In the last few months, the Indian online industry saw quite a few activities in the digital advertising market. In April 2012, Publicis Groupe had acquired Mumbai-based digital agency Indigo Consulting and this was followed by WPP PLC’s wholly-owned operating company JWT Singapore agreeing to acquire a majority stake in Hungama Digital Services in June 2012.
The online advertising network space was no different as we had Networkplay being acquired by Germany’s Gruner + Jahr, the publishing division of European media conglomerate Bertelsmann AG. Komli Media raising its biggest ever funding of US $39 million led by Norwest Venture Partners (NVP) with participation from Nexus Venture Partners, Helion Venture Partners, Draper Fisher Jurvetson, and Western Technology Investment and Ad network Tyroo, along with DGM India’s Managing Director Anurag Gupta jointly acquired performance marketing firm DGM India.
This sounds similar to the year 2008 when the buzzword in the Indian online industry was online marketing and digital marketing agencies and advertising networks were at the helm of affairs. Right from the VCs to budding entrepreneurs were gung ho about digital advertising space in India. But post 2009, this interest took a dip and we saw new forms of online businesses getting more interest from VCs as well as entrepreneurs.
This leads us to explore whether the above mentioned instances witnessed in this year are steps towards restoring the good times for online advertising in India. India Digital Review spoke to digital advertising leaders in India to understand their take on the same issue.
Was there a dip at all?
Siddhartha Roy, COO, Hungama Digital Media believes that the online advertising industry in India was in the midst of fundamental restructuring post the 2008 global economic downturn. “Lack of trust and knowledge in the online medium and the absence of effective measurement tools were the key challenges that the industry faced at that time. But ever since then, with over 122 million internet users, the online advertising market has emerged as one of the fastest growing segments in the Indian Media with more and more brands migrating from the traditional media to digital platforms such as websites, social media platforms and gaming networks. However this INR 24 billion industry is still very nascent and our biggest achievements are yet to be seen,” said Roy.
Rammohan Sundaram, Founder, CEO and Managing Director of NetworkPlay Media also believes that 2008 was a bad year and therefore overall interest across spectrum with the investment community was low. “The world markets had collapsed and not many opportunities existed except in the high growth environment and money was being directed there after all the losses people had to see during the downturn. So ad-network was no exception, it definitely is not a high growth opportunity and unless one gets to build massive scale it would have been impossible for any returns. Amidst all this there were already 5 ad-networks that had gotten funded between 2005 to 2008 and there was no room for any more to have gotten funded. Each of these had their own distinct differentiation and so all you would see that we got bought over, Komli continues to attract investments to the global scalability and InMobi is a run away hit as the largest global mobile ad-network next to Google,” added Sundaram.
However, Vikas Tandon, Managing Director, Indigo Consulting doesn’t think there was a decline in interest in online advertising at all. “The fact that digital marketing is here to say, and in fact is the future of all marketing is now an established fact. Sure, there may have been a tightening of belts as always happens in tough fiscal times, but at least we did not sense any reduction in the enthusiasm. At worst it was a postponement in interest,” said Tandon.
Anurag Gupta, Founder and MD of DGM India also opined that the online ad networks didn’t see a decline and according to him, it was a flatline to modest growth phase which lasted for around a year and had to do with the general economic downturn.
Are we back on track?
Speaking on whether the recent developments ensure that the good times are back, Rammohan Sundaram of Networkplay said that here are no good times and bad times to do business and depending on business acumen people can do any business at any time. “That has always been my philosophy because the opportunities are in plenty if you have the right capability. These developments only bring in investor confidence but these still are small buy outs and so not very significant. The day we have a billion dollar business originating from India then you know the times are back and so I am eagerly looking forward to see how Yatra, InMobi, Flipkart, Snapdeal, Komli etc become a larger business through either listings or buy outs. That is when you can say that the good times have finally arrived,” he added.
Vikas Tandon of Indigo also said that there is no "ensuring" anything as far as the future is concerned, but it certainly is a good indication that momentum around the medium is picking up pace.
Siddhartha Roy of Hungama however believed that the Indian online advertising industry is talking business today with agencies handling creative duties of both national and international clients. “Speaking in numbers, the industry is estimated to march ahead from INR 7.7 billion in 2010 to INR 24 billion in 2015 showing a CAGR of 25.5% over the next five years. (According to PwC report 2011). However the digital advertising boom will go hand in hand with other forms of media- print, television, outdoor etc. India is one of those unique markets where we are witnessing growth not only in digital media, but also television, radio and print media,” he added.
Anurag Gupta of DGM India said that we are on the upwards inflection curve. “E-commerce is scaling rapidly, online advertising is increasing at a very fast clip. So yes I feel very bullish about the future of online media,” added Gupta.
More VC Money flowing in?
According to Vikas Tandon, the VC money intake is already on track. “If I am not mistaken, Komli recently raised some more money, so did Simplify360. The pure agency (services) business was never a favourite of VCs in any case, so I don't see a whole lot of VC money coming into digital agencies in any case,” he said.
Rammohan Sundaram believes that VC interest is always there to any business that is going to show scale. “If you ask me specifically to ad-network as a business then I don't think there will be any more raises that will happen in the sector other than the ones who exist currently but there might be a different form of an ad-network that might possibly raise money, like the Captcha Networks today makes a lot more sense to me on engagement levels than the regular ad-network and so you might see some product driven networks who will raise money but otherwise we have so many ad-networks already in business,” said Sundaram.
According to Anurag Gupta, there would be VC interest with the growth of the medium. “Investments follow growth or expected growth areas and online advertising and online networks should see fair amount of growth,” he said.
The competition going forward:
Anurag Gupta said that in the online industry the barriers to entry are low and hence you would see new players entering the market all the time. “However scale trumps all in our area of business and that will help the existing players to corner a larger share of the increasing pie,” he added.
Siddhartha Roy of Hungama believes that competition is more in terms of managing industry challenges than competing with individual players. “We need to focus on driving the overall growth of the market. At Hungama, we always believed in creating value for our clients than chasing the valuation game. Therefore the entry of any new players in the burgeoning online advertising market will result in increase in the overall market size along with influx of more creative minds and some innovative masterpieces that places India on the global map.”
According to Rammohan Sundaram, mobile space still has a lot more room than the web space for any ad-network to mushroom at this stage unless there is a clear product differentiation that will add value to brands through engagement. “So those who are wanting to enter the space must remember that the entry barrier is the least in the ad-network space and so unless there is clear differentiation there isn't much that one can do so ensure you build the right wall around your business atleast for the first 18 - 24 months, which is the most critical period for a start-up.”
Vikas Tandon of Indigo was of the view that increase in competition is almost always a sign of the potential of and interest in an industry. “In the case of online marketing agency business, the entry barriers are in any case very low. It helps to drive up awareness and participation in the market. The important thing is to have a long-term vision and game plan, and to set yourself up as a financially viable, scalable, long-term partner.”