Multi-Channel Ad Marketplace AdKnowledge Acquires Bootstrapped Facebook Ads API Vendor AdParlor

AdKnowledge, a marketplace that connects advertisers with inventory in the display, casual games, mobile, email and affiliate channels has acquired Facebook Ads API tool and managed spend service provider AdParlor. The acquisition will see AdParlor’s entire 20-person team, managed spend service, and licensable tool integrated into AdKnowledge, which will now be able to offer placement in the Facebook ads sidebar to its clients.

AdParlor had grown to become possibly the largest Ads API vendor, handling 1 billion impressions a day despite being completely bootstrapped. Though the acquisition price is not being disclosed, AdParlor’s founders and early employees have likely received a massive payday. AdKnowledge’s move continues the trend of consolidation in the Facebook Ads API space as Page management companies and pre-social ad platforms position themselves to absorb the increasing ad spend on Facebook.

AdKnowledge addresses advertising needs outside of search and the 500 biggest websites. It makes it easy for clients to bid on inventory aggregated from across the longtail of internet properties that would be inefficient to forge deals with individually. However, until now, Facebook’s ads sidebar was a major missing component of its offering to advertisers, considering that the social network is projected to take in $3 to $4 billion in ad revenue this year.

Back in 2008, AdParlor formed as a Facebook game banner and offer wall network. In March 2010 it gained access to the Ads API and refocused on providing a managed spend cost per acquisition Facebook sidebar advertising solution.

Facebook game developers set a CPA price and AdParlor seeks to earn a margin by attaining an acquisition at a lower cost per click or cost per one thousand impressions. When I profiled its service in November 2010, I was impressed with the sophistication of its dynamic bid optimization system. It lets developers install tracking pixels in their games and leave it up to AdParlor to analyze downstream conversion of ad clickers, design creative, and exploit low CPC and CPM pockets to deliver a high return on investment.

AdParlor has since expanded its business. It became Groupon’s exclusive Facebook advertising solution for its tens of millions of dollars in spend in March 2011, and released a licensable tool for agencies called Pulse in May. Brands running cost per fan campaigns for their Facebook Pages have grown to make up roughly 10% to 20% of its sales.

AdParlor’s team will remain in Toronto, but will get the benefit of AdKnowledge’s global sales offices. Soon, AdKnowledge plans to integrated AdParlor’s Pulse into its own self-service Bid System tool. AdKnowledge will also now be able to help its massively multiplayer online role play game clients monetize by drawing in new gamers through Facebook ads.

Buy Rather Than Build

Hussein Fazal, co-founder and CEO of AdParlor believes that the acquisition is a wise move for AdKnowledge and that consolidation in the industry will continue as older ad platforms move into social, “Facebook is going to be more and more relevant – a lot of these guys are going to want it in their portfolio. We’re even going to see the large agencies pick up Ads API companies to have that expertise in house.”

AdKnowledge CEO Scott Lynn tells me his company started looking for potential Ads API acquisition targets a few months ago and found that “AdParlor is the leader in the space.” It could have taken AdKnowledge many months or more to build technology inferior to AdParlor’s. By acquiring the Ads API vendor instead, it can immediately begin earning CPA margins on Facebook ad revenue that is projected to grow to $22 billion by 2016 according to Evercore Partners projections listed in the acquisition’s press release. Marketing services giant Experian made a similar decision, acquiring Ads API tool developer Techlightenment rather than building a tool internally.

Facebook has been pushing its marketing products in a social direction, offering Sponsored Stories ad unites that turn user interactions with Pages from news feed stories into highly effective ads. This has created synergies between the Facebook brand publishing and Ads API industries that has led to partnerships and acquisitions such as ad platform Efficient Frontier buying Page management company Context Optional.

Lynn tells me publishing is “Clearly an interesting space for us, though I’m not sure we would acquire a Page management company.” This suggests AdKnowledge may build a basic tool for synchronizing ads and Page posts to take advantage of Sponsored Stories, but Lynn says “we don’t have plans at present to do that.” With a powerful, proven Ads API tool and service now in its possession, AdKnowledge can tie its business to the growth of Facebook and the increasing importance of social context to drawing ad clicks.