Right Idea

Back in December 2005, I wrote a post about turning online advertising into a real market. That very day I got an email from Michael Walrath, founder and CEO of Right Media, explaining that his company was doing exactly what I suggested should happen. That was the first time I had heard of Right Media and I invited Michael to an event we were planning that month on transparency in online advertising.

Sadly for me, Michael had already done his venture deal with Chris Moore of Redpoint, who had found Right Media through their investment in MySpace. Talk about "follow the money".

Well most people who follow the online advertising business know by now that Right Media was purchased by Yahoo! late last week for $680 million. But that’s for the 80% that Yahoo! didn’t own, so the total valuation was more like $850 million.

Those are big numbers but maybe not so big when looked at through the lens of Doubleclick’s sale to Google for $3.1bn. Clearly the online ad market is hot, particularly the "display" side of the business. Both Right Media and Doubleclick are in the "infrastructure" part of the business. Doubleclick leads the market in ad serving, the most basic online ad function. And Right Media leads the market in the exchange side of the business, bring buyers and sellers together and providing transparency to everyone involved.

I think there is a lot more that can and will be done around exchanges. To date, Right Media has operated at the low end (remnant inventory) of the market. That’s because the low end of the market benefits most from the efficiencies that come from an exchange. But over time I believe the entire online ad market will become exchange driven and everyone will benefit from that.

So I don’t think these transactions mark the mature/consolidation phase at all. I think there’s tremendous opportunity ahead in online advertising. But entrepreneurs and investors should learn the lessons of Doubleclick and Right Media. Build a dominant position in a valuable sector of the business and you’ll be rewarded handsomely.

I’d also like to congratulate Michael and his team at Right Media and Chris Moore and his partners at Redpoint for a great win. Well done.

#VC & Technology