Adtech faces CONSOLIDATION
By common consent, the global ad tech sector will look very different in five years’ time.
Confusion among the many dozens of solutions providers, lack of compatibility and integration, along with pressure from investors in the big beasts of the advertising industry to acquire high tech innovators will relentlessly concertina the industry, according to experts.
“There is a huge pressure from investors to do M&A deals in order to understand ad tech better,” says Ran ‘Goldie’ Goldshtein, Vice President of Mobile at Crossrider, the Israeli-based ad platform developer which went public in September 2014. The $75 million raised will be used “solely to acquire mobile ad companies,” he says.
We are in the early stages of an M&A wave, according to Goldie, whose blunt assessment is: “We’re not going to survive as a stand-alone company in five years. We’ll either acquire or be bought.” And the chances are that one of the major league ad agencies such as WPP, Omnicom or Havas will end up owning Crossrider.
“At the moment, a company like Nike is spending its ad budget on 50 different companies,” Goldie points out. “But in the future, they’ll not be talking to mobile ad companies, web, TV and so on. They’ll talk to one agency.”
The impetus for a company like WPP to hoover up smaller tech agencies comes from a natural ignorance of the latest trends and innovations. “WPP doesn’t understand technology,” says Goldie. “But eventually they will. It’s hard for big companies to innovate.”
He thinks that, although there will be an acceleration of dealmaking in 2015, the monster acquisitions are still some way off. After Facebook’s $400 million LiveRail deal in 2014 there’s an expectation of bigger M&A stories to come, but Goldie reckons that it will take another year or more before ad tech companies reach billion dollar valuations.
For the moment, the market is saturated with small and growing companies, each of them jostling for custom and – in the social ad tech space – trying to offer solutions that work alongside, or inside, those provided by platforms. “Social ad tech companies need to provide something that’s above and beyond the native solutions offered by Facebook, Twitter etc.,” says Aaron Everson, President of Shoutlet. “Providing programmatic ad buying capabilities isn’t enough – they should look to provide stronger ad optimisation through data-driven analysis of performance and overall customer resonance.”
Barriers to entry for competitive social ad buying are relatively low, according to Everson, whereas providing “true, powerful technology for data-driven ad optimisation exists only among a few players.”
Such is the abundance of tech solutions in the market today that “agencies and brands are spoilt for choice,” says Paul Ward, CEO at Flashpoint. “There is much confusion in the market, which will inevitably drive consolidation and lead to a smaller number of more clearly differentiated and stronger providers,” he argues.
There is a short-sighted ‘race to the bottom’ going on, says Ward. “It’s leading to a poor quality of service, a lack of strategic innovation and many unsustainable ad tech businesses.” Part of the consolidation will simply be poor companies failing, he believes.
Instead of chasing the herd and focusing on tactical features, Ward recommends that smart ad tech companies look for strategic, long term solutions that will provide a competitive edge. And for companies planning to expand, he has this advice: “Focus on acquiring quality rather than quantity of client engagements. Ironically, this will ultimately lead to a larger number of high quality engagements and to expansion,” says Ward.
At Paperg, co-founder and CEO Victor Wong sees a narrow focus on specific audiences and specific platforms as an obstacle to companies expanding. This hinders integration and leads to confusion, he says. “Brands and agencies can’t handle so many sub-specialised solutions.” Instead, they should think ‘cross-platform’ ahead of anything else, rather than ‘mobile first’.
He proposes that ad tech companies start to think and behave more like software as a service (SaaS) providers, “where you land and expand with a customer over time while focusing on retention.” Wong argues that ad tech companies have taken too short termist approaches, pitching for insertion orders as each quarter came around. “As a result, it was really hard to consistently expand since every quarter you have churn basically and need to convince brands and agencies over again to buy with you. It’s hard to have long term expansion and investment in technology if parties aren’t committed to long term retention.”
Wong agrees with Shoutlet’s Aaron Everson that barriers to entry in ad tech are low, meaning that the sector has grown over-crowded in recent years. “A lot of companies come into it for a slice of a very large pie,” says Wong. However, on the creative software side, there is less competition – and higher demand – in specific areas. “There’s an explosion in demand for standard display thanks to programmatic and new native formats,” he explains. “These don’t permit things like expanding formats and takeovers. I think creative ad tech is an area of surprisingly low competition. It’s an area ripe for disruption as demand for the types of ads change and the number of ad formats and sizes explodes.”
Where there is increasing pressure for consolidation, according to Wong, is from brands and agencies who are fed up of incompatible, unintegrated solutions which cause them extra work and effort, as they try to adapt content from one system to another, and keep track of everything. “They are saying they want things simpler without the headache of incompatible systems,” he says.
Clearing up the clutter of incompatible technologies will be a natural by-product of industry consolidation, along with longer term relationships and cross-platform thinking, as formerly distinct tech companies find themselves working under the same corporate banner.
Equally, the resulting services will doubtless offer more than a simple programmatic ad buying on social media, as customers demand something more sophisticated and value added.
Just what shape the industry will take in five years remains unsure, but the signs of large-scale, sustained M&A activity are already clear and present.
Chief Operating Officer - Temple - Helping young people become homeowners ?? and achieve financial independence ????
9 年Great article. Really insightful. It's been the subject of a few conversations since you posted it. Cheers