Consolidation Is The New Black

There’s a storm brewing in the ad tech world.  It’s not a crash.  It’s not a bubble.  Maybe some call it a correction.  The fact is, there are more companies and ideas than there are dollars to go around -- and even fewer operators who know how to run these businesses like, well… businesses.  Another way of looking at it: There are too many companies that aren’t, can’t and won’t be making money anytime soon unless they get the proper leadership. 

Of course this is how innovation works.  You have to start with a lot of ideas -- and, through Darwinism, you end up with fewer ideas and more people consolidated to work on them.    Consolidation is the new black, and it’s the buzzword of 2013.

We’re not poised for a crash like the one that occurred in the early ‘00s, because the “floor” is now much, much higher than it was back then.  If things fall, they can’t fall far.  During the bubble and the resultant bust, the Internet was not yet so ingrained in our daily lives – amazing, considering that’s only 10 to 12 years ago.   Nowadays if these companies fail, the impact will be nominal because of momentum.  Innovation happens and is not driven by one company -- it’s an ecosystem of players.  There are lots of open positions to be filled by the people vacating these forsaken companies and there are more than enough comparable solutions to fill the gap.



 As I see it, three things are about to happen:

1. The “feature” companies will get snatched up for peanuts in “acquihires.” These are the companies that have really good ideas, but their products are more of a feature than a stand-alone product.  I consider attribution to be in this category,  along with many of the apps I have on my phone.  These are pieces of a greater whole (maybe a publisher or a larger platform).  The revenue opportunity is too small to ride solo, but when paired with other complementary features they can make a stronger, more holistic product.   A strong operator recognizes this fact and can consolidate features into a product vision while maintaining a business model that will achieve profitability.

2. The overinflated companies will get corrected.  The companies that have raised too much money and been unable to demonstrate an ability to reach profitability will be forced into mergers with operators who can make them more efficient, or risk going out of business.  There are simply too few operators in our business who know how to make money.  There are a LOT of people who know how to spend money, though.  The former is more effective than the latter, and investors are very clear about those differences. These kinds of efficiency-driven mergers will see companies losing talent. That increased availability of talent could be a boon for the larger companies on the precipice of profitability

3. The “big boys” will get bigger, and the middleweights will finally get big. In many cases the middleweights simply have too many open positions open to complete the work they need to complete, which means missed opportunities.  If you miss opportunities then you miss revenue.  If they can fill those holes in talent, then maybe they can make that big sprint and achieve success!  In some cases they may raise a little more money to get them to profitability and then use those new heads to boost revenue and come out ahead.   Companies like Tesla have recently undergone these kinds of changes and seem to be ahead because of it. 

It’s an exciting time to be in tech and the advertising industry.  All signs point to a future more reliant on the systems being created today, but it’s the world of the operators.  These are the people who can take an idea and create a business around it, not just take an idea and see that idea to creation. There have traditionally been too few of these people in this industry, but I predict that over the next 12 months these are the people who will shine. 

1 comment about "Consolidation Is The New Black ".
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  1. Pete Austin from Fresh Relevance, July 11, 2013 at 5:45 a.m.

    Re: "through Darwinism, you end up with fewer ideas and more people consolidated to work on them".
    Except that, through Darwinism, you end up with more species/ideas, not less, as they evolve to suit ecological niches. Think about the finches on the Galapagos that Darwin studied.

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