• by Dave Morgan , Featured Contributor, November 30, 2023

For years, folks in our business have talked of the “coming consolidation” of the ad-tech industry. Except for a few years after the dotcom wipeout of late 2000 and 2001, our industry has always had more purveyors of advertising technology than it was likely to be able to sustain long-term.

We’ve almost always been in oversupply of transaction-enabling intermediaries, buying services, data companies, targeting services, measurement services, serving platforms, resellers, consultants and pundits. Of course, with annual digital ad spend growing from almost nothing in 1993 to more than $250 billion today, a growing, multidecade abundance of purveyors of all types is not surprising. After all, rising tides raise all boats.

Is change upon us? Cheap money, high public market valuations and unending capacity to keep paying more for talent have already become yesterday’s memories. Increasingly, investors today want profitability, free cash flow, and no debt service; not just revenue growth, and certainly not just ARR (annualized recurring revenue) growth.

A lot of boats got floated (both execs and companies) over the past decade or so that never would have in normal times. They weren’t seaworthy. And they are not likely to make it in today’s conditions, with its intense focus on productivity, profits, cash flow, higher performance expectations, expensive capital, few public exits, low/modest public valuations and low M&A outcomes on limited demand.

The industry is ripe for consolidation, right?

Maybe not. Maybe the industry is most ripe for a bunch of liquidations. Here is why:

Ad-tech buyers are few. Most public ad-tech companies trade today at a fraction of their former valuations. All believe they can get their historical stock prices back and don’t want to buy something today, which they view will be a super expensive expenditure of stock and probably hurt their listing even more. Most have limited cash. None want to take on new debt.

Ad-tech sellers are many. There are many hundreds of companies in ad tech today that are losing money or barely breaking even and living day to day on transaction arbitrage. Operating that way could work when venture capital was plentiful and working capital debt was plentiful, cheap and forgiving. Those days are over.

Cash is king -- so why buy now what you can get for very little very soon? In this world, companies are bought, not sold. So, why should the few buyers spend money on things that are losing money and/or won’t drive increased profitability and cash flow?

If you want assets or employees from money-losing companies, you can just hire the people away and buy the assets once the companies fold. Videology, Sizmek and MediaMath are some recent examples.

For sure, over the next two years, we’ll see some consolidation in ad tech, but probably only among the best companies and most precious and valuable assets. I suspect instead we’ll see a bunch of companies just go away, most of them pretty quietly. I feel for those that won’t make it, but that’s just part of what it means to build businesses and industries. Not everything goes up and to the right.

What do you think?