There has been a lot of development in the display advertising markets in the past 18-24 months and there is no better place than New York City to dive into this vertical. Terence Kawaja did an excellent job at his IAB keynote address a few weeks ago to show how complex the display advertising technology landscape has become. So with 192 companies in 24 categories the marketplace is clearly overcrowded with billions of invested dollars at stake. While this growing complexity currently limits the amount of additional ad dollars flowing into display, it is probably a very efficient trial at large scale to find out what features, tools and types of marketplaces will be ultimately needed.

So when I envision the display advertising landscape in 2-3 years I see 3 distinct categories: exchanges for ad inventory, exchanges for data and tools for publishers (e.g. DSP’s) and advertisers (e.g. yield optimization) to connect into these exchanges more efficiently. Once some of the big ad players (Google, Microsoft, Yahoo, AOL, etc.) will start consolidating this marketplace, we will most likely see a big inflow of new money into display advertising. At the same time, margins for intermediaries will see some downward pressure (assuming we will not have a quasi-monopoly like in PPC advertising) and winners in this scenario would be advertisers (getting more value for their money) and publishers (getting potentially higher CPM’s but definitely more volume). For investors it feels that it is going to be tough to make money in this space as the overall market size for intermediaries will remain flat (higher volume but lower margins) and the only viable strategy at this stage might be to invest in startups building very specific features that could get picked up in a consolidation play.

The biggest unknown in this scenario is however the same that has limited innovation in the past and it is the fact that “display advertising is sold and not bought”. People and human relationships have always played a huge role in this market and might limit the development of stock market-like models in display advertising.