Dull name aside, this is an interesting business for Google to be thinking about. So-called DSPs are supposed to help ad buyers (that’s the “demand-side” part) manage the speed, volume and complexity of the new ad exchanges cropping up, like Google’s own AdX product.

The DSP industry is a fairly young one, but the companies in it are beginning to find some traction by signing up the big advertising holding outfits like WPP et al to non-exclusive deals.

I assumed that part of the appeal of DSPs is that they stand apart from Google (GOOG), giving buyers more confidence that they are seeing the widest amount of inventory possible, at market prices. But industry sources say Google would like to buy or build one of its own, anyway.

Do keep in mind the “build” option, here: A company with Google’s resources could easily build this stuff on its own. Then again, you can say that about a lot of the stuff Google has bought recently, and the DSPs are generally start-ups that haven’t raised a ton of money, so a purchase–at the right price–is definitely doable.

If you want to bet, here are some M&A candidates to keep an eye on: Invite Media, MediaMath, DataXu, x+1, Turn and AppNexus. That last one would be particularly interesting, as former Google executive Michael Rubenstein, who was running Google’s AdX service until its launch, left the company to join AppNexus earlier this fall.

[Image credit: Bruce Turner]

In recent years, marketers have grown more adept at culling consumer data from an array of online and offline sources–including real-estate and motor-vehicle records, consumer surveys, credit-card data and logs of Web visitors’ online behavior–to identify the most receptive audiences for their ads.

At a hearing Thursday, a House subcommittee plans to explore the impact of these practices on consumer privacy, and will hear from witnesses including advertising giant WPP, database-marketing company Acxiom (ACXM), privacy advocates and others.

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The Internet company’s new tagline, according to one of those people: “It’s You!”

The Y in the “You” is the Y from “Yahoo,” and the famous Yahoo exclamation point will pop up too, this person said. The ads are being created by Ogilvy & Mather, a unit of Dublin-based WPP, according to people familiar with the effort.

Yahoo declined to comment.

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Now Razorfish is formally on the block: The Financial Times reports that Microsoft (MSFT) has hired Morgan Stanley to hawk the agency and suggests that French ad conglomerate Publicis Groupe could be a buyer. Then again, so could every other big ad holding company, including Omnicom (OMC) and WPP (WPPGY).

The FT throws out a value of $600-$700 million for Razorfish, down from the $800 million price tag that AdAge put on the shop last summer, which was the last time sales chatter heated up. At the time, the buyer was supposed to be WPP. Microsoft paid $6 billion for all of aQuantive in 2007.

Why has everyone been so convinced that Microsoft would sell something it bought in 2007? Because everyone thought that Microsoft never wanted Razorfish–it wanted the rest of aQuantive’s ad network business. And presumably what it really wanted was Doubleclick’s ad network business, but Google (GOOG) beat it out on that deal. Yahoo (YHOO) had already bought RightMedia and WPP bought 24/7 Real Media. (Boy, a lot of money was spent on ad networks back then! And not coincidentally, a flood of ad network start-ups flooded the market shortly after those transactions went through.)

Meanwhile, Microsoft’s own people have never tried particularly hard to argue that the company was committed to owning an ad agency. Though they did try to argue that owning one wasn’t a conflict with the online publishing business it keeps burning money on. Now that won’t be a problem.

[Image credit: g-hat]

Yesterday, for instance, Omnicom (OMC) reported that “organic revenue”–an accounting term that factors out wildcards like currency fluctuation and acquisitions–dropped 6.6 percent in the last quarter.

Today we hear from heavyweights Interpublic Group (IPG) and WPP, which have similar tales to tell. Interpublic reports a 5.6% decline in organic revenue; WPP says 5.8 percent.

Not mentioned in WPP’s three-month update: Any info about its sensational lawsuit against ad start-up Spot Runner, which it accuses of being a privately held pump-and-dump scheme. While the Spot Runner imbroglio is sexy, it has no impact on the company’s top or bottom lines.

But Omnicom management made hopeful noises yesterday about a recovery that might appear by the end of the year, and WPP has the same supercautious optimism: “The first half of 2009 will clearly be very difficult, with the second half, although continuing to be tough, likely to improve relatively. Any recovery, of sorts, will probably come in 2010.” Small comfort, but I’ll take it.

As everyone knows by this morning, Spot Runner–the heavily-funded and once-hyped online-offline advertising agency–is being sued by one of its more prominent investors.

Ad behemoth WPP, which is making a variety of harsh allegations in a lawsuit filed about two weeks ago, is saying it is still not too big to be snookered by the start-up’s top execs and some of its other investors.

WPP (WPPGY), which has been quite active in making digital ad investments over the last several years, is alleging that Spot Runner sold over $54 million in “secondary” shares to line its own pockets without telling WPP much, all while losing money, running out of funding and not building a sustainable business.

The lawsuit essentially paints an ugly picture of Spot Runner as the Bernie Madoff of Web 2.0.

In its strongest phrasing, the lawsuit alleges:

“Rather than working to make Spot Runner a successful and profitable venture, they perpetuated a ‘pump-and dump’ scheme in which they aggressively promoted the Company to new investors (often by promoting that WPP was an investor in and supported of the Company) and then sold new investors large quantities of their own secondary shares at ever-increasing valuations. Such secondary sales were accomplished surreptitiously and without disclosures to Investors required by the controlling Investor agreements or federal and state securities laws.”

Those named in the suit include: Spot Runner CEO and co-founder Nick Grouf, CTO and co-founder David Waxman, venture investors Battery Ventures and Index Ventures, and board members, such as former AOL exec Robert Pittman.

This is obviously a bad turn of events for Spot Runner, which is currently reeling from the advertising downturn too.

Before that, it had gotten over $100 million in funding from a strong slate of investing luminaries.

Investors included international media giants Daily Mail and General Trust and Grupo Televisa, investment company Legg Mason Capital Management (LM) and luxury conglomerate Groupe Arnault/LVMH.

Spot Runner’s previous investors are Allen & Company, Battery Ventures, Comerica Bank (CMA), Lachlan Murdoch, Vivi Nevo, Capital Research and Management, CBS (CBS), Index Ventures, Interpublic Group (IPG), Tudor Investment Corporation and WPP.

All that money had, when times were good, given Spot Runner an eye-popping valuation upward of $500 million.

And that’s the very kind of bubble economics that apparently allowed some at the company to make those lucrative secondary sales the lawsuit alleges, with lots of demand to get in to the latest hot start-up.

To be clear, such sales are not uncommon at tech start-ups in Silicon Valley, often done to allow entrepreneurs to take some money off the table, especially if there is no clear path to liquidation.

But the scope of the sales alleged is quite unusual, with Grouf getting half the proceeds of the transactions, which were made from early 2006 to early 2008.

That said, WPP–which is seeking $11.5 million in damages, as well as legal fees, after investing $10 million–leaves itself open to its own tsk-tsking, since it finally got to participate some in the sales too, dumping $900,000 worth of shares in the last one.

That makes it seem like WPP is just miffed that it did not get enough while the getting was good, which is underscored by the small amount of money being asked for in the lawsuit, in comparison to the large and loud accusations.

Worse still, perhaps, for everyone involved, is the suit’s revelation that Spot Runner was not the revenue geyser it had touted itself as being–which should not come as a huge shock to anyone who has followed any Web 2.0 company in an even cursory way.

Very few, including the star, Facebook, make money, as BoomTown and others have pointed out a lot to little interest.

The lawsuit says the profit-free Spot Runner had $5 million in revenue in 2007 and $9 million in 2008. It alleges too that the company only has $20 million left of its funding and is spending $35 million to $45 million a year.

That’s because Spot Runner was trying to create a new online ad system, which was essentially a do-it-yourself model that tries to iron out inefficiencies in the buying and selling of advertising and bridge the gap between the traditional and online ad markets. It has since changed its strategy and is working on other products, such as a digital-media buying platform called Project Malibu.

Other than Spot Runner’s statement that it would defend itself vigorously, there were mostly no comments all around.

“This situation is unfortunate; we had hoped that we would have had a long relationship with WPP. We believe the claims are without merit and we will vigorously defend against them, including taking all necessary legal action to protect Spot Runner’s reputation,” said a Spot Runner spokeswoman in a statement.

But one source close to the Spot Runner side, while not addressing the specific allegations, noted in an interview with me that what looks bad now did not then:

“These are different times and things look differently.”

You can say that again. And again after that.

As point of that fact, check out a video I did, below, with Grouf last July at Spot Runner offices in Los Angeles, right after it had gotten one of its giant piles of money. (Grouf is pictured here.)

This video took place right after a lot of the transactions that the lawsuit alleges, which makes sense since Spot Runner was the hot start-up at that moment and many would have been trying to get into the action.

I met Grouf many years ago when he–along with Waxman–founded PeoplePC and Firefly Networks.

Grouf sold the struggling PeoplePC–which hawked computers bundled with an online service–to Earthlink (ELNK) in 2002 for $10 million and assumption of $35 million in liabilities, in a Web 1.0 meltdown deal that followed a disastrous IPO.

But with a hot new start-up, everything looked pretty again, perhaps too pretty, for Grouf.

As I wrote at the time about the hype, which including rumors of Spot Runner being sold for big bucks to Google (GOOG) or Microsoft (MSFT):

“This is its biggest burden, I think, setting expectations very high for what is still a little start-up…Who knows whether the company will be able to overcome its hype, but time (and money) will tell.”

Obviously, we can tell a lot more now.

Here’s the Grouf video (the full lawsuit text and a memo Spot Runner sent to employees about it are also below):

Here is the full lawsuit (click on + button to zoom in):

And, finally, here is the letter Spot Runner sent to employees, who have suffered from layoffs, about the lawsuit:

Team,

As you may have heard, WPP, a minority shareholder (less than 3%) in Spot Runner since 2006, filed a lawsuit against the company and its board members primarily related to the sale of Spot Runner stock and Spot Runner’s communications with WPP. This situation is unfortunate, as we appreciate and value the relationships we have with all of our investors and we had hoped for a long and supportive relationship with WPP. We believe these claims are without merit and we will vigorously defend against them, including taking all necessary legal action to protect Spot Runner’s reputation.

We feel strongly that WPP’s complaint contains many baseless accusations and we want to give you a broader perspective on the matter. This lawsuit is unrelated to our products and services–it is centered on legal agreements entered into with WPP, a sophisticated investor, regarding the way that shareholder stock sales were handled. WPP alleges that Spot Runner’s board members failed to disclose to WPP the stock sales by shareholders, allegedly in violation of the board’s obligations to stockholders, among other things.

We are confident that Spot Runner complied with all of its obligations under the various shareholder agreements. When these sales occurred, there was overwhelming demand for Spot Runner stock and the company did not want to dilute existing shareholders by issuing new shares. Therefore, the founders (in 2006) and the board members and other preferred shareholders (in 2007 and early 2008) agreed to make room for important, new investors and respond to their desire to invest in Spot Runner by selling their own shares. In 2007 and 2008, WPP and other preferred shareholders were given notice that the sales were occurring and they had the opportunity to participate in the sales. In fact, WPP signed various documents acknowledging this opportunity.

Spot Runner and all of its employees conduct business with the utmost integrity. Our team, technologies, and products and services are core assets of which we can all be proud. It is because of your hard work that we have come this far. To that end, we continue to drive hard toward successfully launching Project Malibu and realizing its full potential. You also should know that our board members remain majority shareholders in Spot Runner–a concrete sign of their commitment to and confidence in the business.

Our outside counsel will work with the board and management team to develop a formal reply, which ultimately will be filed with the court. These legal proceedings should not affect our day-to-day operations.

We are grateful that we can count on you to remain focused on serving our clients and partners to the best of your abilities.

Thank you again for all that you do for Spot Runner.

Google (GOOG), in conjunction with ad agency heavyweight WPP, is plowing $4.6 million into a three-year research program on “how ads in traditional and digital media work together to influence consumer choices,” the WSJ reports.

Translation: Everyone knows that Google’s searchs ads work great when people are searching for stuff. But marketers have yet to be convinced that online ads can help consumers buy stuff they didn’t want, or at least didn’t know they want.

It’s the paradox of online advertising. The Web generates much more sophisticated and accurate tracking data for marketers than traditional advertising ever did. But while an advertiser can’t really be sure exactly how many people saw its TV ad for laundry detergent, many feel more comfortable spending money on a TV campaign than a Web one because they think they know what they’re getting.

And if Google and WPP can convince them otherwise, they’ll get credit for one of the great campaigns in advertising history.

It’s now very old news that the online ad market is going to get roughed up next year. But by how much? If you want, you can take a gander at this week’s prognostications from Interpublic (IPG), WPP and Publicis. But online ad sales people I talk to say there really isn’t much point in placing any bets on 2009 until the end of this month.

That’s because ad sales have basically stopped until the end of the holiday season, I’m told.

There are some exceptions: If you want, say, prime placement at Yahoo (YHOO) to promote your blockbuster over the July 4th weekend, you have to pay up now. And Google’s (GOOG) search ads aren’t purchased in advance, anyway. But in general, no one wants to commit money to the Web until they see how they did in December.

That may sound like common sense, but it’s a change from past years, and it’s a story I keep hearing. Latest example: A sales executive from a very, very large online publisher told me he has multiple seven- and eight-figure ad deals hammered out and ready to go. But buyers have walked away and are letting the deals sit for the rest of the month, until they assess their holiday sales.

My ad executive is an optimistic sort (obviously), so he figures they’ll sign the paperwork eventually. But he also assumes that said buyers will try to use this month’s data as a hammer to knock down prices by 10 percent or more. I’ll check back at the end of the month, and see how that optimism is holding up.

ZenithOptimedia, the media-buying agency owned by ad giant Publicis Groupe, is lowering its 2009 forecast for North American ad spending. It figures spending will drop 5.7 percent in the North America (down 6.2 percent in the U.S.) next year; it had previously forecast an increase of 0.9 percent.

Meanwhile GroupM, the media-buying agency owned by ad giant WPP, says U.S. ad spending will decrease three percent next year.

Not coincidentally, executives from both companies will be presenting at the same 8 a.m. panel this morning at the UBS media conference, which kicks off today and runs through Wednesday. Ad giant Interpublic Group (IPG), which is also sending an emissary to said panel, will roll out its predictions at the event.

Fear not, MediaMemo readers: I will be there, and will dutifully report any glum prognostications. UPDATE: Here they are: IPG predicts U.S. ads down 4.5 percent.

UPDATE: A little more detail, courtesy MediaPost; full report now available here. Zenith predicts online advertising will increase 10 percent next year, down from 22 percent in 2008. It doesn’t have a breakdown of the spend, but safe to assume that search will take the lion’s share, which is great for Google (GOOG), and not much help to anyone else.

[Image Credit: sherlockonline]

On one of my many trips to Los Angeles (what can I say? I like to hang where LoRo* hangs), I dropped in to see Nick Grouf of Spot Runner.

As many might know, Spot Runner is an online-offline ad agency play that has gotten big funding and even bigger hype of late.

We’ll see how that goes. But Spot Runner actually seems to be tackling an underserved (and unexciting) market of local and national clients in need of cheap online ad solutions married to more traditional marketing venues to boost revenue.

Here’s my video interview with Grouf at Spot Runner’s offices on Wilshire Boulevard:

I met Grouf many years ago when he–along with Spot Runner partner David Waxman–founded PeoplePC and Firefly Networks.

Grouf sold the struggling PeoplePC–which hawked computers bundled with an online service–to Earthlink (ELNK) in 2002 for $10 million and assumption of $35 million in liabilities, in a Web 1.0 meltdown deal that followed a disastrous IPO.

He then started working for the Presidential campaign of Sen. John Kerry, helping figure out how to best and most cheaply place critical television ads–crunching all sorts of data about lots and lots of neighborhoods and towns and cities nationwide to figure it out.

What Grouf figured out, though, was that a system for doing so was nonexistent.

That experience turned into Spot Runner, which is essentially a do-it-yourself model that tries to iron out inefficiencies in the buying and selling of advertising and bridge the gap between the traditional and online ad markets.

Offering cheap ad templates, clients can make and place low-cost television and radio ads for small and national businesses, as well as political campaigns, and get analytics about the impact of the ads. Some ads cost as low as $500.

Spot Runner got a pile of cash to try to do that better, recently nabbing $51 million in funding to add to the $60 million already raised.

Investors include international media giants Daily Mail and General Trust (DMGT.L) and Grupo Televisa (TV), investment company Legg Mason Capital Management (LM) and luxury conglomerate Groupe Arnault/LVMH (MC.PA).

Spot Runner’s previous investors are Allen & Company, Battery Ventures, Comerica Bank (CMA), Lachlan Murdoch, Vivi Nevo, Capital Research and Management, CBS (CBS), Index Ventures, Interpublic Group (IPG), Tudor Investment Corporation and WPP.

Its board includes Index’s Danny Rimer and former AOL exec Bob Pittman.

All that money has given Spot Runner an eye-popping valuation upwards of $500 million.

This is its biggest burden, I think, setting expectations very high for what is still a little start-up.

And while there are rumors of both Microsoft and Google, as well as Comcast, being interested in acquiring the company, Grouf dismisses the speculation.

He says Spot Runner is more intent on using the money raised to buy companies and improve its offerings.

For example, it recently bought Weblistic, a local search listings creator, and hired former Microsoft exec Joanne Bradford.

Bradford, who was a VP and chief media officer of MSN Media Network, is executive vice president of National Marketing Services at Spot Runner, focusing on getting national advertisers to also think small and targeted.

Who knows whether the company will be able to overcome its hype, but time (and money) will tell.

(*And a free D6 bag for anyone who correctly identifies who I am referring to here, either by sending in a comment or an email to me at kara@allthingsd.com.)

Spot Runner, the online ad agency, delivered yet another Web 2.0 miracle today, raising another $51 million in funding from a diverse group of investors.

Among other services, Spot Runner makes and places low-cost television and radio ads for small businesses and is trying to bridge the gap between the traditional and online ad market.

In this round, those stepping up to invest in the Los Angeles-based start-up include international media giants Daily Mail and General Trust (DMGT.L) and Grupo Televisa (TV), investment company Legg Mason Capital Management (LM) and, curiously, luxury conglomerate Groupe Arnault/LVMH (MC.PA).

This group, along with existing investors, forked over the $51 million to add to the $60 million already raised. This appears to give it a massive valuation of upward of $500 million.

Well, at least in the land of Web 2.0 it does. In the real world, it still remains to be seen. But that has not stopped the nonstop investment party of late for Web 2.0 start-ups.

Web-based instant messaging company Meebo recently raised another $25 million at a reported $250 million valuation, while widgeteer Slide got $50 million for a $550 million valuation.

Of course, the champ of them all has been the social-networking site Facebook, which now has a $15 billion valuation.

Wheeeeeeeeeeeeeee! Or maybe not so much, but obviously no one in Silicon Valley is listening to BoomTown at this Kool-Aid carnival.

Spot Runner’s previous investors are: Allen & Company, Battery Ventures, Comerica Bank (CMA), Lachlan Murdoch, Vivi Nevo, Capital Research and Management, CBS (CBS), Index Ventures, Interpublic Group, Tudor Investment Corporation and WPP.

So far, this group has invested $60 million in Spot Runner. Its board includes Index’s Danny Rimer and former AOL exec Bob Pittman.

“We want to use the investment to make a real penetration in the market,” said Nick Grouf, chairman and CEO of Spot Runner. “We want to expand both organically and through acquisitions, as well as expand our staff, and these strategic investors will help us do that.”

Spot Runner has already been doing that. For example, it recently bought Weblistic, a local search listings creator, and hired former Microsoft exec Joanne Bradford.

The Daily Mail is a large media company based in the United Kingdom, with newspapers, online and radio assets, while Grupo Televisa is one of the largest media conglomerates in the Spanish-speaking world.

Groupe Arnault/LVMH owns some of the world’s toniest brands, including Moët & Chandon, Hennessy, Louis Vuitton and Givenchy.

Grouf, again along with partner David Waxman, also previously founded PeoplePC and Firefly Networks.

In the spirit of the funding, here’s one of my favorite Kool-Aid commercials:

The WPP-24/7 Real Media deal follows Google’s recent acquisition of DoubleClick and Yahoo’s purchase of Right Media and puts to rest rumors that Microsoft was considering offering as much as $1 billion for 24/7 Real Media. Which begs the question: Has the software giant turned its attentions to aQuantive or ValueClick? Or has it concluded that there’s no reason to acquire an ad network when it already has a killer publisher ad server?