Ad Tech Startups, Your World Has Changed

Last week at the IAB Annual Meeting in Miami there was a fascinating presentation by Rob Norman, CEO of GroupM North America, who responded to questions about the future viability of the media agency model in the face of competition posed by ad tech startups. Norman made the case that agencies have recently made their own investments in advertising technology and would continue to prosper. Indeed, most of the major media agency holding companies now operate trading desks, and some agencies are now active acquirers of ad tech companies.

Agencies are also upgrading their talent to look more like ad tech firms. The media agency workforce has been reconstituted in recent years with more people who have backgrounds in applied mathematics and technology. In some cases, the agencies have successfully recruited people from ad tech companies and publishers.

Clearly, media agencies have finally realized that integrating and managing ad tech is no longer someone else’s job. With the agencies once again enjoying healthy growth and profits, perhaps the more relevant question now is: What does the future hold for ad tech startups?

One signal came last week, when the Department of Justice approved the merger between Donovan Data Systems and MediaBank to form MediaOcean. This combined $1.5 billion company will now have access to the resources to make good on its dream of building the operating system for advertising. If this dream is fulfilled, then many ad tech companies will need to eventually plug into MediaOcean.

Another important bit of news for ad tech startups is the sheer amount of waste in online advertising. At the IAB meeting, comScore presented data that showed that 31% of all ad “impressions” are nothing of the sort. In fact, three out of 10 online ads go unviewed by the user because they are hidden lower down on the page. There will now be a push to eliminate these unviewed impressions from media buys, affecting the collection of data and the cost of media.

So what does this news mean to ad tech startups? Here’s what I think:

Agencies are back. There was a time when ad tech companies had little choice but to go around agencies, which just didn’t get it. This drove many ad tech companies to go directly to marketers, get some traction and then basically force agencies to use their technology.

But now that agencies are up to speed and building their own platforms, that’s not going to work as well anymore. There is so much complexity in a digital ad buy that agencies are loath to add anything that adds another layer. Agencies also want to make some money on each transaction, if they can.

If I were starting an ad tech company today, I would spend a lot of time talking to agencies, finding out where the gaps were in their systems and figuring out a way that I could help. I would recruit senior agency executives to be on my advisory board and basically do whatever it took to get them on my side. Getting agency buy-in at the early stages is going to make life a lot easier for the next generation of ad tech startups.

Integration is essential. Unless you’re a next-generation media company like Facebook or Twitter and have the scale to go it alone, you will need to eventually latch your technology to some larger platform. Buddy Media has done a brilliant job of this by working closely with Facebook. Similarly, with its forthcoming APIs, MediaOcean should open up opportunities for other ad tech companies.

If I were starting a new ad tech business, I would be connecting my technology to as many important systems as possible. Partnerships and connectivity will be key to surviving in this new landscape.

Actual impressions matter. The fact that 31% of all served impressions are still non-viewable is a real problem for the industry. If you are an ad tech company that relies in some way on these bogus impressions, then you should get them out of your system as soon as possible. And if your technology can help the industry reduce their dependence on these inflated impression numbers, you may have a new revenue source.

If I had an ad tech business today, I would be focused on transparency and openness. Vanity numbers are much less important in this new environment.

The future of ad tech is very bright, but the industry is changing very fast. The companies that adapt the fastest will be among the winners.

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2 comments about "Ad Tech Startups, Your World Has Changed".
  1. Norm Page from Same Page Capital, LLC , March 5, 2012 at 11:53 a.m.
    This may be an oversimplification, but what you call for from ad tech companies is what I call distributing ones IP. Versus hoarding it. The typical go to market plan was to sell ad tech directly to agencies. And, as was/is inevitably the case, when the agencies couldn't figure out how exactly to engage with the ad tech providers aka buy - the companies' fault IMHO, not the agencies" - the tech companies were forced to bundle media into their offering and blammo - instant and massive proliferation of "ad networks". All this in the name of protecting or building walls around ad tech IP. No, no, no. Open it up and allow as many buyers to tap into your IP as possible. Don't go it alone.
  2. Matt Straz from Namely , March 5, 2012 at 2:48 p.m.
    Great point, Norm. "Don't go it alone" is exactly right. Thanks for the comment!