When Snapchat, which makes zero dollars in revenue, turned down a $3 billion acquisition offer from Facebook, the Internet nearly imploded.No way Snapchat can pull this off. It’ll choke on its own hubris, the thinking went.

Snapchat has cornered the ever-important teenage market, but it hasn’t yet revealed how it might help brands advertise to them. The idea of ads that instantly disappear — no chance to play again or click through — seems as ludicrous a novelty as Snapchat itself did at first. (Remember, it’s a sexting app!)

But what if Snapchat is on to something? After all, if there is one thing we’ve learned in two decades of online advertising, it’s that people definitely don’t care about saving ads.

Recall Adkeeper, the startup launched in 2010 to let people save banners. “AdKeeper is ‘on my time’ advertising,” the site declared. The justification behind it was that people enjoy beautiful glossy ads in print magazines. Sometimes they even tear them out and save them. So why wouldn’t they want to do the same thing online?

But that way of thinking — let’s dump everything we do in the offline world directly online, without any sort of adapting to this new medium — has bitten many companies in the ass. Take newspapers, for one. As Katharine Viner, deputy editor of the Guardian, brilliantly explains in a speech last fall, digital media is not just a better word processor enhanced by computers. It’s changing the way we consume media. Bringing analog actions onto the Web requires translation. Henry Blodget, CEO of Business Insider, made the same point at a PandoMonthly last year: “There’s a dramatically different way of storytelling on the Web,” he said. “You don’t have to do something different – it’s just there is a much bigger pallet in terms of storytelling tools.”

Indeed, AdKeeper’s claim that people would want to keep online ads was shaky at best. Banner ads have been widely hated since they were first introduced in 1996. Almost 20 years later, only .01 percent of people actually click on them, let alone cut them out and share them with friends.

Still, AdKeeper couldn’t be dismissed out of hand. The company had a pedigreed founder, Scott Kurnit, who’d sold his media company, About.com, to Primedia for $724 million in 2001. He was the man behind Pay Per View cable and national caller ID. He’s connected, sitting on the boards of Appssavvy and Brightcove, and angel investing in Factual, ShopPad, Britely, ChallengePost, SendMe, and Surphace.

His cachet attracted some of best investors in New York: Spark Capital, betaworks, Lerer Ventures, First Round Capital and The New York Times invested. (NYC outsiders Oak Investment Partners, DCM, and True Ventures also invested.) They gave him $8 million to build the product.

The company’s advisory board was just as impressive: Bob Greenberg of ad agency R/GA, Janet Robinson of The New York Times Company, John Battelle of Federated Media, Jeremy Allaire of Brightcove), Ken Lerer (Huffington Post), Bijan Sabet (Spark Capital), John Borthwick (Betaworks), Wenda Harris Millard (MediaLink), David Rosenblatt (Former DoubleClick), Peggy Conlon (The Advertising Council), David Cowan (Bessemer Ventures), and George Schweitzer (CBS).

Kurnit had worked his industry connections on the advertising side, convincing a long list of them to be named in Adkeeper’s launch press release as “charter advertisers.” Allstate, Ally Bank, AT&T, Best Buy, CBS, Ford, Gap, General Mills, InterContinental Hotels Group, JetBlue, Kmart, Kraft, Macy’s McDonald’s, Pepsi, Sara Lee, Sears, Showtime, Unilever, and Warner Brothers were all on board.

Even so, launch coverage of Adkeeper included a healthy dose of skepticism. “Will you actually save online ads?” MSN Money wrote. Adweek asked, “Is there any way regular Internet users — who on average click banners one time out 1,000 — have any interest in saving banner ads to check out later?”

Only Business Insider, which counts Kurnit as an advisor (a fact that we’ll have to forgive them for not disclosing Apologies: The post does include a disclaimer.), disclosing), managed to fawn over the product, calling Kurnit’s new startup “huge.”

Not surprisingly, advertisers have gone absolutely bananas for it. AdKeeper’s launching with an all-star roster of clients. (And of course they’ve gone nuts–who wouldn’t want their ads “kept”?)

The proposition was thin, which was only made more obvious by Kurnit’s desperation to be taken seriously. He lashed out at any critical feedback, such as a story by Digiday, which quoted four media planners criticizing the product. (It’s no longer online due to a wonky CMS transition.) Kurnit had this to say about the story:

Somehow Digiday chose to quote 4 people we have never met with who know nothing about our business. Worst ‘journalism’ I’ve ever seen. Bizarre.

Meanwhile, to the New York Observer, he predicted his “keep” button would be “bigger than Twitter.” Then, in the New York Times, he raised the stakes impossibly high: “I expect our button to be on literally every ad on the Internet a year from now,” Mr. Kurnit said. “And you can kick my butt a year from now if it isn’t.”

Two months after its launch (private beta only), AdKeeper raised a blockbuster Series A round of funding worth $35 million, bringing its total funds raised to $43 million.

It didn’t even take a year for Kurnit and crew to figure out Adkeeper would definitely not be on literally every ad on the Internet.

In December 2011, Adkeeper changed its name to Keep Holdings and went in a completely different direction, launching a Pinterest clone called Keep. The big difference between Keep and Pinterest is that the stuff on Keep is shoppable, similar to sites like Wanelo.

The Adkeeper product is no longer available; the site now redirects to the homepage of Keep Holdings. It’s a high-profile lesson learned the hard way. Regardless of whether people save print magazine ads, and even if AdKeeper managed to win over ad serving companies and brands, it doesn’t matter: no one wants to save a digital ad.

AdKeeper’s story tells us two things. First, don’t listen to even seasoned experts when they tell you a new ad format definitely will or definitely won’t work. There were countless smart people involved in AdKeeper and yet they were all wrong: no-one wanted to save ads. Second, if users hate dwelling on ads as much as they seem to, Snapchat’s now-you-see-it-now-you-don’t platform might be exactly what advertisers, and users, are looking for: commercial messages that feel personal, but don’t outstay their welcome.

There’s definitely something to be said for previewing upcoming products, or sending special content directly to fans for a fleeting moment. As I wrote when Rebecca Minkoff previewed its new fashion line over Snapchat this Fall, this has the potential to be far more engaging than other kinds of marketing message.

Hardcore fans get something special, but only for a few brief seconds. There’s an immediacy to it, as well as a layer of excitement that transcends a boring email, or a Tweet, or a Facebook update — pay close attention so you don’t miss it!

Brands from Taco Bell to GrubHub to MTV have experimented by interacting with fans on Snapchat, none of which have paid Snapchat through any formal advertising program. Yesterday Ad Age revealed that Wet Seal, a teenage clothing chain, had hired a 16-year-oldvideo blogger to help it build a following on Snapchat, accumulating 9000 new followers over a weekend.

This is the biggest sticking point thus far for Snapchat’s momentum: When brands started experimenting on Facebook, the company already had a way for them to spend money: the tiny little banner ads on the side of the page. That eventually blossomed into increasingly large buys, including ads that cost $2.5 million per day. This is the kind of scale brands want and the kind of buys Facebook, an independent public company, needs.

Snapchat has nothing of the sort yet. With the speed at which teens adopt and discard everything in their lives, including popular apps, Snapchat needs to move fast if it wants to capture eager advertisers’ budgets, before they, too, vanish into the ether.

Disclosure: Lerer Ventures is an investor in PandoDaily, as is Josh Kopelman of First Round Capital.

[GIF by Hallie Bateman for Pandodaily. Billboard image via Thinkstock]

Erin Griffith

Erin Griffith covers New York startups for PandoDaily. She's worked as staff writer for Adweek and a private equity blogger for peHUB. Her writing has appeared in Venture Capital Journal, BBC.com, Time Out New York,Huffington Post, FT.com, and BUST. She plays keyboard in a band called Team Genius and Tweets as @Eringriffith.

After tweeting purported screenshots of Samsung's next-generation phone user interface,Evleaks has released images giving a closer look at one of the UI's elements. The shots show a detailed view of a lock screen and home screen widget that featured in the original images, hinting that it may be used by Samsung to deliver notifications and contextual information to your phone. Although Google Now is currently included in Samsung devices, the company doesn't make it easy to access with a swipe up like other Android phones, instead requiring you to hold down the menu button for a couple of seconds.

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This past summer, trade press commentary focused on the impending doom of the ad-tech space, pointing to the industry’s fragmentation and noting the underperformance of recent IPOs: Millennial Media, Tremor Video and YuMe.

The tides quickly shifted in the fall when Rocket Fuel went public and finished up nearly 100 percent on its first day of trading. The following month, Criteo also had a successful IPO and, along with Rocket Fuel, trades at higher multiples than the first batch of deals with a market cap well north of a billion dollars. In addition, two high-growth private companies were acquired (Adap.TV by AOL, and MoPub by Twitter) at more favorable multiples.

These positive events led to a swift change in industry sentiment, though we believe the comparative disparity in multiples has created a lack of understanding of relative valuations.

From a fundamentals perspective, the ad-tech sector overall has rarely seen better times. The ongoing shift of consumers’ time and marketing spend to digital channels has continued unabated at a 20 percent+ annual pace. The more data-driven and programmatic ad spend is experiencing much faster growth — IDC estimates a 75 percent CAGR from 2010 to 2017. This growth has disproportionately benefited the large platform players like Google, Facebook and Twitter, which has been reflected in their recent superlative stock performance. We are optimistic that new platforms and formats will add to this already torrential growth rate.

This rapid growth, coupled with a relative dearth of consolidation and, until recently, limited public market access, has resulted in a large group of scaled private companies. We estimate that the Top 20 private companies average over $300 million of media spend (or gross revenue) and have a median growth rate of 60 percent. That’s a lot of companies at scale, and growing rapidly.

Given that at least a dozen of these companies are contemplating IPOs in 2014 and 2015, we want to share a framework for how we believe the market values this sector. This paradigm is not a prescriptive scientific formula, but rather a suggested framework to understand the way public markets look at investments in ad tech. We would also point out that this framework applies to scaled companies capable of accessing the public markets, and does not necessarily translate to smaller players.

To assess public market valuations, it is helpful to take the investor’s perspective. Regardless of the industry, investors tend to focus on three parameters:

• Growth, which encompasses the total addressable market.
• Operating leverage, the ability to grow revenues at a faster pace than expenses.
• Predictability, which encompasses revenue certainty and defensibility.

We could add a fourth parameter — strategic value — that in some cases captures potential takeover premium. Note that predictability materially improves as ad spend moves along the performance curve and is considered more of a cost-of-goods-sold than a discretionary expense. In search advertising, for example, marketers usually buy keywords all the way to the efficient frontier, due to the tight connection to performance (sales). Display is not quite there, but is moving in that direction.

Below, we have plotted the six public display-ad-tech companies by forward revenue growth and valuation multiple based on current trading levels and consensus estimates. Note that we are using “Net Revenue,” which excludes media costs, in all cases that allows for the comparison of these different business models. We added some public software-as-a-service (SaaS) companies for comparative purposes, even though most companies intermediating ad sales do not employ SaaS models.

One would obviously expect valuation multiples to be positively correlated with growth, as well as business models that apply more leveraged technology relative to media. It’s a spectrum.

So far, this is all observed fact — black-and-white, if you will.

To better understand the significant variances in valuation shown above, we group the companies into four primary categories: Network 1.0, Network 2.0, Programmatic, and SaaS. Note that while some companies have traits of one category, many have hybrid business lines that span categories:

Network 1.0 businesses have campaign-based models serving as middlemen between advertisers and publishers, and earn profits from the spread between media bought versus sold. Network 2.0 companies have similar business models, though they typically source media from exchanges (rather than direct relationships with publishers), and possess more proprietary technology that provides greater performance for the marketer. This superior performance, as well as the focus on the higher-growth customer-acquisition segment of the market, has resulted in higher revenue growth for these companies.

Programmatic businesses typically have a media pass-through model, charging a technology fee based on the amount of media dollars managed by their systems. For these Programmatic companies, the margin on media spend is around half that of the Network companies, but when looked at on a Net Revenue basis, have higher margins more typical of software models. Finally, SaaS refers to companies with contractually recurring monthly software fees with no regard to media, which is the most predictable model of the four categories. In ad tech, these could be companies providing data management or analytics capabilities, as opposed to media intermediation.

Now we apply some color — the four categories with corresponding valuation vectors. As stated at the outset, this is not a strict formula, but rather a framework to provide valuation context. You can see where the public companies trade with respect to these valuation vectors:

We believe the market values Network 2.0 businesses at a premium to Network 1.0 businesses, and the SaaS businesses trade even higher. We believe the market will value Programmatic companies higher than Network 2.0 (again, on a net revenue basis) due to their greater operating leverage and higher predictability of revenues. Note that the vectors associated with higher technology categories have greater slopes, reflecting their higher operating leverage.

Companies that are perceived by the market to be in a particular category can potentially use M&A to improve their position. For example, ValueClick’s acquisition of Dotomi (a comparable of Criteo) improved its positioning, and Millennial Media’s recent acquisition of JumpTap also elevated its valuation.

Speaking of M&A, we litmus-tested the Color by Numbers framework on the relevant scaled M&A transactions ,and believe it holds up (see the link to the presentation on SlideShare, below). We also plotted the B2C digital giants against the vectors. Yahoo ex-Asian investments is trading at around 3x net revenue; AOL, which has multiple business models from access to content to programmatic, trades closer to 6x net revenue; and Google, again with multiple businesses, trades even higher at over 8x revenues. And the more nascent companies, Facebook and Twitter, are off the page.

We are likely to see several Programmatic companies pursue the public market over the next 24 months. Not all candidates have pure-play models. The market will need to assess each of these business models and the companies’ respective roles in the ecosystem in order to determine their appropriate valuations. We hope this Color by Numbers framework is a helpful start.

To access a SlideShare presentation and download the Color by Numbers slides, click here.

(Disclosure: LUMA Securities, a wholly owned subsidiary of LUMA Partners, acted as co-managing underwriter for Rocket Fuel, and may pursue underwriting or other advisory assignments with companies mentioned in this report or in the sector in general.)

Terence Kawaja is founder and CEO of LUMA Partners, a strategic advisory firm focused at the intersection of media and technology. A seasoned investment banker with more than 20 years of experience, he has advised on more than $300 billion of transactions. Follow him @tkawaja.

A dad blogger in search of outrage about how dads are treated in ads has discovered to his surprise that most ads last year portrayed dads pretty well.

Zach Rosenberg, author of the 8bitdad.com blog, sifted through 140 ads showing dads that he'd seen on TV and were captured by iSpot.tv last year. "Dad bloggers often sit around in their secret online societies and discuss exactly how bad dads look in commercials," Mr. Rosenberg wrote. But when he methodically watched and evaluated the ads, he rated 60% of the ads "good" or "mostly good" in their portrayal of dads, and only 20% "bad" or "very bad." He rated the other 20% as "neutral."

What he now sees as a good year of dad ads in 2013 followed a bad one 2012, which brought ads he criticized ads from Sears, Clorox, Huggies, Hyundai, Oscar Mayer, Triaminic, Toyota and Doritos.

Continue reading at AdAge.com

It’s one thing to follow a handful of sites and use NewsBlur’s training to only read the stories you want to read. But sometimes you want to come back to stories long after you’ve read them. You could save the story, but then you would have to either scroll down your saved story list to find the story, or use the new search feature to find it by title or author.

Today I would like to introduce a big new feature: saved story tagging. It works like this. When you save a story, it is automatically tagged with all of the folders that the site is part of.

After the story is auto-tagged by folder, you can then add your own tags, which are autocompleted by previously used tags. You can also click a button to auto-tag the story with its own tags, easily clicking on the tags you want to remove.

You can also search per-tag and soon you will be able to rename and delete tags. There are more plans to integrate tagging into both iOS and Android apps.

Saved story tags also have RSS feeds. This is a big deal, since this allows you to save stories and have them automatically ingested by IFTTT for use elsewhere. You already could share stories over your blurblog, but now you have a private RSS feed that gives you far greater control.

Stay tuned because there are even more big features coming soon. Telling your friends about NewsBlur, whether on Twitter and Facebook or when spying over their shoulder and noticing that they’re hitting the same dozen sites over and over again without letting the sites come to them with new stories, goes a long way towards getting new features built. More users means more premiums which means more features getting built. It’s a vicious cycle.