Criteo IPO Watch: Why The Retargeting King Will Have To Build The Ecommerce Stack Pre-IPO

The role of online retail is ever changing and facing constant disruption by the socially connected web. Despite this, ecommerce remains a major part of internet’s ecosystem, with continued growth on the horizon.

One company that is emerging as the major ad solution within ecommerce is Criteo. Its go-to-market strategy from day one has been to partner with ecommerce vendors, directly, mostly bypassing the agency. And it seems to be working, given that company is due to have revenues of around 300 million this year - and has been profitable since 2008. How many ad tech players can say that?

Criteo is thought to be mulling over a possible IPO early next year - with it likely to be another New York listing. But can a retargeting network really have a big IPO? Probably not. Retargeting can only scale so far as a business model. So the pivot is imminent. But this won't be some desperate attempt to justify the retargeting solution - it will more an evolution of Criteo's emerging e-commerce proposition.

Just as we will see an all-singing all-dancing stack in Display, Criteo will justify its value - and it's likely to be well over 1.5 billion if it goes to market - by assembling the e-commerce stack.

Why become an ecommerce business?

As mentioned, offering a retargeting solution, regardless if it is perceived as best in class, will only create a certain valuation. Criteo needs to pivot and there are smarter ways of doing this beyond simply looking at the ‘upper funnel’, and delivering more intelligent ‘prospecting’.

The retargeting business will be capped at several 100 million, and this market share will eventually be chipped away by the solutions being built by Google and other buy-side solutions. Dynamic creative will be built into ad server, as the big platforms make it easier for its agency clients.

How could Criteo achieve its e-commerce pivot?

Criteo might need to do a little M&A to build out a comprehensive ecommerce stack. And why not? There is so much VC and Private Equity money around at the minute, and having a defined proposition would definitely attract the late stage investors. Building an ecommerce stack would not only diversify Criteo's offering but also consolidate its position as being the go-to buyer and optimiser for ecommerce brands directly.

What could they build/acquire?

Tag Management

Criteo has in the past created smart relationships, like partnering with Tag Management vendors. This has been become really important in positioning with clients. By enabling its code to be deployed with the click of one button removed any potential IT-related barriers to entry. A question that needs to be asked is this: if they already partner with tag management providers, why bother acquiring or building? As tag management companies get cosier with the agency community, the agencies (as a whole) will continue to keep Criteo at arms length, if possible.

If tag management responsibilities lie more with the agencies, expect this ‘one click away from deployment’ position that Criteo currently enjoys to be eroded. Major agencies do not like Criteo because of two fundamental reasons: firstly, it has a dual agency/client direct business development strategy; secondly, Criteo is incredibly good at what it does, which ultimately threatens the burgeoning agency trading desk business (a retargeting-led business fundamentally).

Criteo need to maintain the ability to manage its data distribution directly with the advertiser. Let’s not forget that tag management has grown to become a "must have" service for e-commerce. Build or buy? That is the question. The US solutions are too expensive, but there are some decent European and even Asian solutions it could pick up for song.

Site Personalisation

The next obvious move for Criteo is to personalise ecommerce sites’ content. This space is pretty crowded, but then Criteo has a vast client base to leverage. It seems a natural product evolution: to move from personalising ad content to personalising the retail experience. At the very least landing page designs that are able to ingest the same user level insight that Criteo’s ads utilise.

Criteo certainly have the man power in their R&D lab in Paris - oh, yes the European can build ad tech - to start this project from scratch. There are likely to be a handful of companies looking for an exit in what could become a FNAC dead-end OR Criteo could simply do a ‘make-an-offer-you-can’t-refuse’ type deal with some young startup (some cash, some equity). Sub2Tech, based in London, would be a great acquisition, and represent great value.

What about mobile?

When it comes to the mobile opportunity, Criteo might have to go off piste. MCommerce is a booming part of the wider industry ecommerce industry. But the role mobile advertising plays within this is still somewhat unknown (mobile display is still stuck in a rut). Nevertheless, Criteo will need a bigger story in mobile come IPO time. If this isn’t an ad solution play, why not get into mobile payments?

EBay just recently reported about how their mcommerce business had exploded over the last 12 months. Is there a way for Criteo to cement themselves in ecommerce, and get in on the mobile game? There are a lot of companies trying to stake a claim. Could Criteo build out a solution, and bake it into its ecommerce stack solution?

The retargeting business is still growing with more global growth expected, but the public markets are looking for more than just "bottom-of-the funnel" targeting capability. Vertical expansion would certainly make an IPO interesting for investors, and would undoubtedly help solidify the position of Criteo’s main business model - unlocking even more revenue for the European company in the ecommerce space.