About a week ago, retargeting specialist Criteo announced the acquisition of L.A.-based DataPop. Just like crealytics, the 40-strong ad tech start-up DataPop leverages a semantic technology to automatically create search ads.
Although some ad tech experts doubt Criteo’s arbitrage model will be sustainable, because margins might decrease in the long run, Criteo achieved a respectable revenue growth of 76% (after traffic acquisition costs) in 2014. In comparison to its U.S. counterpart Rocket Fuel, Criteo is not only growing faster, but also profitable.
Criteo’s stock has gained 45% in the last six months, whereas Rocket Fuel dropped massively by 55%.
With the acquisition of DataPop, Criteo on the one hand gains access to the U.S. market, on the other hand acquires the necessary know-how to play in the large, but competitive search engine advertising market. As display advertising (through RTB) continues to merge with paid search (through RLSA and audience targeting), it was just a matter of time until ad tech companies from both worlds will clash. Bid management providers like Marin Software or Adobe have been actively engaged in display advertising for some time now.
So, how is DataPop actually useful for Criteo?
The core of DataPop is its semantic ontology (“Product Knowledge Graph”), which can be used for example to automatically create paid search ad copies or for optimising product feeds. Criteo might have in mind to show a user the most relevant and compelling ad across different marketing channels or devices.
Although it’s unclear how mature DataPop’s technology actually is, it seems quite feasible that Criteo can make use of it. On the one hand, the semantic technology can classify and identify similar products, on the other hand, DataPop just recently developed interfaces to Pinterest and Amazon, which allows them to use data for better targeting across different channels. In addition, the recently announced Facebook Product Ads will certainly be on DataPop’s product roadmap.
Although Criteo performed outstandingly well in 2014, there are still some noteworthy risks left:
- As mentioned, arbitrage models usually suffer from decreasing margins when the market matures. Those who have worked as PPC affiliates in 2006 know what I’m talking about.
- With the rise of SaaS products for programmatic display, advertisers can find cheaper alternatives to Criteo.
- Quite a few CMOs are sceptical with regard to retargeting. They question to what extend revenues from retargeting are truly incremental.
In this respect, it seems quite reasonable for Criteo to expand into other segments.