Death Of An Ad Network: John Battelle Explains The End Of Federated Media And What's Next

Feb 7 2014, 5:13pm CST | by

Death Of An Ad Network: John Battelle Explains The End Of Federated Media And What's Next

Backed originally by media and tech luminaries like billionaire Pierre Omidyar, Tim O’Reilly and Mitch Kapor, Federated Media launched in 2005 as a network for online ads and eventually raised just under $60 million over its lifetime, riding the wave of digital advertising to a reported $200 million valuation in 2008. By 2014, its name and the heart of its traditional business was worth $22 million to a Texas-based television station operator and advertiser, LIN Media.

Reaction from the ad tech industry was muted but consistent–”this just shows how hard it is to be an ad network anymore,” multiple executives told me–but I checked in with Federated’s founder, John Battelle, to ask him what happened with the brand.

“I think ad networks is an ongoing story,” Battelle says today. “Federated was a chapter in that story and it continues to write a new one.”

Federated’s path in recent months, its founder says, was more one toward content marketing anyway, according to Battelle. “Federated was early, but if you look around, there isn’t a premium publisher that isn’t doing content marketing now, and people are sort of realizing that this is hard to do and do well.”

What Federated learned along the way, Battelle says, is that the future of native content isn’t to go for one viral story about “a cute thing” like cats, but to build a cadence to brand association with a clear voice that makes people actually want to see your marketing. (FORBES’ own Lewis DVorkin has written extensively on similar points in the native advertising debate.)

And it’s just going to get harder, Battelle argues. “People have realized to ask, ‘Am I being tricked into paying attention to something and is the brand pulling a fast one on me?’ As opposed to an ongoing platform where the value added is an infrastructure to develop that content.”

Federated’s own content marketing business was built up through aggressive sales and acquisitions. Prior to Battelle stepping down as CEO in 2011, giving the reins to chief operating officer Deanna Brown, the company had just made picked up several other venture-backed startups including  BigTent, which has tried to be a community-based social and advertising platform, and Foodbuzz, a network of food bloggers. Then Federated added to its programmatic, or automated, advertising portfolio under Brown. It acquired Lijit Networks, which had raised $16 million of its own, in October of 2011.

Ironically it is that business that will keep Federated’s original investor base and board members while Battelle’s content marketing goes under the Federated brand into LIN Media. Sovrn will be based in Boulder under Lijit’s former chief Walter Knapp, and Battelle returns to a chairman role.

Even between Lijit’s business and the exit value, it seems hard for investors to be in the black right now. Battelle says that they’re betting on Sovrn, however, to become its own winner. “Sovrn is growing very rapidly, it’s profitable on free cash flow and it’s got a lot of potential.” And Battelle defends the legacy at Federated, saying that both sides of the business could be successful if pumped up with a bit more cash–something that Federated didn’t want to try to do with two increasingly distinct business lines.

Federated’s content business can still survive, Battelle argues, if it’s beefed up by the distribution of LIN Media’s video and social infrastructure. LIN’s sales team is better suited for that haul than the original Federated, which had slashed much of its own network-focused sales staff in preceding years.

“We made money many years, and when we didn’t it’s because we decided ton invest. The content marketing is on steady ground and made money last quarter. That’s that. I think it’s true that it’s hard to make money in ad networks, but the specific story here could be different.”

Battelle, who says he will take some time before deciding on any major career move besides the chairmanship, says he plans to continue to work with industry groups like the IAB Traffic Of Good Intent Task Force, for which he is the co-chair.

And while he says he isn’t ready to have perspective on Federated’s participation and then exit in the rise of online advertising, the founder calls Sovrn an exciting opportunity and won’t call the end of Federated a defeat, arguing his company generated good revenue for over eight years on the ride. For new companies, Battelle has this warning about the economics of online advertising today:

“We’ve seen it too much as about the dollars and cents for ads. The true currency in advertising is understanding your audience and your own voice,” Battelle says. “There have been a dearth of tools to help with that issue. Data is the currency of publishing now.”

Follow me on ForbesTwitter and Facebook for more tech coverage in startups, ad tech, enterprise software and venture capital.

Source: Forbes Business


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