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Boasting a market cap of $19 billion, WPP Group (ADS) (NASDAQ: WPPGY) focuses on the communications needs of major clients and produces multi-million dollar ad campaigns. To protect its franchise, the company is moving into social networking and video. Its most recent deal is a strategic investment in VideoEgg.VideoEgg is a privately-held company that provides editing tools and an ad network that serves 15 million videos a day. The company has distribution deals with more than 60 online communities, including Time-Warner's (NYSE: TWX) AOL, Tagged, and Bebo.
According to a recent Jupiter Research report, about a quarter of adult Internet users in the US regularly visit social networking sites. Users create profiles, meet new friends, and share videos.
This represents a big opportunity for brand advertisers. "Social networking sites are extremely interesting to brands because the audiences are filled with users seeking membership in particular interests," said Robb Hecht to me in an interview. Hecht operates media consulting firm IMC Strategy Lab.
By investing in VideoEgg, WPP gets access to a social network that has users who have already opted in for brand advertising. This differentiates it from other video sites by Viacom Inc. (NYSE: VIA), YouTube, and Sony Corp. (ADR) (NYSE: SNE).
VideoEgg uses a system of ticker ads. These are messages that are typically on the bottom of the screen. When a user clicks the ad, the video will pause and the user can later go back to the video. VideoEgg has a library of advertisements and also helps clients develop their own.
Besides providing more services to brand clients, WPP also has the possibility of getting a bonus from its investment. In light of Google's (NASDAQ: GOOG) $1.65 billion purchase of YouTube and successful IPOs by the likes of DivX Inc. (NASDAQ: DIVX), there are certainly opportunities for a profitable exit.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
VideoEgg uses a system of ticker ads. These are messages that are typically on the bottom of the screen. When a user clicks the ad, the video will pause and the user can later go back to the video. VideoEgg has a library of advertisements and also helps clients develop their own.
Besides providing more services to brand clients, WPP also has the possibility of getting a bonus from its investment. In light of Google's (NASDAQ: GOOG) $1.65 billion purchase of YouTube and successful IPOs by the likes of DivX Inc. (NASDAQ: DIVX), there are certainly opportunities for a profitable exit.
Tom Taulli is the author of various books, including the Complete M&A Handbook and the EDGAR-Online Guide to Decoding Financial Statements.
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