With the popular perception being that storm clouds are gathering over the adtech sector, Rob Webster, chief strategy officer of Crimtan, offers a contrary assessment, pointing out that market rationalization poses opportunity for those that have learned their lessons from the past.
Many commentators have predicted a terrible year for adtech in 2017, but I think they’re being far too pessimistic and adtech is ripe for a resurgence. The share price of public adtech companies such as Rubicon, Rocket Fuel and TubeMogul have seen downward corrections (and in TubeMogul’s case, a sale) and much ‘right-sizing’ of staff has already occurred.
In my view this leaves the adtech industry in rude health ready for an excellent 2017, when I posted this view on social media I received a huge number of responses asking for more information – so here goes.
First of all let’s take a quick look at why others say many adtech firms are heading for trouble. Until recently, the adtech market was over-heated with huge amounts of money raised on crazy valuations for businesses with little proven value. This over-valuation was partly due to an over reliance on arbitrage with hidden margins that were too high to be sustainable. Add the fact that adtech can suffer rapid disruption and it’s tough for investors to pick firms that drive long-term value.
Every year it seems there is at least one new dynamic disturbing the status quo: in 2016 it was header bidding, while previously it had been things such as the emergence of SaaS, the rise of ad exchanges, the growth of video and mobile, concerns on viewability and fraud and many more. Now, these are all valid reasons, so why will 2017 be a good year? My answer is that the impact of all these areas is already factored into the market, lessons have been learned and practices improved.
“Ah!” I hear you say, “But we have disruption every year so what’s so different about 2017?” Well, there are four key reasons why the adtech industry is ready to take on such challenges.
Adtech has learnt the lessons of how to spend money well. Adtech at its worst was a glorified get rich scheme. Companies would raise huge sums of money and spend it on sales and marketing rather than product and engineering. The mantra was ‘grow at all costs’ and ‘get big fast’. And because the money to do this came from sky high valuations and investors wanting to make a quick return, it became a self-fulfilling prophecy – companies had to grow quickly to fund valuations, and it was considered faster to do that through sales and marketing, rather than addressing the fundamentals.
The evidence of this is all around us but it would be wrong to point to individual companies while they are still operating.
Today, though, with the cooler market for adtech, companies are focused on adding real value to their products by investing as much as they can in product and engineering. Companies do not wish to be saddled with huge valuations that can become a millstone around their necks, and companies have been much slower to IPO until they are ready to prove long-term value. Look at how The Trade Desk has been able to operate with a stable share price since its IPO in October last year, and indeed how cautiously AppNexus has approached its proposed IPO.
Learning from martech
There are numerous articles about how martech is the new big thing, taking over from adtech – and if you want to know the difference between the two, this is my favorite article on the subject
There is a very sound reason why martech gets good press; it didn’t have the option of using arbitrage to generate revenues so had to focus on the fundamentals. A revenue model that charges monthly fees based on traffic size and usage makes it far easier to prove value and develop long term contracts. Martech also has huge growth potential as it matures and the number of channels it can influence at scale grow.
Adtech is learning the lessons of martech, and many companies (including my own) straddle both. By looking for transparent, long term contracts with marketers and advertisers, adtech is fixing the fundamentals and can drive ever more value. The ability to find new customers at scale is what, for me, really differentiates adtech from martech.
Just consider the available universe. Martech is firmly focused on site visitors and existing customers, while adtech is able to look beyond the present and reach everyone with targeted prospecting and branding campaigns that find new customers. This suggests that the most successful advertising and marketing technology companies of the future will straddle the best of both worlds. Notice how companies in the data management platform (DMP) space such as Lotame, as well as the already acquired Bluekai (by Oracle) and Krux (by SalesForce) have business models that bear more similarity to martech than the traditional adtech transactional CPM.
As digital grows and channels converge, the potential growth for both adtech and martech is enormous. And this growth will accelerate as more and more international markets seek to catch up with the large western digital economies. In an analog world the role for adtech in areas such as TV and out-of-home has been limited, yet these barriers are coming down as digital out-of-home, over-the-top TV, internet radio and more, become mainstream.
Taken together, an advanced digital economy like the US will see adtech have a deep impact on an increasing amount of advertising spend – and across the globe we are looking at a tenfold rise. The possibilities for adtech are remarkable, and these changes are happening now, not in some unknown future.
This has been a key part of adtech and will remain so – yet it can also be a driver for stronger firms in a stronger industry. Many firms now expect disruption and are set up to stay nimble with executives and, indeed, whole departments tasked with regular analysis and effecting rapid business change.
Google has reorganized itself with Alphabet to be able to generate new business opportunities and continues to push into new areas, with strong rumors it is about to make a play in the world of TV. Facebook, of course, has invested in VR with Oculus. Amazon is making huge plays in areas such as TV and augmented reality.
Much of this is likely to be supported by adtech and, while the big players will grab a large slice of the pie, there will be huge opportunities for smaller firms – just as we have now with programmatic. Change and disruption is seen as a real opportunity among many of my industry contacts.
Be fit for the future
Bringing this all together, the adtech industry is much fitter than it was just four years ago. Corrections have occurred and lessons have been learnt. The future is much more about successful operations like AppNexus and The Trade Desk running ahead of a successful and fit-for-purpose pack than any ‘Adtech Armageddon’. Indeed, the biggest risk to adtech is still likely to be that it moves too fast for the talent pool to grow sufficiently (something also impacting martech and the rest of the advertising industry). Yet this too represents a great opportunity for young talented people to join the industry and make a real difference in double-quick time.
My main wish is that, as an industry, we celebrate these strengths and evangelize much more than we do today. Yes, problems exist and they need fixing, but I don’t think we realize how lucky we are to work in such exciting times!