shareholders will retain the remaining 94.7% of the currently issued and outstanding stock of Company. Specifically, each Ember share was converted into the right to receive 0.97154848 shares of Company Common Stock. The Merger caused Ember to become a wholly owned subsidiary of the Company.
Adaptive Head of Corporate Development Ben Padnos told PandoDaily that the acquisition was valued at $560,000 in an all stock transaction. Ember’s shareholders also have the opportunity to receive additional cash bonuses based on future revenue.
No doubt this is a small deal in terms of the dollar figures involved, but Ember’s shareholders received meaningful returns, according to Padnos. How is this possible? Because the company raised very little outside capital, perhaps only the $20,000 it received as part of its participation in the StartEngine accelerator. And while the transaction was one paid for in stock, not cash, Adaptive’s stock offers a measure of liquidity, trading an average of 389,247 shares per day and fluctuating wildly between $0.05 and $0.44 per share over the last 52 week period. The stock is currently trading at $0.0819, down 6.93 percent on the day, following news of the acquisition. Adaptive has a market cap of just $9.7 million.
Ember had three co-founders, two of which will join Adaptive Medias’ management team as part of the transaction. The company’s co-founder and CEO, Nic Borensztein, will become Adaptive’s VP of Engineering and his co-founder and CTO, Damian Ancukiewicz, will become Adaptive’s Chief Architect. The former founders will each be paid $90,000 in the first year and $120,000 in the second year, as well as receive approximately 423,850 shares each of Adaptive common stock and options to purchase up to 1,000,000 more at $0.08 per share. Ember’s third co-founder, Vikaas Sharma, will not transition over as part of the deal.
Padnos was adamant that this was far more than an acqui-hire, noting that Ember’s technology will not only survive, become a core part of Adaptive Media’s overall platform. Padnos says:
It’s a very strategic acquisition for Adaptive Medias as the Ember technology now powers the Company’s programmatic capabilities. Programmatic, or “real-time bidding” (RTB), is a very hot segment of digital advertising, and we think this deal gives us one of the leading platforms in the space. It truly positions Adaptive Media as one of the only companies with an end-to-end monetization platform driven by programmatic algorithms.
Padnos added that research from eMarketer projects US marketers will spend $3.34 billion this year on RTB ads, marking a rise of 73.9 year-over-year, and further projects this figure will rise to $8.69 billion by 2017. Adaptive’s two areas of focus are mobile and video advertisements which are expected to triple and double in total annual spending, respectively by 2017, according to the same eMarketer report.
There’s little argument that this will be a massive market. The question is what fraction of this market, if any at all, Adaptive can expect to garner. The addition of Ember positions Adaptive to offer an end-to-end monetization platform driven by programmatic algorithms. Adaptive’s platform has already attracted a number of high profile clients, according to the company, including WPP Media company 24/7 Media, Hearst Media Group, BlueTonic, Videology, Hotpoint Media, Vdopia, 7 Diamonds, SpotExchange, TubeMogul, Yashi, and AOL Networks-owned Adap.tv.
The company is in a highly competitive market and will need to battle with giants like Rocket Fuel, which now commands a $2 billion market cap following its September IPO, and offers advertisers a similar programmatic platform. Rubicon Project is expected to pursue a similar IPO in 2014.
Despite its early traction, Adaptive generated just $416,051 in revenue through the first nine months of 2013 and posted a whopping $7.5 million net loss in the process, according to quarterly SEC filings. It generated $373,737 in the quarter ending September 30th, losing just $2.1 million along the way. As of September 30, Adaptive had less than $400,000 worth of cash and receivables on hand, drawing into question its ability to keep the light on long enough to take advantage of its new RTB toolset.
Today’s acquisition is a nice story, and likely makes sense for both Adaptive Media and Ember at the highest level. But, what Adaptive needs more than anything at this point is more money. It’s also the first exit for a StartEngine company, making it a moral victory for the Santa Monica accelerator – StartEngine founders Howard Marks and Paul Kessler, will join Adaptive’s advisory board. And yet despite these feel goods, in the grand scheme of the advertising landscape, this deal is unlikely to cause even a ripple.
[Image via WikiCommons]