Monday, March 17, 2008

Madison Ave. meets Route 128 in the digital ad space

By Efrain Viscarolasaga

Industry insiders are not ready to christen New England the "Madison Avenue of digital advertising" yet, but as digital ads move from banners to more technologically sophisticated video, widgets, voice interaction and more, a new breed of whiz-kid businesses is making a run to be at the forefront of the advertising industry.

Last week, advertising analytics firm Compete Inc. of Boston announced its purchase by British media company Taylor Nelson Sofres plc for what could amount to $150 million. And mobile ad network developers m-Qube Inc. and Third Screen Media Inc. previously made headlines as they were snatched up by larger entities looking to grab a share of the wireless ad-serving market.

Now, several upstarts are hoping to duplicate those successes on the wave of growth in the web and wireless advertising markets.

One such company, Chitika Inc., is approaching the market by applying technology to a specific niche: blogs and social-networking sites. The Marlborough-based company, which was founded by former Lycos Inc. engineers Venkat Kolluri and Alden DoRosario, posts interactive online ads for bloggers and focuses on what Kolluri calls the "suburban pages" of online properties: "The blogs and social-networking sites are turning out to be great branding opportunities," Kolluri said.

The strategy seems to be working. Chitika, which has taken no external funding, claims to have been profitable since 2005 and boasts a blogger network of 17,000 customers.

Another startup, EveryZing Inc., which spun out of Cambridge networking pioneer BBN Technologies Inc. in 2006, is another company aiming at placing ads in a niche -- in podcasts.

The wireless side has been particularly active in building digital advertising platforms, despite the relative immaturity of mobile advertising. Wellesley-based Cielo Group is developing applications that will be housed on cell phones and allow brands, such as Anheuser-Busch Companies Inc. and Major League Baseball (both Cielo customers), to deliver interactive advertising and marketing applications directly to handsets. Quattro Wireless of Waltham, on the other hand, has developed a mobile ad network, much like that of its predecessors m-Qube and Third Screen Media, though incorporating interactive elements, such as widgets.

While most observers agree that digital advertising, overall, is still a nascent commercial market, such startups are putting themselves into a market that is expected to generate billions.

As an industry, the digital advertising market is expected to be explosive in the coming years. According to a report published earlier this year by directional advertising research firm The Kelsey Group of New Jersey, interactive advertising in the United States is expected to grow from $22.5 billion in revenue in 2007 to $62.4 billion by 2012. Worldwide, those numbers increase to $45 billion in 2007, and to $147 billion in 2012.

The Massachusetts Innovation & Technology Exchange (MITX), a local industry group aimed at supporting the marketing, advertising and media industries in the state, reports it has seen the migration of technology into advertising as well. Traditionally a collaborative of those on the creative side of media planning, the group's membership has gone from 300 corporate members in 2006, according to a news report at the time, to 350 now, according to its website. That growth, according to executive director Kiki Mills, has been driven by new, technology-centric members.

"The actual deployers of technology have become a growing part of our membership more than ever before," she said.

At the same time, a recent report from industry consulting firm comScore Inc. showed a 7 percent decrease in advertising click-throughs on the major search engines between December 2007 and January 2008. According to industry insiders, however, the results are no cause for concern.

"Advertisers more and more are realizing how valuable the digital-advertising space is and will continue to dedicate resources to it," said Robert Orr, an interactive marketing expert with Boston-based ad firm Digitas Inc. "The fluctuations are natural, especially given the economic fluctuations of late."