Commentary

The Ad-Tech Wave Is Gonna Crash

If the current state of the ad tech industry can be compressed into one word, it would be—fragmented. 

The landscape of new devices and formats on which viewers are watching video is fragmented for sure, but even more fragmented is the state of the ad tech business emerging to address it. 

The number of companies that have emerged to “help” advertisers and brands navigate the targeting and placement of ads across mobile, tablet, and connected TVs is becoming … well insert your word of choice: unmanageable, saturated, crowded.

It’s a gold rush, and it’s being driven by several intersecting factors: 

Mobile

The demand for mobile ads is skyrocketing. We've seen mobile video ad requests increase from just over 100 million a month in August of 2014 to 15 billion by the end of last year. And according to eMarketer, mobile ad spending will surpass $100 billion in 2016, accounting for over half of all digital ad expenditures for the first time. 

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Driving this in part is the surging use of video across mobile devices. The mobile share of online video viewership is expected to grow from 26% last year to 40% this year and over 50% by next year, according to a report from Adobe Systems

But this is about more than eyeballs alone. Mobile ads are getting far more sophisticated and valuable, which leads us to…

Programmatic

The mobile environment lends itself well to programmatic advertising, since most mobile inventory is moved through automated networks and exchanges that dovetail neatly into a programmatic strategy. And programmatic buying is a growth field. 

According to a new study by RBC Capital Markets, 22% of marketers say they intend to dedicate more of their budget to programmatic advertising, compared to only 2% who say they will spend less. Mobile and video advertising were noted as the greatest opportunities for programmatic ads. And eMarketer predicts the programmatic direct market will grow from under $1 billion last year to $3.8 billion this year and $8.5 billion next. 

Measurement

This benefits mobile CPMs, which are increasing due to improvements in both mobile targeting and measurement. Systems like Apple’s IDFA and Android’s Advertising ID have filled a needed gap in cross-screen targeting and measurement. 

For instance, we now know that mobile is more inherently social than other platforms. According to YouTube, which generates half its traffic from mobile devices, mobile viewers are 1.4 times more likely to watch ads on phones over PCs or TV, and are 1.8 times more likely to share those ads. 

But despite all this momentum, the pure volume of companies vying to compete in the ad tech space has sparked a backlash, with more and more analysts casting shade on the outlook for small- to mid-sized ad tech companies. 

Companies that went public too soon got hammered on Wall Street. Of the seven ad-tech IPOs took place from June 2013 to July 2014, four are trading below their initial asking price. The one company that dared test the IPO waters since, MaxPoint Interactive, suffered a similar fate

Also, while the private market acquisition activity remains high, the average acquisition price is dropping, as much as 42%. One investment bank estimates that there are some 2,500 ad-tech companies defined as potential acquisition targets, but only 150 of them are likely to have any chance at selling for more than $100 million to the 200 viable buyers.

The reason lies in this crowded, saturated market we began discussing. Too many of the companies out there today are really ad networks selling ad space rather than tech firms filling ad space. 

At the end of the day, it becomes a question of combining scale, data, and ability to add value via unique technology. Yes, the ad tech market is exploding, particularly the mobile video space. But as great as that opportunity is, it’s simply not great enough to support the number of companies competing for a slice of that pie. Only the companies who can show their ability to add to this momentum, not just ride it, will achieve the staying power needed to become relevant players in the long term.

2 comments about "The Ad-Tech Wave Is Gonna Crash".
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  1. Keith Pieper from IMM, May 5, 2015 at 11:06 a.m.

    I think this headline is misleading - there is no coming "crash", even though lots of point solution players will certainly see an end to their run.

  2. Andrew Hunt from Addroid, May 5, 2015 at 11:57 a.m.

    I agree with Keith, the headline is borderline click-bait; however the author makes relevant points.  The truth is that "ad tech" has been made into a dirty word because anything remotely techy is lumped into the same bucket.  In reality, the actual tech companies are marching forward whereas the turn-and-burn arbitrage companies that use the tech to make a CPM/CPI/CPA spread are going away.  There needs to be a shake-out and it is definitely happening.

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